AP’s founding partner, Garry Pinch, has built his career on taking start-up businesses from infancy to successful ventures. 

A combination of rain out days and COVID absenteeism is challenging the cashflow of many businesses in the building and construction industry in the Kiama region.

So, what can a business owner do immediately to help cash flow concerns and what are the medium to long-term solutions?

Immediate Cash Flow Relief

• Organise a temporary overdraft facility with your bank – call your bank at least one month before you need the temporary facility. Calling your bank one day before wages are due, without enough cashflow to pay employees leaves your bank with no confidence in the business owners cashflow management skills.
• Call the ATO for a tax payment plan on any outstanding tax and superannuation debts. The ATO will not generally grant tax payment extension plans if you have outstanding lodgements.
• Confirm payments terms with customers and accounts receivable; reconfirm payment plans the day before a payment is due; If payments have not been made, seek an explanation from the customer a day after payment was due.
• Request a loan repayment holiday from your bank for between one to 12 months whilst the business cash flow recovers. Have a clear understanding of your cash flow needs, the bank will want to see support for the period of loan repayment holiday you have requested.
• Seek extended credit payment terms with suppliers from 30 to 90 and 120 days or more. Most suppliers will provide extended credit terms where they have a trusted relationship with their customers.
• Sell assets like stock, equipment and vehicles that are in excess to exiting requirements.
• Reduce orders of replacement stock
• Stand down casual employees and contractors and redeploy permanent employees to fill the vacant positions.
• Eliminate unnecessary expenditure
• Seek out any government assistance that is generally available, and ensure whether specific assistance is available for businesses in your industry
• Draw down on personal finance sources using non-business assets as security

Medium to Long Term Cashflow relief

• Apply for a government supported SME guarantee loan with your bank. The interest rate and payment terms on SME guarantee loans are very favourable
• Don’t take on jobs with low margins or unfavourable terms, just to keep employees deployed. These jobs invariable make your cashflow position worse by not paying at all for work completed or require additional work which is outside of the scope for the initial job.
• Review your pricing strategy to ensure all jobs completed are profitable. Many businesses undertake marginal profit work for long term benefit, but this is not sustainable when cashflow is short.
• Seek out any longer-term government assistance through Industry based Grants and Subsidies
• Focus on your core business and making it profitable. Consider pivots connected with your core business like online sales channels, etc. Avoid pivots into business that is not closely connected with your core businesses. Often businesses pivot to new business opportunities which are unprofitable or are a detriment to their core business.
• Consider simple low-cost strategies to increase sales.
•  Increase prices. Most business owners are far too sensitive to pass on price increases. Rarely do customers leave solely due to price increases.

Irrespective of the strategies you adopt to create cash flow relief, it is critical business owners measure, monitor and manage cashflow.

Successful management of cashflow is a long-term constructive strategy rather than relying on luck or a perfect strategy that improves cashflow overnight. So managing your cashflow by monitoring a cashflow budget is critical.

Contact Accounting Professionals for more information and your free cash flow management spreadsheet. Email: [email protected]