Cash Flow Survival Guide for Perth’s Business Community

Recently I sadly said “see you later” to three business coaching clients within the space of a month.  All for similar reasons – business conditions are challenging, income is below budget expectations and cash flow is tight. These circumstances are forcing them to take a closer look at their business model, seek new opportunities, restructure and reduce some costs. And these are three very different businesses operating in very different sectors, but what does unite them is that they are all SME businesses based in Perth.

And they’re not alone. The continued incidence of insolvencies in WA is alarming. Since 1 July 1993 ASIC reports that in WA, 553 companies have entered into external administration or had a controller appointed (as of 14 April 2024). This is a 28% increase compared to the same period a year ago, and an alarming 95% increase since the same period in 2022. And just a quick skim of the data tells you that the impact is across a variety of sectors.

Whilst unfortunately I don’t have a fairy wand to magic away the issues many organisations are experiencing, I do have some guidance to share:

• Here’s an article on practical cash flow management I wrote almost a year ago
• And this one Mastering Financial Management
• Recently I have shared some valuable hints and tips from other sources like the Australian Institute of Company Directors in LinkedIn posts

Maximise Revenue Opportunities

Chartered Accountants Australia New Zealand has just published a series of articles on how to maximise revenue opportunities during economic uncertainty. Whilst these articles are written for an audience of finance people – don’t let that put you off.

• If you’re a small business owner there are lots of great recommendations for you to consider; or
• If you’re in a larger business, fortunate enough to have a CFO, use these articles to help you get the most value out of your CFO; or
• If you’re in the market to recruit a CFO, there could be some useful content to shape the skillset you need.

Cultivating a Commercial Mindset

This guide shares 7 easy ways to keep your eye on the bigger picture. Takeaways for me include:

1. Understand your numbers. Financial literacy in business is absolutely critical.
2. Have a strong finance culture and strong cash culture through the business – meaning the numbers and the bank balance are not solely the responsibility of your finance person.
3. Look at all levers – not just price and not just slashing costs.

Accurate Forecasts

There’s no point putting a finger in the wind and hoping for the best. If you don’t want to be another insolvency statistic, you need to plan for future headwinds. You might not have a crystal ball, and it’s hard to preduct everything with certainty but you should know your business and your market well enough to be able to pull together a reasonable expectation of what is ahead.

This guide shares helpful tips to create more reliable forecasts updated regularly. My perspective is:

1. If you don’t have a budget or cash flow forecast – prioritise getting one. This is a MUST-HAVE.
2. It’s not set and forget – keep your forecasts updated regularly.
3. If you know where you’re heading you can make pro-active decisions accordingly.

Communicate, communicate and communicate some more

Strong communication can make a big difference in all businesses at any time, but perhaps even more so when times are tough. It helps reassure everyone involved, builds trust, and gets everyone on board with your plans. I’ve seen situations where holding excess inventory was contributing to cash flow issues for the business. Yet the procurement and warehouse teams were not made aware this was an issue so the situation perpetuated. Once the issue was communicated across the business, all departments were aligned around a common objective of reducing inventory, behaviours changed and cashflow started to improve.

This guide provides tips for business owners and leaders on how to communicate even more during uncertain times, and to avoid the tendency to withdraw within yourself. Something. I learnt earlier in my career as a CFO is that one of the signs of a healthy organisation is how quickly bad news gets to the top.

Valuable tips in this article include:

• How to talk to your bank about refinancing
• Be proactive – talk to your bank sooner rather than later
• The first thing the bank. isgoing to ask for is (i) up to date financials and (ii) budget and cash flow forecast. Don’t wait for the bank to ask. You should have these at your fingertips at any time.

Don’t be afraid to ask for help. Unfortunately many of the SME businesses that contribute to the statistics above, get there because they bury their heads in the sand and/or don’t have the financial information on hand, and/or don’t understand their accounts and hence miss the warning signs. Don’t let that be you. Your accountant is a good place to start.