Many businesses shut over Christmas. But they still have to pay wages (plus leave loading) despite a lack of fresh customers, so it’s no wonder many businesses feel the squeeze in January. The start of the year is a busy time for debtor finance company Scottish Pacific, head of product development Wayne Smith tells SmartCompany. “Not every business suffers, but it is something we see a lot of,” he says. “Most businesses wait 30 or 45 days to be paid, and because they’ve been shut, they have no invoices to collect over this period,” he says. “That means a smaller amount of cash flowing into the bank account. And given it coincides with their needing to make a BAS statement and pay taxes to the ATO at the end of February, it can be a challenging period "It's not uncommon for successful businesses, experiencing high growth, to run up ATO debt because they didn’t have the real estate to help them secure traditional bank facilities and they simply weren’t aware of alternatives.” Smith has six ways SMEs can survive the period. 1. Speed up your collections cycle According to Dun & Bradstreet figures, SMEs are waiting more than 50 days to be paid. Bringing this figure down, even a small amount, can have a dramatic impact on cash flow, Smith says. “For example, a business turning over $10 million, reducing debtor days from 60 to 55 days achieves a cash inflow in excess of $135,000. “Often something as simple as improving paperwork (making sure invoices show all the relevant information required by the customer to make payment), sending timely reminders and putting in place a disciplined reminder call program) will help reduce debtor days.” SmartCompany has some further tips on how to get customers to pay on time here. 2. Large order? Take a deposit This limits your outlays on production costs, Smith says. 3. Look at working capital solutions Smith says 4500 Australian SMEs use debtor finance, which involves borrowing against the value of invoices. Such financing is typically issued with 24 hours of an invoice being received, and so can help smooth over any cash-flow troubles when they occur. “Debtor finance is for businesses that sell to other businesses on standard trade credit terms. It is particularly useful for labour intensive businesses where wages have to be met well ahead of payment receipts,” Smith says. Another potential solution is trade finance. This provides lending to bridge the gap between when a business pays its suppliers and when it gets paid by its customers. 4. Check your stock levels Careful stock management can be a good way to free up some cash. “Having too much stock on the floor means you may have unnecessarily depleted your cash reserves,” Smith says. “If you have stock that is in danger of becoming obsolete don’t be afraid to sell it off cheaply to turn it in to cash.” 5. Negotiate with your suppliers for longer payment terms Building good relationships with your suppliers makes this possible. 6. Consider offering discounts for early payment This can mean less money to your business in the long term, but if you need to ease the cash-flow squeeze, it is always an option.
Christmas can be a tough time for consumers when it comes to cash flow, but it can be equally difficult for businesses. As company’s shut down for the holiday period, invoices can get left unpaid, leaving companies chasing debt in the new year. As reported recently in SmartCompany, some businesses are taking nearly two months to pay their debts, putting SMEs into a troublesome cycle. Bibby Financial managing director Australia and New Zealand Mark Cleaver said with so many business people going on holidays, it is important to put systems in place to protect cash flow over Christmas and New Year. Here are his nine expert tips to get through this period with money still in the bank. 1. Get in line early at the fish market As you complete work, you’re entitled to charge clients, so invoice clients when work is done rather than wait until the end of the month to send invoice: Time is money, so act now and get paid sooner. You should also make your payment terms clear. Payment terms are usually set at 30 days; however, it’s perfectly legitimate to set your own terms at 14 days. You’ve done the work or delivered the goods, so you are entitled to payment. 2. Don’t wait until after Christmas to stuff your stocking Deal with late payers as soon as you become aware that an invoice is overdue. Any accounts receivables system should be structured so that late payers are identified as soon as possible. Remember, a sale isn’t a sale until the cash is in your bank account. So if there is a problem, pick up the phone and demand payment. An invoice is money due to you, not a donation. 3. Make sure your Christmas lights are working Investing in software can help you streamline your invoicing and receivables management as well as protect your cash flows. There are several excellent solutions available on the market that can automate the invoicing and receivables management functions, so investigate your options. Automation means you can redirect your staff to other functions within your business, such as sales or operations, helping to make you more profitable. 4. Christmas is a time of giving Over the holiday period, you might consider rewarding early or consistent payers with a small discount on their bill if it won’t harm your business. This is a great way to say thanks and show your appreciation to your loyal customers – and it might well bring in cash sooner than you expect. 