Owning and managing a Small-Medium Enterprise (SME) is a challenge that, when it works, is exhilarating but, when it’s going badly, can equally be totally demoralising. Many businesses are started by entrepreneurs who have brought an excellent idea to the market with flair and panache, but are genuinely clueless when it comes to keeping track of the financials. Calling on the expertise of qualified accountants from the outset can be the key to setting the business on a path to success.

While running your own business can be rewarding and satisfying, there is also a dark side that hardly gets mentioned by many business owners. This is the ongoing taxation and cash flow worries that can seem to dominate many small businesses much of the time. Cash flow is the lifeblood of business and having professional advice from an accountant can help you identify obstacles in your systems where cash is being constricted. When this occurs and cash is not flowing through the bank accounts, it restricts the ability of the business to pay its suppliers or staff. Loan payments can be missed and other crucial payments, such as to the Australian Taxation Office or superannuation funds, are made late attracting financial penalties which in turn exacerbates the situation.

Some of the typical situations business owners can get themselves into include:

  • Spending cash that should have been put aside for tax liabilities
  • Reliance on repeat capital raising for growing the business
  • Not preparing and updating budgets/forecasts
  • Falling behind on lodging BAS and tax returns
  • Forgetting about finance residuals until they are due

This can lead to debt and a lot of stress, so we’ve outlined some practical tips on improving your business.

  1. Calculate your cash flow for the current month. A rough calculation to help identify your cash position is: Cash + Sales Due + New Sales – Bills Due = Cash Position.

Once you have done this, you can determine where you need to make changes to ensure a healthy cash flow for the month. The aim, of course, is to ensure your cash flow is generally neutral or positive. For instance, what spending can you cut back on, what other sources of cash are there in the business? It is important to not just rely on new sales to improve your cash position.

  1. Reinvest profits to grow your business to reduce tax. By increasing your equity value instead of taking profits, you can push out your tax liability until you sell the business which is when you’ll have the money to pay the tax. However, this needs to be carefully planned as your other legal entities and your personal tax situation needs to be taken into consideration. Seek professional advice before taking any action.
  2. Avoid credit card debt. While it might be very tempting, don’t make the common mistake of using your credit card to pay for your bills. The interest charges can start to get out of control very quickly if you don’t pay the full amount every month.
  3. Make sure you have the right staff. Your team will have a far greater impact on your cash flow than you might think. Make sure you have the right people on board in the right roles. Most employee issues can be improved with good coaching, though occasionally you may need to resort to retrenching or dismissing them Also look at your own management style and ensure your employee policies are designed to better engage your staff.
  4. Review your sales and marketing strategies. What sales and marketing activities are you currently doing? How effective are they, which ones are working and which ones need improvement? Are you testing, measuring and adjusting your activities? By making a few tweaks here and there you will be able to do wonders in improving your sales and your bottom line.
  5. Listen, learn and think. Listen to your employees, clients and the market. Get inspired, look at what others have done in their business and see how this might be able to work for you. Share your frustrations and wins with others, get inspired by your peers and, when needed, don’t be afraid to ask for professional advice.

SMEs are the backbone of the Australian economy, taking risks with their own capital, providing employment opportunities and making a major contribution to the economy. They also face some unique challenges which can make the experience far from ideal. By following our tips, and getting expert advice at the appropriate time, small business owners can be set on a path to success and prosperity.