Xero Report Sheds Light on Australian Small Business Cash Flow Challenges 

A recently released report from Xero, focusing on the Australian small business landscape, has unveiled critical challenges facing business owners today. 

As the economic environment continues to evolve, the report’s findings offer a stark insight into the current financial struggles and strategies for navigating them.

Unveiling the Financial Struggles of Small Businesses

The report highlights considerable financial strain among small businesses in Australia, with more than one in four (27%) having to dip into their personal savings to sustain their businesses. Furthermore, a third (34%) of small business owners report being unable to pay themselves.

Broader Economic Trends Impacting Businesses

Post-COVID-19, Australian businesses are grappling with higher inflation, recorded at 7% in the final quarter of 2023, and interest rates held at 4.35% by the Reserve Bank of Australia. 

These measures, while curbing inflation, are increasing operational and borrowing costs, placing businesses in a difficult position of either increasing prices or absorbing costs, risking their profitability and viability.

Real-World Implications of Economic Pressures

• Impact on Industry Costs:

  In the food and beverage sector, for instance, the cost to commercially produce a steak sandwich has risen by one-sixth in the past two years, effectively erasing the 10% profit margin typically seen in the industry. Similarly, the cost to make a flat white has jumped by nearly one-fifth​​.
  

• Business Closure Rates:

  The broader impact is evident in the increased business failure rates. More than 15% of Australian businesses failed in the past 12 months, the worst rate since the global financial crisis. This has been particularly pronounced in the transport, postal, and warehousing industry, with over 64% of businesses that opened in 2019 no longer existing by June 2023​​.

Takeaways from the Xero Report

• Personal Savings as a Financial Lifeline:

  Many business owners are using personal savings to cover operational expenses, indicating a significant financial strain.

• Challenges in Drawing Personal Income:

  The inability of business owners to pay themselves highlights the severe cash flow issues impacting their long-term financial health.

• Impact of Delayed Payments:

  Late payments have a domino effect, disrupting supply chains and financial planning, leading to strained business relationships and operational inefficiencies.

Five Strategies for Navigating Cash Flow Challenges

Small business owners are employing strategies such as efficient cash flow management, cost reduction, diversifying revenue sources, supplier negotiation, leveraging financial technology, and seeking professional advice.

1. Improve Invoicing Practices:

   • Prompt Invoicing:

     Issue invoices immediately after providing a service or delivering a product.

   • Clear Payment Terms:

     Set and communicate clear payment terms to ensure timely payments from customers.

   • Incentivise Early Payments:

     Offer small discounts for early payments to encourage quicker turnover.

2. Monitor and Forecast Cash Flow:

   • Regular Review:

     Conduct weekly or bi-weekly reviews of cash flow statements to identify trends and potential shortfalls.

   • Cash Flow Forecasting:

     Use forecasting tools to project future cash flow based on current and expected income and expenses. This helps in planning for potential deficits and making informed financial decisions.

3. Control and Cut Unnecessary Costs:

   • Expense Review:

     Regularly review all business expenses and identify areas where costs can be reduced without impacting business operations.

   • Negotiate with Suppliers:

     Work with suppliers to negotiate better payment terms or discounts for bulk purchases or early payments.

4. Diversify Revenue Streams:

   • Expand Offerings:

     Explore opportunities to offer new products or services that meet current market demands.

   • Explore Online Markets:

     Consider moving part of the business online or leveraging e-commerce to reach a wider customer base.

5. Leverage Financing Options Wisely:

   • Utilise Credit Facilities:

     Access commercial finance, lines of credit or short-term business loans to manage temporary cash flow shortfalls. However, use these judiciously to avoid long-term debt accumulation.

   • Government Grants and Assistance:

     Stay informed about and apply for relevant government grants, subsidies, or tax reliefs available for small businesses.

Implementing these strategies can help improve cash flow management, which is crucial for sustaining operations and navigating through periods of economic hardship.

Credit and Finance as Strategic Tools

Whether it’s paying staff salaries, settling bills, taking advantage of a new business opportunity, or buying new equipment, credit and finance are essential tools for business survival and growth, vital for managing cash flow and maintaining operations. 

Aussiewide specialises in helping small businesses navigate complex financial landscapes, offering tailored solutions and expert advice to support businesses in thriving amidst economic challenges.

If you’d like some guidance on the types of cash flow and commercial finance options that may be available to your business, now or in the future, we’d love to chat.