It’s time to take your business pulse

Business insolvency is a very real risk for many smaller Australian businesses, but countless business owners are not spotting the warning signs early enough. With Christmas just around the corner, and another year fast approaching, pressure is mounting for many small business owners.

While Christmas can be a busy period for many, it’s important to still take time out to recharge and reflect on the year that was, while taking a serious look at the financial health of your business.

The challenges of the holiday period can be a real wake up call. The Australian Bureau of Statistics reports that around 60% of businesses fail to make it past their first three years and the cash flow challenges of the Christmas trading period can be a real stumbling point.

This is why it’s important to take action early should there be any signs of financial stress. Business owners need to seek help early in order to be in the best shape to survive the holiday season. Maintaining a healthy cash flow and getting regular financial check-ups are sure-fire steps towards helping your business grow and prosper.

A common reason for the inability to save a company in financial distress is that professional advice was sought too late. It’s important to remember that early intervention can help turn a business around. An optimistic belief that ‘the next big sale’ will solve systemic problems, coupled with mounting business debts, not being able to get finance or constantly overdrawing bank facilities are all warning signs of a business in need of an urgent health check.

Here are six simple tips to help your business thrive and reduce risk of insolvency:

Preparation is key
You wouldn’t run a marathon without doing the training, and the same goes with starting a business. Preparation is crucial. Do your research – research the market and what’s involved, take into consideration all the aspects of running a business, put together a business plan and a formal financial model. But equally important is to take the time to continue your “training” – revisit your business plan and forecasts regularly to be able to adjust your strategies to reflect the changing nature of your business environment.

Focus on cash flow
Struggling with a day-to-day cash flow deficit puts a strain on your entire business and limits growth. Since cash flow is the lifeblood of any business, implementing a solid billing and debt collecting system will inject much-needed circulation of funds. With ‘credit clients’, ensure you have well drafted trading terms in place to allow early and effective intervention when those terms are not adhered to.

One of the biggest issues for newer firms is having no formal financial model – and that includes a cashflow forecast. Cashflow timing, including the management of working capital and tax payments, needs to be factored in.

Watch for warning signs
It’s easy for business owners to get bogged down in operations, often missing key warning signs of failing financial health. Having a good financial reporting model will help small business owners to keep an eye out for increasing debts, overdue tax and super payments, mounting stock levels, high staff turnover and problems getting finance. It’s good to put in place reference points – e.g. 3 months, 6 months, 12 months – and if you start going off track, you can right your course before it’s too late.

Look for new ways to reduce your overhead costs
Explore creative ways to reduce your overheads such as: negotiating cheaper insurance premiums, revisiting utilities expenses regularly, investigating alternative supplier relationships. The more money that can be saved, the more that can be used for growth or put towards reducing debt. This will increase your financial attractiveness, and will show your creditors that you’re serious about paying them back, so they might be more willing to negotiate more favourable terms.

Negotiate with your creditors
Continually review your trading relationships. As with your customers, it is important to negotiate the trading terms of your relationship with your suppliers. Trade credit is not a right, but likewise your suppliers will acknowledge and support the businesses that understand the symbiotic relationship – as you grow, they grow. With the help of a financial specialist, you may be able to reach an arrangement with your creditors such as providing you with reduced personal risk, increase repayment periods or early payment discounts.

Ask for advice
Your bank balance it not always an indicator of the financial strength of your business. Only seeking help at the last hour will limit the options available to make effective adjustments to save a business. An insolvency specialist can provide expert advice at the first signs of concern to ensure all options are understood and a considered approach is taken to redirecting the business back towards success.

If you suspect your business is in financial difficulty, it’s important to get proper accounting and legal advice as soon as you can. In times of financial distress comes high emotion. It’s important to take emotion out of the decision making process and do a critical review of all areas of your business. This is where independent advice can help guide business owners to the right path.

Use these holidays as an opportunity to reset. Remember, scheduling a bit of downtime can do you the world of good by helping to clear your head. Use the time to take your ‘business pulse’, think about what you want to achieve in 2018 and set the foundations for a plan on how you hope to get there.