The latest data on insolvencies for Australian small business owners is grim. A whopping 133 per cent increase during the first half of the 2024 financial year, writes Angus Sedgwick, CEO of OptiPay There is a cash flow crisis looming, but if you take action, you can avoid it.

What’s clear from the numbers is that many business owners are struggling with their cash flow at the moment. They simply don’t have enough funds and resources to keep going. Much of this is a COVID hangover, with many SMEs accruing large tax debts, which they’re now being forced to pay back to the ATO.

This extra expense is a huge challenge for small businesses, so now is a good time for business owners to take stock of their broader cash flow challenges and identify other areas they could improve.

Every day, we help business owners get their cash flow back on track with invoice financing, and these are the top mistakes we notice owners are making.

Invoice delays

Being on top of your invoices and having strategies in place to handle late payments is vital for cash flow. It’s estimated that small business owners spend up to 12 hours each month chasing late invoices. Delays in payments make it harder to prepare an accurate cash flow forecast and help the business continue to grow in the right direction. Have strategies in place to ensure your invoices are paid on time and put the right effort into collecting payments. Reward customers who do and be prepared to pick up the phone and have honest conversations with those who don’t.

Growing too fast

One of the biggest challenges for cash flow is expanding too quickly and not having the working capital to fund it. Business growth and progression is vital but have a plan in place for where those extra resources are coming from. We often see businesses that realise far too late that they don’t have the capital to fund the new customers or clients they’ve taken on board. Plan for growth early and consider funding options such as invoice financing, angel investors, crowdfunding or grants.

Lack of sales leads

Sometimes poor cash flow can be the result of low sales and further investigation shows there’s been a lack of new leads. Every business goes through different cycles, but for some, it can be clear there’s a sales roadblock, and owners need to implement strategies to give business sales a boost. It might be that a new marketing campaign is needed or a social media blitz. Have a close look at your sales team and evaluate their performance, too, because it could mean a reshuffle or new appointments are needed to lift productivity.

Inventory mismanagement

We see this a lot in businesses where excess stock is lying around leaving assets that tie up valuable cash for months on end. This is cash that you could be using to fund your business. The other risk of having excess stock lying around is it could become outdated or obsolete and lose its value. Consider how you can continually keep your stock moving through the door – perhaps a sale is in order or a discount for customers buying in bulk.

As a small business owner, know that you are not alone when it comes to cash flow struggles. The increasing cost of living is having a huge impact on business as well as high-interest rates. However, those business owners who can plan ahead for their cash flow struggles and identify shortfalls will be well placed to weather the current economic conditions and set themselves up for success.

Want more? Get our newsletter delivered straight to your inbox! Follow Kochie’s Business Builders on Facebook, Twitter, Instagram, and LinkedIn.

Now read this

Small business insolvency rates and court wind-ups on the rise