With increasing financial challenges this year for Australian SMEs such as inflation, rising wages and high petrol prices, tax obligations may not have been front of mind for many small-business owners.

Chances are your resources, budget and manpower are already stretched when it comes to maintaining your accounts, however, it’s important to be on the front foot with accounting as it can be one of the most critical aspects of business success.

Here’s how you can avoid making simple accounting mistakes –

1. Track your business transactions

Keep a record of all your business transactions. Have digitised copies and paper backups for future reference and to maintain the health of your business. Don’t forget records of employee compensation, utility expenses and cash receipts. If you’re audited by the tax office you will be required to show records of all your business expenses, even the small ones. Consider implementing financial tools that can help you automatically monitor your business transactions and create a backup in case of an emergency.

2. Communicate effectively

Your bookkeeper should have a good understanding of your company’s financial performance at any particular time. Ensure that you clearly understand and communicate regarding your financial records, reports and any other vital statements relating to your business. They need to know what’s going on – be that small or large transactions, or new finance arrangements or structures.

3. Keep up with paperwork

Make sure you keep your books up to date. Falling behind on paperwork is one of the most common mistakes we see small-business owners make and if you fall behind on billing customers you may find yourself with a debt that never gets paid. There’s also the risk of other payments being late that you may be liable for fines and penalties from the ATO. With the rise of online accounting software, Xero, MYOB etc, staying on top of your accounting is simple.

4. Budget for every project

For every new project you start with your business make sure you have a clear budget set out from the beginning. Those that don’t do this often find they’re setting themselves up for financial failure. You don’t want a significant portion of your cash flow utilised unless you’re getting a good return on your investment. Look back on past projects to determine an accurate budget based on what you’ve spent before.

5. Don’t mix personal and business accounts

Mixing business and personal accounts makes it harder to track business expenses and you might miss an expense that could have been a tax deduction. Having a separate business account also gives lenders an understanding of your finances if you’re applying for a loan or an alternate funding options like invoice financing. You want to make sure you maximise your credit score to obtain the best financial solution for your business.

6. Don’t be afraid to delegate

Sometimes small-business owners are unwilling to outsource essential tasks to save money. This is understandable however eventually you will need to outsource sufficiently in order to scale your business to expand. Focus on what you’re good at doing and pay specialists to handle necessities such as your accounting. Having expert advice will help you to maximise your income and any financial or strategic opportunities whilst also minimising your taxes.

The post Accounting mistakes: where your small business is going wrong appeared first on Inside Small Business.

It encompasses all revenue generation, operational expenses and investment activities. Businesses that manage their cashflow efficiently ensure more cash is entering the business than leaving it which enables them to grow.

Get a cashflow plan

With the start of 2024, it’s important SME owners have a plan in place for their cashflow so they can invest in new growth opportunities, expand operations, acquire assets and explore strategic developments. Cashflow allows owners to realise their business goals but it’s important to have an accurate forecast.

Accurate cashflow forecasting is the foundation of sound and comprehensive management. It involves predicting future cash inflows and outflows so owners know when to expect periods of surplus and shortfalls and can implement strategies to navigate the challenging times.

Where it goes wrong

It’s a tough time for SMEs at the moment. Rising overheads, supply chain issues, high staff turnover and rising interest rates – it’s no wonder many are struggling with the day-to-day running costs.

Some of the top mistakes small businesses make when it comes to cashflow include

• Failing to manage payment delays.
• Expanding too quickly without enough working capital.
• Poor inventory management.
• Failing to generate new sales leads.

Get help

Whilst many businesses strive to reduce the time between invoicing customers and receiving payments to ensure positive cashflow this can become tough when some customers take up to 60 days to settle accounts.

