Are cash flow problems crushing your SME?

5 min read

Every year, thousands of Australians quit their nine-to-five day job in search of something more fulfilling. They sacrifice financial security and ongoing employment for the chance to open their own business and potentially make their mark on the world.

Unfortunately, many of these budding SMEs fail to make it off the ground – either due to mismanagement, poor planning or just plain bad luck.

According to McCrindle Research’s most recent Small Business Nation report, of the more than two million Australian businesses in operation in 2009, over a third – 38.2 per cent – no longer existed by the year 2013.

The statistics are even worse when SMEs are looked at in isolation, with McCrindle Research estimating that just 51 per cent of new businesses survived their first fours years in operation over the aforementioned period.

These are alarming statistics, and will be food for thought for modern small businesses looking to give themselves the best possible chance of future success.

Cash flow: The silent small business killer

One of the most common contributors to business failure is lack of strategic cash flow management. After all, how can an organisation continue to grow and survive if it is not bringing in the money needed to sustain future initiatives?

Essentially, the term cash flow refers to the way money is moving into and out of your organisation. Having a steady cash flow means finances are consistent and easily predictable, with regular payments coming into the business at standardised points in time.

An unstable cash flow is detrimental to the success of your organisation for a number of reasons. For one, it makes planning for the future difficult. Not having a good concept of what income and expendables will be like one month or even one year from now can make it impossible to make good strategy decisions.

Perhaps most importantly, inconsistent cash flow can make it harder to keep afloat during difficult periods.

SMEs often survive on razor thin or even nonexistent profit margins, with any extra money being funnelled directly into the growth of the organisation. One bad month for an SME can mean the difference between success or failure, which is why your business needs to be able to rely on consistent cash flow that will not fluctuate extensively.

Fortunately, there are a number of steps your SME can take to improve cash flow and ensure the amount of money flowing into and out of your organisation remains consistent and predictable.

How to improve your business cash flow

One of the most effective steps an organisation can take in terms of improving cash flow is switching to a payment model that encourages and emphasises recurring revenue.

Recurring revenue is best described as income that your SME can rely on to be consistent and continuous. An example might be a service or product that is delivered via a subscription model, that collects payments from customers automatically through paperless direct debit.

The biggest benefit of recurring revenue is that it is ongoing and reliable. Unlike non-recurring revenue, it does not fluctuate extensively based on market conditions or the success or failure of your sales team.

This makes planning for the future easier and more productive, as you have a consistent cash flow baseline from which to base strategic decisions and consider future initiatives.

It also means fewer late nights worrying about whether or not your organisation will be able to pay the bills next month. You can rely on your recurring revenue payments, which are determined well in advance and come through at a predetermined point in time.

In order to maximise your collection of recurring revenue, you’ll need to invest in a reliable online cash flow management solution that caters to a variety of consumer payment options such as direct debit and BPAY.

However, once you have integrated this tool, there is nothing to stop your organisation from growing past that pivotal four year mark and becoming a true blue Aussie success story.