Recapping the cashflow situation
Did you know that in December only 56% of Australian small businesses were cashflow positive?1 If you aren’t actively managing your cashflow you will be having problems in the future. That’s the realisation I made after my cashflow workshop with Master Builders Association of South Australia. When business is good your bank account is healthy, suppliers and employees are happy and life is good. When it’s bad you having nothing in your bank account, employees and subbies are pissed, suppliers are calling and you’re too stressed to sleep. It’s alarming how quickly it can all unravel.
Once you are in the middle of a cashflow crisis, it’s too late…
How quickly it can all slip up…
Construction accounts for 8% of Australia’s GDP,2 yet this sector alone accounts for 21% of Australia’s insolvencies.3 Given that on average, it typically takes 45-60 days to get paid, is it really any surprise? Chances are your clients are going through cashflow issues themselves and if you’re not careful you will be caught up in the vicious circle. Your clients pay you late, you pay your suppliers late and it goes on and on all of a sudden the healthy cash balance you once had has been eaten away operating costs of your business and replaced with a larger debtors balance (money owed to you).
Construction Accounts for 8% of Australia’s GDP, yet this sector alone accounts for 21% of insolvencies.
Act while business is good…
The key is to address cashflow problems while your business can still absorb any issues that might pop up. Once you are in the middle of a cashflow crisis it’s too late… you have to work that much hard to dig yourself and you won’t have a healthy bank account balance to bail you out. However, if you had identified some issues and implemented some policy updates you stand a much better chance of riding out the storm.
…on average, it typically takes 45-60 days to get paid…
There is a reason cashflow is one of the most common issues on the business owners mind,you have had to tackle the problem time and time again and you will need to again in the future. So what can you do? Arm yourself with the right tools to reduce the number of issues on the horizon and have plans in place to proactively manage cashflow and you will also sleep better at night too. Life is too short to worry about paying others after all who is up all night worrying about paying you?
Written By: Joshua Gloede
The Financial Foreman
- Xero website, Home – Small Business Insights (Available at: https://www.xero.com/small-business-insights, Last accessed 27th February 2018)
- Australian Department of Industry, Innovation and Science website, Australian Industry Report 2016 (Available at: https://www.industry.gov.au/Office-of-the-Chief-Economist/Publications/AustralianIndustryReport/assets/Australian-Industry-Report-2016-Chapter-2.pdf, Last accessed 27th February 2018)
- HuffPost website, Don’t Let Your Small Business Become An Insolvency Statistic (Available at: http://www.huffingtonpost.com.au/2015/12/10/business-fail-avoid_n_8679352.html, Last accessed 27th February 2018)