Invoice financing, which is widely used by business owners in the US, UK and Europe is becoming more popular here in Australia and allows a business owner to unlock the cash that’s tied up in their unpaid invoices, providing a line of credit secured by the Accounts Receivables ledger. The financier gets paid when the debtor makes payment so there are no repayments to be made. Typically, businesses can access up to 90 per cent of the sale value of an invoice whilst continuing to offer credit terms to customers.

It’s an option worth looking into if you are a B2B business.

Have a back-up plan

Lastly it’s important to have a contingency plan in place. Know what resources are available to you if unexpected challenges come your way. Some businesses have an emergency cash reserve to cope with economic downturns or supply chain disruptions, others have assets they can quickly convert to cash, and others feel secure having an invoice financing facility in place.

Whatever challenges lie ahead for your business in 2024 going into the new year with a focus on maintaining positive cashflow puts you in the best position for growth and achieving your goals.

The post Accurately forecasting your cashflow for the year ahead appeared first on Inside Small Business.

So, how do you best approach overdue invoices?

1. Optimise your systems

The best way to avoid overdue invoices is to prevent them from happening in the first place. From the beginning make sure you’re clear about your payment expectations and understand your client’s usual pay cycle. This is the opportunity to negotiate mutually suitable terms that work for both sides.

Consider implementing an online accounting system which includes e-invoicing. Electronic invoices ensure an accurate record is kept and that the recipient has all the required information to make their payment instantly. It also gives you the ability to configure automatic reminders as soon as the invoice is due or late for payment.

2. Invoice chasing

While you are well within your rights to chase an invoice as soon as it falls due, consider sending a follow-up email or a reminder a few days after the due date. A polite reminder email is the best place to start including all the right information and addressed to the right person. Most cloud based accounting platforms provide automated invoice reminders which allows the user to tailor the messaging at each touch point. 

3. The follow-up

Start by sending another email for outstanding invoices, clearly stating that you are requesting payment due (this makes sure there’s a written record of the request). The next step is to get on the phone.. Explain your situation and work together with your debtor to agree on a time for them to make payment.

If they refuse the request or fail to respond now might be the time to implement a late payment fee or accumulate interest on the amount owed. There are requirements and restrictions surrounding this process so make sure you’re across applicable late payment laws and know your rights. 

The final recourse is to refer to a debt collection agency. Another option is to start a court case by lodging a statement of claim. This is a legal document that sets out how much you claim your debtor owes you and is lodged with the Courts. This will force the debtor to respond as failure to do so will result in the Court awarding your claim.

4. Reduce the impact of late payments

If you find yourself often dealing with late payments it might be worth looking at alternatives to reduce the financial impact and strain those delays are putting on your business. Invoice financing allows you to have up to 90 per cent of your verified outstanding invoice amounts paid up front, often within 24 hours. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10 per cent minus a small fee to compensate for early funding. Instead of waiting between 30 and 90 days for a customer to pay, your business can access the cash immediately giving you peace of mind and the cashflow to continue business operations. 

Chasing invoices, whilst a chore, is important because your clients need to know that you value your work, goods and services. Managing them effectively and taking the stress out of late invoices is vital as it will leave you more time to run your business, plan future strategy and enjoy your success.

The post How to tackle late invoices appeared first on Inside Small Business.

One of the biggest mistakes SMEs make is taking on too much debt too quickly before they have the cashflow necessary to support their growing operations whilst also servicing the borrowed debt.

If you want to position your SME for success here at six tips to manage your business debt more effectively.

1. Organise your creditors

Make a list of your debt-related expenses and obligations. This could be on a daily, weekly or monthly calendar. Include both fixed and variable expenses so you can adjust your expectations when rates or fees change. Note the interest rates and charges attached to each repayment to understand where your money is going and when. Having your debts mapped out will help you to not only stay on top of repayments but also gives you a planning tool should you wish to take on more debt in the future.

2. Prioritise your repayments

Work on a strategy to optimise your cashflow. There are a couple of ways of doing this. Many businesses choose to pay down the smallest debts first to eliminate debt fast by reducing the number of creditors you owe, which is easy to stick to and provides regular satisfaction as you quickly hit your goals.

