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Financial advice for top five small businesses problems

'The most common financial problems effecting small business are: cashflow, rising costs, taxation and business regulation, the high Australian dollar and interest rates.'
Andrew Baird, Crowe Horwath

Top tips

  • Make sure you're getting paid
  • Review your processes and costs
  • Keep up-to-date with regulatory changes
  • Look for efficiencies to offset the high Australian dollar
  • Do scenario planning so you know the impact of changes in interest rates

1. Cashflow

Cash flow is the life blood of business. If your business is suffering from poor cash flow then here are a few things that you could look at:

  • make sure you're getting paid: if you don’t have a process to manage the collection of your debtors, then cash could be hiding in your accounts receivable. Check our debt collection and recovery page for help with this
  • look at when you pay your suppliers: it is important to pay your suppliers on time, but that doesn't mean you should pay them early. Also, if you need more time to pay then get on the phone and ask for an extension
  • stock and work-in-progress: if you hold stock or have work in progress (if you are a service business you may have work in progress) then cash could be hiding here also. If you hold too much stock, or if you take too long to complete work, then this could be draining your cash. Make sure you turn jobs around quickly and quit old stock, as this will help to improve cash flow
  • budgeting and management reporting: also really important when it comes to managing cash flow. Continue reading some useful budgeting tips.

2. Rising Costs

Yes business costs are rising, but that doesn't mean you can't get a better deal.

Try the following:

  • shop around for quotes on insurance, telephone and electricity. You'll be surprised how much you can save by taking a closer look at what you are paying. If you don’t want to change suppliers, ask them for a better deal. Use Choosing and managing suppliers checklist to make sure you cover everything
  • talk to suppliers about early payment discounts or volume discounts
  • review your bank loans (business and residential). Again, shop it around and ask your bank to match the best deal.
  • review your internal systems and processes. Are your staff being as effective as they can be, are they following old processes that could be automated or updated?

It's a good idea to update your budget based on these savings as this will help to ensure savings identified flow through to the bottom line. Use our financial management calendar for monthly handy hints on things to focus on to save you money.

3. Taxation and business regulation

As taxation and business regulations continue to change it's important to understand how as a business owner you can stay up to date with these changes.

A couple of ways to stay up-to-date is:

  • read the business press regularly as they often cover changes to tax and business regulation which affect small business
  • subscribe to other publications like SmartCompany or the Small Business Victoria update.

It's really important to keep your accounting records up-to-date. There is some fantastic cloud based accounting software (such as Xero) which make it so much easier to keep your records up-to-date. 

Also, talk with your accountant or adviser before you make substantial changes to your business or assets (e.g. buying or selling a property). It's always much easier to plan for change than to try to clean up the mess afterwards.

4. Australian Dollar

The rise in the Australian dollar has impacted SMEs across Australia. As movement in the Australian dollar is largely driven by global factors it is difficult to determine how long it will stay at current high levels.

If you are an importer, you are no doubt happy with the high dollar, but how will your business perform if the dollar drops? You need to start thinking about this now.

If you are an exporter you will no doubt be feeling the pain. Improving the efficiency in your manufacturing or service delivery will help to reduce costs to offset the impact of the dollar.

Determining the profit made in each export market will help you to make decisions as to whether you should ride it out or change strategy. If you are going to ride it out, then work closely with your export customers on ways in which you can add value to improve price to offset the impact of the higher dollar. The Victorian Government has a number of programs to help exporters so check if you're ready to export.

5. Interest rates

The final financial problem SMEs around Australia are concerned about is fluctuations in interest rates and the impact of these movements on their business and lifestyles.  While rates are relatively low at present, it might be a good time to think about fixing the interest rate on some of your debt.

Fixing the interest rate on your debt generally means that you are not able to pay off the debt faster than the agreed term, so it may be wise to fix the interest rate on a portion of your debt. This will give you some flexibility to pay debt down faster if needed.

As a business owner, you should also be aware of how increasing interest rates will impact your business. Including some scenario planning with your budgeting and forecasting is a good idea. This could be a simple as looking at the profit budget and cash flow forecast using a range of different rates.

Planning early will mean that you are ready to act quickly should there be a sudden movement in interest rates. If you don't have a cash flow forecast already, read our cash flow forecasting page.