Meet the panel
Q & A with Martin Cattach
What are the common mistakes small businesses make in managing their cashflow?
- They are often slow to invoice. Many businesses invoice only weekly or monthly. The invoice should be created at the completion of the job and sent that day.
- Slow to follow up on invoices payment. Contact the client to confirm the invoice is received and the ask when payment will be made. The day payment is due call to confirm it will be made. If they follow this process the clients’ accounts payable department will know they get a call on the due date and will place your invoice on top of the day’s payment pile.
- The small business conflict of interest between sales and accounts. In a large business sales and accounts are separate departments with separate drivers for performance. In an SME we have no such separation and the leader is managing both “we can not put too much pressure on a big customer to pay we may lose the customer”. If they pay they are a customer, if not they are just a problem.
Financing business growth has its challenges, what is your advice in helping business fund growth?
The biggest problem is that many receive all their financing from a single, volatile source which can put the business at risk.
Borrowing is like investing we all know we should have a diversified investment portfolio to manage our risk. Yet in the small business world we let our bank act as a single source of funds, we do not diversify our borrowing, and this places us at risk!
Some businesses are having a rude awakening to the problem of financing from a single, volatile source. Their bank has their residential property as security for the facilities they use for example the term loan, overdraft, and import finance. If they are in an industry that the bank has concerns over they may receive a letter or a phone call from the bank asking for a review. That is an industry code word for time to reduce your borrowings, and for them to manage their exposure to you. They explain that the security they hold over your house has reduced in value and may drop further. Often they request that you reduce your OD in the next 7-14 days as you are outside the bank’s security parameters.
The lesson is – do not have a single source of borrowing! Do not have all your eggs in one basket.
Most SMEs in Australia are chronically under-capitalized. They’ve put their own money into the business and do not have the working capital they need to grow. How can you help with this Martin?
I see there are two main variables here. Firstly management, you can do a lot with your limited working capital if you manage the business effectively with the six points I have included in the Action Plan (in the hand out booklets)
- Stay on top of your costs
- Take inventory regularly
- Keep on top of invoicing
- Have a documented debt collection process
- Manage expansion tightly
- Have a plan for emergencies
Secondly look at what you can borrow to grow your business. In today’s market, there are many new Fintech lenders that will lend on far less stringent terms than the banks. You can look at invoice finance, inventory funding and trade facilities to give you more capital to expand, without risking your residential property.
This new landscape can be dangerous to navigate and can have expensive traps, so I recommend that you have independent advice that can explain the costs and risks clearly.
When a small businessperson takes a look into their own capital position, what are a few questions that you suggest they ask themselves?
- What is my cash flow?
- What are my financial obligations?
- How much money is going to financiers?
- How much is owed to the tax office?
With these questions in mind, you can work out how much you can spend to grow the business within the constraints of your capital.
Q & A with Dheeraj Sachdev
What are systems and how can they help with cashflow?
What is a “System”?
- A system is a set of principles & procedures that specify the sequence of tasks and how to do them by a reasonably trained person.
- It is not to be confused with a training manual. The idea is to define decision points, what decisions to make and steps to be followed so the task in done correctly and efficiently. The idea is not to teach a person or a novice to do the job.
- Systems cover all areas of the business including Sales & Marketing, Operations, Production, Service / Product delivery, HR, IT, Accounts & Finance, After Sales service & customer relations etc
Why do I need a System?
- Measure of performance
- Repeatability & Consistency
- Self redundancy / Delegation
- Increased value of the business
What are the steps of systemisation?
- A) Flowchart your process
- B) Document the “how to” of the steps in the process
- C) Put in place “Key performance Indicators”
- D) Ensure that the system has scope for self correction and scalability.
What should I systemise?
- Everything? Cost benefit
- Easiest first? To get a hang of what is required and what it takes
- Next, the weakest process. Usually the bottleneck.
- Next, that takes too much time: could do with automation
Q & A with Frances Pratt
How do existing clients help with cashflow?
Why is it important to really understand the value you deliver?
Q & A with Greg Clarkson
How can technology help in cash flow?
In the first instance, not very much.
The first requirement is a 90-day forecast and this can be achieved with excel and discipline. However it can certainly help to go beyond that and if you want more than what excel and the basic accounts program can do then there are other tools.
The first place to look for automation in the accounts receivable process. In my business, it was to speed up the generation of invoices. We went from a process that took 3 days every month to 4 hours by selecting a core application. Just be getting invoices out early and in a predictable fashion helped us to build a predictable forecast of cash flow.
On the other hand, keep your invoicing process close to you. Don’t do automation in a way that you lose control of the process. I knew a business that outsourced their invoice process to another firm to take advantage of some automation and then due to business disagreements failed to invoice their customers for six months!! Don’t be that business.
Is debtor management a necessary evil (a cost) or an opportunity in your business?
What is the right mix of one-off and reoccurring revenue for healthy cash flow and how can technology help with that?
I love a business where at the start of every month they know how much money they are going to make in that month.
I’m personally freaked out by the thought of a business that when they open their doors on a Monday has no idea who is going to turn up. But of course, many successful businesses are like that and can have some confidence because of historical trends of people’s behaviour. Also, building a predictable revenue stream takes time and most likely some upfront investment.So, keeping these things in mind and that my advice is just my personal preference, I think that the initial goal is to have reoccurring revenue cover all your fixed costs – rent, wages, debt finance and any one-off revenue to fund either profit or unexpected costs.
Technology can help with this process because it is the engine for any type of subscription offer you want to make to your customer. E.g.if you are a plumber doing one-off jobs fixing a leaky tap, technology allows you to offer a monitoring system that you can sell for a monthly fee to clients that don’t want to lose any more water. Also, as I mentioned, building a reoccurring, predictable revenue takes time, so don’t ignore one-off sales and they can be a great way to inject immediate funds into the business and to allow you to grow without going to external funding sources to finance the reoccurring strategy.
Meet the host
Stewart Clark, Founder and Principal coach of SCS Performance
SCS performance is a specialist consultancy firm delivering a specially designed range of coaching programs to the small to medium business market - to drive bottom line return.
Stewart is an energetic and experienced business adviser with many years of experience coaching, advising and supporting small and medium sized businesses across Australia.
Leveraging a lengthy career in finance and corporate business, Stewart has worked "in" or "on" a range of businesses and industries Australia wide.
Possessing a people-oriented style and a keen eye for detail, Stewart is well versed in strategic planning, financial analysis, sales delivery and business improvement. Stewart is also a published author of “It’s not what you make, but what you keep” and is a regular speaker.
Unlike a traditional business coach, Stewart focuses on enhancing the mechanics of a business – its people, its process and its systems – to achieve long-term business success.