For other businesses, they may choose to pay the highest interest rate loan first. In terms of minimising your total expenses, this is the optimal way as loans with higher interest rates will obviously cost more to repay so by eliminating them first you’ll save money on interest.

3. Negotiate

Don’t be afraid to negotiate payment terms with your creditors. Ask for longer payment terms to maximise your current cashflow. Obviously, this needs to be balanced with interest charges because the longer you take to pay out the loan the more interest you will pay. Short-term cashflow and liquidity is a business killer so if you find yourself in this position negotiating lower repayments is a good strategy for retaining more cash week to week.

4. Consolidate your debts

Too many debts can be hard to manage even if you have a solid plan. Debt consolidation sees a lender take all of your debts such as credit cards and business loans and roll them all together into a single facility with one monthly repayment. The main advantage is a lower interest rate and an easier-to-manage debt.

5. Manage debt exposure

Consider smarter ways to fund your business that don’t rely on unsecured debt. Invoice financing is a great option for B2B owners as it allows them to use current outstanding invoices as security, turning those unpaid invoices into cash within a day. Instead of waiting 90 days for payment by your customers for your goods or services you have already delivered, you can secure that funding immediately to help your business grow.

6. Play the long game

I always encourage businesses to look ahead. Even though things might be good right now it doesn’t mean your financial situation can’t suddenly change. Avoid taking on too much debt just because you can. When times are good, set aside an emergency account with savings for a rainy day. Also, make sure you invest in building your brand. Intangible assets such as brand awareness and customer loyalty may prove to be a more valuable long-term asset than new equipment or a new office paid for on credit.

The post How to better manage business debt appeared first on Inside Small Business.

Inflation is rising, staff costs are higher with an increase to the minimum wage and a severe skill shortage, the SME Recovery Loan scheme has ended and the ATO is back collecting tax liability including the debt accrued over the last two years. COVID is rearing its head again and business insolvencies are starting to rise.

The tide is turning.

If you thought the last two years were difficult for business to navigate, strap yourself in for what’s to come. The next two years are going to be brutal.

The Government has spent so much money keeping business afloat during COVID that it’s now come to a screaming halt as we enter a recession. With national debt sitting at more than $800 billion they have no more money left to throw. There’s nothing left in the piggy bank.

In the past six months, here at OptiPay, we’ve noticed it’s taking businesses longer to pay their bills – the average days outstanding has increased by a week. It’s one of the first signs that businesses are under mounting financial strain – to maintain cashflow they’re having to be selective about the timing of when they pay debts.

It’s harder for small businesses to get a loan from the bank with risk-averse lenders pulling back. Even non-bank funding options like us are being more prudent in who we take on board as clients. The options for SMEs to access working capital have been significantly reduced and we’re going to start to see a knock-on effect of that down the whole supply chain.

We’re already seeing the start of a wave of insolvencies with the construction sector first to fall. June data from CreditorWatch points to the start of deteriorating conditions. Trade payment defaults are on the rise – a leading indicator for businesses in trouble.

So, how does this grim forecast affect the average Australian? Small business is the backbone of our economy. SMEs provide jobs for 70 per cent of our labour force. If they can’t access funds to grow and overcome cashflow problems one of the first costs to be cut will be staff. Average Australians lose their jobs as inflation and interest rates rise. And that’s when we’ll start to see the true pain of a recession.

If the Government had access to a crystal ball at the start of COVID and could see what lay ahead I doubt they’d do things the same way. We’re entering stormy waters but the life rafts were deployed too early. Only businesses that are profitable, that have a legitimate and successful business plan and demand for their product or service are going to survive.

The post Tougher road ahead for Australian SMEs appeared first on Inside Small Business.

Often there are mistakes businesses make when it comes to cashflow issues. Here’s where they’re normally going wrong….

