With this in mind, there’s no better time than the present to ask: is your cashflow management under control?
Discussing business finance fundamentals at a recent SmartCompany webinar, experts agreed that, as a SME owner, it’s important to be clear about what you want your business bottom line to look like by the end of each year.
Revenue growth, smooth cashflow and the ability to reinvest in your business should be some of your main goals when it comes to getting the financial health of your SME on track. Here are some essential tips:
1. Have a clear strategy
As a business owner you might feel you are too busy juggling different jobs in your business to sit down and plan your finances, but taking control of your banking destiny and having a clear strategy should be constant and your growth costs need to be managed, says Bendigo Bank senior manager learning and development – business banking Jo Edmonds.
2. Know how to manage your cashflow
“A main step for controlling cashflow is looking at where your cash is tied up,” says Edmonds. “Growth does have a cost associated with it. If you’re chasing growth, do you know how much cash you need available?”
3. Never lose control of your cash
“Are your debtors paying, do you understand what your creditor terms are, and are the costs of wages and staffing clear? In addition, do you understand how much stock movement you have?” You might have sales coming through, but remember to keep on top and anticipate your additional costs.
4. Learn to delegate
“If you’re a SME, chances are you’re an expert in the field that you have chosen to run your business in,” says Edmonds. “But it doesn’t mean you can manage your books and the back-end of the business.” Concentrate on what you are great at doing, and hire talented staff to assist with other areas of the business.
5. Good advice is critical
Talk to other business owners and industry experts so you’re getting the best possible advice to create the returns that you’re actually looking for, says Edmonds.
6. Understand your working capital
In an SME your working capital can be any assets you need to pay for, or payments made to generate those returns, says Edmonds. Understanding where your cash is relies on understanding your working capital – and failing to achieve this could be a warning sign your company could be on the verge of collapse. If you don’t manage your working capital you’ll ultimately run out of cash. “It really comes back to knowing the terms of your trade. Know what you have to pay and when, and what you’re collecting and when, so you’re following your cash.”
To get the best value out of your working capital, move your stock quickly, and think about how to get the right mix of stock and how you pay for that. “Release cash into your systems to invest in other things. Overdrafts are the main thing SMEs will use, but use them effectively so you’re generating enough cash to invest in other activities to help your business grow as you move forward.”