5. Don’t hold on to old baubles If you’re hoarding stock that isn’t likely to sell over Christmas or the New Year and it’s got a use-by date, consider selling it at a discounted price to get it out. The November Westpac-Melbourne Institute Consumer Sentiment reveals consumers are planning to restrain their Christmas spending this year, with 35% of Australians recently saying they intend to spend less than last year, while 51% are planning to spend the same. This is sobering data so the time might be right for a sale. 6. Close up shop and head to the beach There’s no point keeping your business open and incurring costs if you aren’t busy over the Christmas period. Either maintaining a skeleton staff or shutting down over the holiday period can save running costs, as well as keep staff annual leave entitlements in check. 7. Cash in your invoices this Christmas Debtor finance can help companies alleviate difficulties with cash flow by quickly converting unpaid invoices into cash. Typically, a debtor finance company advances you up to 85% of what you're owed from customers within 24 hours of request. The remaining 15% balance, less a small fee, is paid to you when your customers pay their invoices. This allows SMEs to leverage one of the biggest assets on their balance sheet, accounts receivables, to create immediate cash flows and avoid the Christmas squeeze. 8. Get social this season Consider the Christmas period as an opportunity to review your business and marketing strategy. Consider dabbling in social media next year to increase engagement with your target audiences or listen to the conversations they are having about your business or sector on Twitter, Facebook or LinkedIn. Bibby’s recent Barometer, conducted in July, found that 75% of small businesses are using social media tools in their business operations. 9. Have a game of Christmas cricket Running a business can lead you through countless hurdles and challenges. Ensure you and your staff schedule in time to relax, have fun and partake in the festivities. Why not enjoy a friendly game of backyard cricket. This story first appeared on SmartCompany.
Financial advisors and accountant experts are calling for businesses to seize the opportunity presented by the new financial year to set goals and sort out their finances. Accounting software provider MYOB has released some steps for start-ups to take in the new financial year. Debra Anderson, the owner of leading MYOB consultancy company Legally BAS, spoke to StartupSmart about how to implement them. “This is the ideal time of year to write down your goals, whether they’re financial in a budgetary sense or if they’re a marketing goal or even just getting to have a holiday this year. Writing it down is a commitment, and the whole process helps us think about it and organise our business plans to include them,” Anderson says. Revisit your business plan with the market in mind Start-ups and small business should focus on a few written goals and overhauling the budget in their business plans. “The budget is your roadmap. You need to know where you want to get to, so your budget is the really important thing to show you what you’ve got to get there and where you’re going,” Anderson says. “You also need to take a look at what your competitors are doing now.” “Things have changed a lot, even in six months. The Australian dollar has dived and the interest rates are down. The landscape has changed and it changes quite quickly in the global market.” Anderson says many businesses make the mistake of believing the business plan should be set and stuck to for the year. “Work out what you need to change or look at, once you’ve got that top goal, you can work down. It might not be that you do it all today. You don’t need to execute the whole plan and have it all sorted. It’s a dynamic document. You can change it every week if you need to revisit it,” Anderson says. Work closely with an accountant or financial advisor throughout the year Anderson says the new financial year is the best time to invite your accountant out to visit your business. She believes this is key to developing a productive and insightful relationship. “It’s really important that your accountant actually comes out to your business so they can get a feel for the state of affairs,” Anderson says. According to Anderson, too many small businesses and start-ups underestimate how much their accountant needs to know. “Actually, make sure your accountant knows what you do, and how you do it. They’re not just there for tax returns, you should be able to use them as a trusted advisor. We don’t talk about money with friends, but that’s our job, the good bad and the ugly,” Anderson says. Streamline productivity and processes for a more efficient team and business The new financial year is the perfect time to re-evaluate your business relationships and suppliers, including your accountant and accounting system. “Streamlining is really important and you should make sure you’ve got some kind of system that is right for your business. That can be really simple, it could just be Excel if you’re running a really basic business or it could be something with more features,” Anderson says, adding that you shouldn’t choose a system simply because your accountant prefers working with it. According to Anderson, the most common financial management mistakes small business make are not separating their personal and business accounts, and not putting aside funds for upcoming regular payments. “Too many small businesses have one credit card for business and personal. Combining their personal and business accounts is a huge error,” Anderson says. “Get a business one so you can link it to the financial software, keep it clean and know where your money is going. It’ll streamline the process and if you’ve done it properly, it’ll do all the dirty work like data entry for you.” Given cashflow is a major issue for start-ups, Anderson says the easiest thing you can do to get on top of the issue today is separate your accounts or create a new one to start sorting funds appropriately. “Set up that second bank account; put some money aside for taxes and superannuation aside as you go. Run your GST reports monthly or weekly and put that money aside so you don’t get caught out paying it quarterly,” Anderson says.