1. Delayed payments

It’s a simple fact of life that customers fail to pay on time. More than $76 billion of outstanding invoices are weighing on the shoulders of Australian SMEs. Delays in payments make it harder for you as a business owner to prepare for an accurate cashflow forecast. How can you plan an expense or ongoing payment when you don’t know when your next incoming payment is coming in? Cashflow forecasting is vitally important as it helps make the important decisions that keep the business going in the right direction.

2. Fast expansion

This is one of the most common causes of Australian SMEs’ cashflow complications, the temptation to move too quickly and grow too fast. Without enough cashflow, businesses lose the ability to control their working capital requirements. Growth and progression is vital for every business but make sure your cashflow is up to the task before you expand.

3. Poor inventory management

This is another common cause of cashflow problems, where excess stock is lying around leaving assets that tie up valuable cash for months on end. In addition to holding back cash that you could be using to fund your business, keeping too much stock means you run the danger of it becoming outdated and obsolete, which could land you in further trouble.

4. No sales leads

Poor cashflow can also be the result of low sales and a lack of new leads. It may be a seasonal demand issue or an overall slowdown of business but many organisations can hit a sales roadblock from time to time. Freshening your marketing campaigns can be one way of getting around this problem or renewing your focus on digital marketing and new salespeople.

If you find yourself experiencing cashflow problems the most important thing is that you address them quickly and it would be wise to engage the services of a financier to discuss the solutions available to you to provide your business with the extra cash it needs to keep up with its growth and working capital requirements.

The post Got a cashflow problem? You’re not alone and here’s what might be going wrong appeared first on Inside Small Business.

Businesses can typically access up to 90 per cent of their sales revenue within 24 hours of issuing the invoice. Unlike more traditional business loans there are no ongoing repayments back to the financier as they are repaid when the debtor makes payment of the invoice/s.

Unfortunately, the reality is the majority of small businesses don’t know the best way to use the funding they receive from their invoice finance facility. Using your funds efficiently is the key to providing the environment your business needs to succeed, as well as avoiding a recurrent cash flow problem in the future.

So, how can you make the most of invoice funding for your business?

1. Figure out your needs

You need to prioritise your cashflow needs. If you’re running behind on payroll, tax or debt that should be taken care of first. When you have the basics covered, what other areas would benefit from a cash injection? Often our clients chose to increase inventory levels and purchase more supplies to generate additional sales.

2. Don’t splash the cash

You want to use your cashflow wisely and satisfy opportunities without wasting it on areas that are unlikely to deliver a return on investment. Focus on nailing the basics first and then invest in riskier growth initiatives if your cashflow allows. Invoice finance is also one of the best ways to go about funding a new venture because, unlike a bank loan, there are fewer limitations on what you can use the money for.

3. Be patient and calculated

While invoice financing is one of the best ways to improve your cash flow, both immediately and in the long run, it is not a miracle. You need a clear, patient mind to be able to figure our priorities and reign in aggressive spending. Don’t rely on the cash generated from finance to run your business on its own.

4. Eyes on the prize

While solving short term cashflow issues may be the immediate priority, success means planning for the future. Invoice financing is an opportunity to free up capital for meaningful, longer-term strategic investments. Consider investing in areas that will build your brand and efficiency beyond just paying suppliers and securing inventory.

5. Keep your team in the loop

Your staff are often your greatest asset. Keep them involved in the decision-making process. Service-facing staff are the eyes and ears of your customers. Employee morale is another qualitative measure that goes beyond the bottom line. Invoice financing should improve the holistic health of your small business, from the financials to processes and to people.

There is a broad range of businesses that can benefit from invoice financing, particularly those that have credit terms of more than 30 days or more. Essentially any business that invoices another business for goods or services on credit terms.

The post How to make the most out of invoice financing appeared first on Inside Small Business.

