The impact of cash flow on West Australian small business
If you run your own small business, it’s highly likely that cash flow concerns have given you some sleepless nights over time. So it’s no surprise that financial worries have been named as the biggest source of stress for WA’s 218,000 or so small businesses.
A recent BCEC report — looking at ‘the role, performance and future prospects of small business in Western Australia’ — found that financial stress, such as the unpredictability of income and cash flow problems, was the top driver of business stress. Small businesses in the mining, information media and manufacturing industries were the worst affected by worries over cash flow.
There’s no doubt small businesses power the state. They contributed $39.7 billion to the WA economy in 2014-15 and they account for 41 per cent of its overall employment. However, only 54.3 per cent of new small businesses started in 2013-14 survived to 2016.
It’s worrying to note that late payments from big business are one of the biggest factors of cash flow insecurity. Nearly three-quarters of small businesses are suppliers to larger businesses, so not having invoices paid on time can have a huge effect. The study found that fewer than half of small businesses that supplied to larger ones reported they were paid in a timely manner. And while those figures don’t look great: 35 per cent said they typically experienced delays of at least 20 days, while a fifth reported payment delays of at least 30 days.
Unpredictable cash flow leads to problems
When your cash flow is unpredictable or unreliable, the inevitable stress of paying employees, paying business rates and bills and purchasing stock rises. And when the main source of funding for small businesses are cash flow or savings from the business, it’s no wonder some of them can face real financial hardships when that money isn’t coming in when it should.
It’s important to manage your cash flow to minimise the impact late payments can make, and to have a strategy in place when it occurs. No one wants to use their credit card or dip in to their personal savings to make up the shortfall, although that can be quite common for small business owners.
It’s something we’ve written about many time before, including the importance of having strategies in place so you can still pay wages, the affect it can have on your stress levels and health, tips to make sure your invoices are paid on time, and the importance of not dipping into your personal finances to pay invoices. Take a look at our previous articles for some great tips and advice.
Reep can help you identify and improve your cash flow habits. It provides cash flow management software that gives you a helicopter view of your financial data and the ability to run ‘what if?’ scenarios. You get live forecasting of your cash flow that is updated in real time so you always know where you are.