SMEs must take note of the importance of managing supply-side risks and cash flow, says Gary Green, National Sales Director for Bibby Financial Services - Flexible Cash Flow Solutions
Citing the potential collapse of many of the Hastie Group-owned businesses, Mr Green says that there will be a subsequent cascade of small business insolvencies, due to the whole supply chain being impacted. The immediate unemployment created by insolvencies such as Hastie, St Hilliers and Reed Group creates headlines, but the knock-on effects on smaller suppliers is also hugely significant and often hidden for a period of time.
Given that the current economic climate continues to be very tough on non-mining businesses, Bibby Financial Services as a financier of SMEs advises clients to reduce risk by broadening their supplier and client bases and also by conducting credit checks on new and existing customers.
Mr Green explains that with some large, high profile failures and ASIC reporting historically high levels of insolvencies, a concentration of debtors and suppliers can expose SMEs to risks of bad debts and supply issues due to insolvencies. He urges businesses to review supplier and customer lists and consider worst-case scenarios as part of their risk minimisation strategies.
The Bibby Barometer Small Business Survey conducted in February this year pointed to the vulnerability of small businesses to their biggest customers. Key findings indicate that 12% of SMEs would have to fold if they lost their two largest customers, and 42% would have to significantly downsize.
The survey also showed the vulnerability of small businesses to bad debt with more than one in three needing to downsize or becoming insolvent if they had to write off debt of 5% of turnover. 27% of the respondents had experienced a significant bad debt in the past 12 months, and the overall survival of 22% of SMEs was threatened due to cash flow shortages.
Despite the significant risk of bad debts, the survey found that only 20% of the SMEs conducted credit checks on new customers.