So, without trying to be too prescriptive – after all these have to be your resolutions – here are a few suggestions.

Revisit your business plan

We’ve all got one, but when did you last look at yours, or update it?

Many business plans get written for a specific reason – often to back up an application for a business bank account, overdraft, or business loan. Once they have served their purpose, they are filed away, or gather dust in a corner of the office.

This is a lost opportunity: a well-crafted business plan is a key tool for all businesses. Whether or not a business is growing or undergoing difficult times – all business owners should plan for both.

Some of the key elements that should be included in a business plan are: information about your product or services, the USP; your market; competition; growth opportunities; your business finances; and your future plans.

A good business plan will include a set of targets for key metrics, based on real figures and projections of what you think you can achieve. Even if you only wrote it to impress the bank manager, that is a useful document.

Business plans are not carved in stone, and should be adapted as your business grows and evolves. So take the time to dust yours off and see if it still reflects your current situation and future aspirations.

Look on it as a living document at the heart of your business strategy.

Look at how your business is funded

Set aside some time to review your business’s funding and finance arrangements.

Start with a general review of the business operations. Sitting down and delving into the numbers is always a good practice and will help you spot whether margins are sliding or increasing due to economies of scale, for example.

Even when a business is technically profitable, cashflow can be negative if customers take longer to pay their invoices and suppliers demand their payments sooner. Try to forecast your cashflow needs, weekly, monthly, quarterly and throughout the financial year and ensure there is ample cover in the company account. Remember, cash is king!

Consider your financing options. Business owners will usually think carefully about a new financing option if it is a planned one-off, but when it is part of an organic growth process they tend to go with what is easily available. If expensive options are chosen, the costs can add up. Working out the real cost of business financing options can be tricky because you are not always comparing like-for-like.

Reviewing your finances as well as your operations on a regular basis is a valuable exercise for any business owner. It will help you spot potential cashflow problems as well as identify areas where costs are escalating and money is being diverted from your bottom line, and ultimately help to ensure your business continues to power forward.

Give some thought to succession planning

However far you are into your journey as a business owner, you should consider how you will eventually exit the business.

This may involve selling, passing it on to a family member or employee; it may be triggered by your retirement or simply a desire to move onto a new venture. Being a business owner comes with responsibilities. Part of this is thinking what would happen if you were to die, no matter how confronting that is.

Having a long-term succession plan for your exit from the business – no matter how it occurs – will one day prove invaluable. A new financial year is the ideal time to take some advice, and develop your succession plan.

Over to you

Taking some time to set resolutions for the new financial year for your business can pay off in the months ahead. What are yours going to be?

Angus Sedgwick, CEO, tim. (The Invoice Market)

The post It’s time to make your New Financial Year resolutions appeared first on Inside Small Business.

However, expansion brings with it a whole set of new issues, particularly when it comes to cashflow management. More than half of new Australian businesses are likely to fail within the first five years of operation. More often than not, this can be attributed to cash flow management, or more accurately lack of cashflow management.

Managing cashflow when your business is expanding is a real challenge – but one that needs to be overcome if you are to achieve real, sustainable growth. The first step is developing a plan for your business’s expansion, and it is important that you consider why you’re going to grow, not just how it will be achieved.

While your business plan should set out a road map in terms of how you will meet your targets and objectives. Look at it instead as a blueprint to help make better decisions in the running of your business. Seek feedback from your advisers, clients and shareholders on whether it is a realistic plan, and ensure you update it once a quarter to ensure its currency, and to monitor your progress.

It is vital that you monitor your business’s cashflow throughout every phase of expansion. This is not something that requires advanced accounting skills, and most of the time a business owner will be more than capable of keeping track of their cash on their own. However, for an over-worked business owner, employing or retaining a professional can be a worthwhile investment .

