After a decade of low interest rates and cheap money, rising inflation is pushing up rates, tightening up cash availability and making finance and financial management a bigger focus for business-owners.
In my experience cashflow is always at or near the top of the list of major challenges for small business. This will be an increasing concern for many business owners, where current conditions are putting pressure on cashflow due to increasing interest rates, tightening lending criteria, higher supply costs, worsening margins and inflation ‘scare stories’ in the media that dampen demand.
Here’s some simple steps to consider – that might help business owners weather the storm:
- Review supplier pricing: If your margins are being squeezed, is it because your suppliers are maintaining their margins? Is there room to share the pain?
- Collections: Are you allowing your customers to extend their terms because you don’t chase debts hard enough? Are your competitors getting paid faster by being the squeaky wheel?
- Customer Trading Terms: Are you dealing with cashflow-strong clients who might be interested in advancing their payments to you in return for a margin enhancement? (Although – this should always be an interim measure, one that is able to be unwound at your discretion, to prevent ongoing margin erosion).
- Professional advisers: Have you discussed you situation with your Chartered Accountant? They are typically experienced across many businesses, so they might be able to suggest actions that have worked for other clients.
- Accounts Payable Procedures: Have you reviewed your procedures recently? Are you paying suppliers before their terms stipulate, just because it always been done that way?
- Timing of purchases: Are you maximising the credit available from suppliers, by timing your purchases to allow the longest period of credit possible under your trading terms? Many people do this personally with credit cards, but it is just as valid with businesses.
- Short to Medium Term working capital finance: Non-bank business finance lenders may be able to assist with filling a working-capital hole, while the business adjusts to a new reality.
For most business owners, cashflow management is often the difference between a stressful business and a successful business. As interest rates rise and business credit becomes tighter, you can always improve your fortunes by focusing on improving your cashflow.
Image source: Sky News
