The economic landscape has undergone a significant transformation this year, presenting unprecedented challenges for businesses as they seek to maintain financial stability amidst escalating costs.

Encouragingly, the Reserve Bank endeavours to mitigate inflationary pressures appear to be yielding positive results. There is an observable trend of price stabilisation, and interest rates have remained unchanged for the past two months. Nonetheless, both individuals and businesses have adopted a more conservative fiscal approach, which has reverberated across virtually every sector of the economy.

Economic challenges for Australian businesses

We’ve witnessed an upward trajectory of prices, however as recently reported by CreditorWatch, average invoice values have actually dropped by close to a third over the last twelve months. Because of this, business failure rates are predicted to rise by as much as 23 per cent in the next year. Meanwhile, credit enquiries, external administrations and court actions are all on the rise.

Many businesses are at a critical crossroads right now, hanging in the balance between survival and financial trouble. But the good news is, there are practical solutions available to help tackle these financial challenges and steer a path toward stability.

How to improve small business cash flow

Three simple steps in times of cash flow uncertainty are:

• Increase your earnings
• Reduce your expenses
• Regain control over your financial activities to identify unnecessary losses and discover ways to boost your income.

Of course, all this is easier said than done! These tips will steer you in the right direction:

• Upsell and diversify: Once you have provided goods or service, or when you’re negotiating a deal with a new customer, find ways to add more to the sale.
  
  For example, a photographer can offer a discounted engagement shoot as well as photographing the wedding. A massage therapist can sell oils to use at home.

• Build more partnerships: If your inquiries have declined, consider taking a proactive approach to strengthen your partnerships, including the option of establishing a referral program. Offering a referral incentive to your existing clients and partners for directing new clients your way can not only reduce the effort required for prospecting but also foster valuable connections within your professional network.

• Reconnect with old clients: Has your contact list been dormant? Most clients are probably assuming you’re busy, so give them a prompt to get back in touch. A phone call, a strategically written email or a personalised message on social media can reopen conversations that may lead to additional sales.

• Adjust your pricing strategy: How long has it been since you updated your prices? A lot of business owners hesitate to charge more, but you can always test the waters with a few clients first to see how they respond.

If you are unable to increase your prices, think about how you can offer more value by creating low effort and high return additional services.

• Cut unnecessary costs: Prioritise cost reduction efforts, without compromising on quality. An examination of your supplier contracts might reveal that you are paying rates exceeding industry standards, or reveal you aren’t using those contracts to their full potential.

You may also be losing money because of ‘maverick spending’ and team members failing to adhere to procurement policies. Smaller businesses can engage their accountants to conduct an expense review, while larger organisations may consider a more extensive analysis to pinpoint and rectify areas of excessive spending.

• Stop waiting for payments: These days, there are account collection services that will pay your invoices as you issue them so you don’t have to wait two months to get your money. You may lose a little in fees but your cash flow situation will be far less stressful.

• Collect your debts: Late payments can slow down your business. Appointing or outsourcing someone to follow up on overdue invoices in a consistent manner will help your cashflow.

• Create a financial dashboard: Many business owners fail to review what’s coming and going in terms of their finances until there are drastically overdue bills and accounts. Work with your accountant to set up a real-time dashboard so you can identify where the most money is coming from, which expenses are impacting your budget and which financial situations need to be addressed.

• Review your tax: It may be possible to reduce your existing tax bill. Ask your accountant to conduct a thorough review of your expenses, as they may be able to find ways to minimise your tax bill and put more money back into your accounts.

Advice for small businesses

There is no denying we are in complicated economic times. If cash flow and overdue accounts are an issue, get in touch with AFS & Associates today. We can help you identify the easy wins and help get your business back on track.