Cashflow gaps can emerge at any stage, particularly for new businesses. There are several factors that should be considered before you can attain the holy grail of a continuous and uninterrupted cashflow, and it is quite common for new business owners to have to give their businesses a financial boost before they actually get to enjoy uninterrupted cash flow.

Taking out a loan is one option in order to fund business expansion. Weigh up the benefits and downsides of borrowing money, including the interest rate and the overall length of the loan, in advance of taking such a step, as borrowing money can make or break your business.

Another alternative is to monetise your account receivables by converting your unpaid invoices into cash. This form of finance is known by many terms such as invoice discounting, debtor finance oreven factoring. There are also many products but as with a loan ensure you understand all the fees and charges and whether there is a lock-in contract obligating you to fund all invoices for a contracted period. Whilst the headline rate may look attractive, some invoice financers hide a myriad of fees in the fine print, so do your homework and look for a financier offering a transparent and disclosed fee structure.

It is vital that a growing business has settled on a plan as to how additional costs will be properly financed prior to embarking on a push for significant growth. To kick start productivity and launch your business into expansion, you may – for example – need to cover immediate expenses without waiting for customer payments.

Many a teenager has lain awake at night due to the agonizing phenomenon known as growing pains. By planning and getting the right advice, you can ensure that the growing pains of your business won’t similarly keep you awake.

Angus Sedgwick, CEO, tim. (The Invoice Market)

The post How to avoid business growing pains appeared first on Inside Small Business.

Profit is a measurement of a company’s sustainability on an ongoing basis, while cashflow is a measure of a company’s ability to pay its bills when they are due. When there is a lack of cash resources, usually tied up in receivables or written off to bad debts, a company is vulnerable to failure, no matter what their perceived profit.

Profit margins

On paper, your business may be highly profitable but you still find yourself heading into cashflow crisis. Your income statement may well show that you made a ‘juicy’ profit, but that does not mean you have the money in your bank account! Cashflow is much more fluid and is therefore harder to predict, changing depending on circumstances and often varying from month to month.

Pre-emptive measures

Often smaller businesses or start-ups find themselves facing problems when they don’t implement the correct cashflow strategies into their businesses from inception. They are so anxious to “get the deal” that they completely ignore when and if their new customer can or will pay them. Yet, these are the two most important questions to ask from the start, and especially so for start-ups, when their ability to sustain late payments or non-payments is almost zero.

Selective debtors

If your clients rely heavily on credit to pay for your service, are you carefully assessing their credit history? It is important that your company chooses quality debtors to lend to, rather than rushing through the process on the promise of a sale. Your books may show a profit, but if you are reliant on on-time payment from your debtors, your company may be at risk if they don’t pay on time.

Planning ahead

Although a business cannot fully predict its future, it can look to historical trends and a well-rounded business plan to protect its cashflow for the year. Seasonal fluctuations and the cost of marketing campaigns should all be factored in when planning ahead.

Cash(flow) is King

The key point is that cashflow will always be king. Business-to-business sales are particularly vulnerable as they rely primarily on later payments. Profit does not mean cashflow and many profitable companies fail for lack of cash, spending money before securing their cash income.

Many businesses make the common but deadly mistake of focusing on overall profitability but fail to take cashflow into consideration.

Hidden fees compared to an agreed fee

It’s buried in the fine print and in convoluted contracts. Any cashflow solution must have flexibility. An agreed discount rate ensures that you pay only for the amount of funds used. Whereas line fees, account fees, unused facility fees are paid irrespective of the use of a facility.

It is now possible to establish funding lines to pay suppliers early and by doing so negotiate very real and significant supply input discounts. Specialist funding lines can assess the risk in such funding lines and most don’t require property security.

Import funding without the need of Letters of Credit, property or cash on deposit security. A game changer for businesses importing product but are constrained by payment terms.

 Angus Sedgwick , Managing Director and CEO, tim. (The Invoice Market)

The post How SMEs can reduce debt and increase their cashflow appeared first on Inside Small Business.