Try these three tips to manage growth and cash flow

The pandemic continues to put a chink in the plans of many Australian businesses with some seeing extreme growth while others struggle to make ends meet. This two-speed economy is throwing up cash flow challenges for both extremes according to recent finding by ScottPac.

ScotPac senior executive Craig Michie said while these business scenarios are very different, there are common actions for business owners to take.

Three tips for managing growth

Find a flexible source of funding

Fast growth businesses need strong cash flow, as they have more cash held up in their debtor’s ledger, Michie said.

“It’s important to find a source of funding that grows as your business grows. With invoice finance, as your debtors grow, so does the line of credit you can access.

“Another consequence of fast growth can be a demand on the business to put in place more capital assets, such as vehicles and equipment. In these situations, asset finance can help a business get the assets they need to support their rapid growth,” he said.

Negotiate with suppliers

If your need for goods places demands on suppliers that outstrip the terms they can give you, you’ll need a good line of communication to see if you can renegotiate terms.

“One option for fast-growth businesses to have up their sleeves is to use trade finance. This ensures they can pay suppliers upfront so they can meet their increased demand for product,” Michie said.

Cash flow forecasting is a MUST

“It’s not unusual for a small business to spend months winning big new clients, then realise they had not accounted for the cash flow implications of winning new business,” he said.

“Putting in place a 13-week rolling cash flow forecast – which really would only take an hour with your accountant to set up, helps fast-growth businesses avoid cash flow issues.”

Three cash flow tips for getting through tough conditions

Talk to your funder and the ATO

Michie said it’s crucial for businesses struggling through adverse trading conditions (including the recent three-state lockdown, and with NSW still facing uncertainty) to get into a dialogue with their financiers.

“Do this early in the piece to get the best outcome. Talk to your funder about whether it’s possible to restructure or to put in place moratoriums,” he said.

He said small business owners should not put off talking to the ATO about their position.

“Too many businesses make the mistake of thinking a problem ignored is a problem solved – getting on the front foot with tax obligations is vital if you want your business to be a going concern.”

Look to your balance sheet for capital

Michie said a small business trying to find more capital can look to the assets on its balance sheet to see what’s available to secure working capital for the business.

“To raise much-needed funds for the business, balance sheet assets can be a hidden resource for many small businesses – your debtor’s ledger, unencumbered plant and equipment and even inventory can be used to bring working capital back into the business.”

Again, cash flow forecasting is a MUST

Having in place a running 13-week cashflow forecast lets a business owner spot any cashflow gaps on the horizon, with enough time to do something about it. This could include pulling levers such as reassessing your cost base, negotiating with creditors to defer payments or change terms, or running a blitz on aged receivables.

This is just as important for businesses navigating difficult trading conditions as it is for fast-growth businesses.

“Cashflow forecasting gives a business owner better control because they have a very accurate view of how the business is trading,” Michie said.

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