With a new book, XERO for Dummies, out on the market, Heather Smith is a big believer in cloud accounting, especially for business owners who aren’t comfortable with their financial literacy. “Accounting is just like driving, you can’t do it without checking the dashboard. When you run your own business, you need to identify KPIs (key performance indicators) you should be monitoring, and cloud accounting helps you easily track your financial ones,” says Smith, who has 22 years’ experience as an accountant and certified advisor for Xero and MYOB, two of the major players in cloud accounting. She has been running her own business for eight years. Smith spoke to StartupSmart about her top five tips for start-ups setting up cloud accounting, and how they could get the most out of it. 1. Use it to save time and boost growth “I recommend start-ups, if you’re serious about going into business, get your financial side sorted out as quickly as possible so you have the time to know what’s going on financially, and be scalable,” Smith says. “If you’re doing cloud accounting right, it’ll free up your time to grow your business.” Smith says cloud accounting, and the opportunity to see at a glance your entire bank feeds, sales data and invoices, will allow start-up operators to strategically grow their business by automating systems. “There does seem to be a trend in business at the moment to move to subscription payment services and a cloud accounting system can do this without you even thinking about it. This creates a money funnel for your business,” she says. 2. Make the most of plug-ins and report features Smith says some of the plug-ins, such as the Timely time management plug-in and the debt-tracking options, can boost your cashflow very quickly. “Personally, I implemented a debtor tracking solution and I was able to improve my debtor days by 10 days, and that was massive,” Smith says, adding the executive reports with detailed KPIs create a goal system for start-ups who are working on their own. “You can monitor how many and what value of invoices you’re doing a month, or a week. This will enable you to stay focused on constantly pushing up the average value of the total invoices, rather than aiming for more invoices, which means more work and may not be the best way to grow your business.” 3. Getting expert help to set it up properly will be easier and ultimately cheaper “We have such an onerous tax system in Australia,” Smith says, noting that sitting down with your accountant or bookkeeper now to install a system will save you stress and time next financial year end. Smith says start-ups who set up a cloud accounting system as early as possible will avoid complicated and costly fixing later on. “This first stage is the hardest stage. But if you get help after a couple of months, to fix it up takes a lot longer and can be thousands of dollars.” 4. Overcoming data security concerns Smith says the data security concerns around cloud accounting are minimal, and there are significant data security benefits too. “Xero data is historical data not future data. Someone who gets in can’t access your bank account and extract money. So if you’re prepared to do online banking you should be set to do cloud accounting,” she says. Smith says business owners should be more worried about losing their financial data through computer crashes, or natural disasters, adding that she’s based in Brisbane and has seen too many businesses lose their records from flood or fires. “You need to have a secure back-up plan in place, so use a cloud-based option, backed up in real time in multiple services. I still suggest to people they make their own back-ups, but cloud will be far better.” 5. Take responsibility for the financial management of your business Smith says many small business owners may want to avoid the financial details of their business and outsource that work to an accountant. While that can work for a few years, Smith says this approach holds businesses back from reaching their full potential. “Don’t put on blinkers and say you don’t want to learn this stuff. If you are in business you need to know this stuff. But you can take the time you need to learn it slowly,” Smith says. “Richard Branson doesn’t do his own tax but he does understand the numbers. Don’t abdicate that responsibility.”
As promised in my previous blog, today I want to give you a bit of insight into barebones IT cloud infrastructure. Hopefully by the end of this article you’ll be able to decide whether or not the cloud is for you now, in 12 months’ time or never (at your own peril).
February tends to be the worst cashflow month for many SMEs. Mix the extra costs coming out of the holiday season, some downtime and the wind up for the new year and cash can be tight.
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