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SMEs urged to start planning for forecasted cash flow shortages

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Small Medium Enterprises (SMEs) are urged to start planning and protect their cash flows in the wake of a slowdown in the economy. 

With business confidence hitting an all time low in August and sales figures not expected to improve in the near future (August Sensis Business Index) many SMEs are in for tough times.

And to make matters worse, SME tax debt has sky rocketed by $2 billion over the past three years, meaning more businesses are going to need to dip into their already low cash reserves to pay the tax office.

According to Bibby Financial Services, it is important that SMEs review current operations and identify potential cash flow shortages now before they cause the business some real damage.

Careful planning is a way businesses can safe guard themselves against pressure on cash flow when the economy slows down, this is what it is doing right now. It is surprising though how many businesses think that this is something needing only to be done by large operations.

Simple things like investigating the possibility of partnering with other companies to share costs, and ensuring that cash is not tied up in slow moving stock are just some things SMEs can do to maintain liquidity and protect their cash flow.

For those businesses needing better control over their cash flow, factoring and invoice discounting are options that could help.

Factoring and discounting allows businesses to convert up to 90% of their unpaid invoices into instant cash within 24 hours, providing SMEs the continual injections of cash required to ride out tough trading periods.

In Australia and overseas factoring and discounting are fast becoming the preferred means of finance amongst small and medium sized businesses.

According to the new statistics provided by the Institute for Factors and Discounters Australia and New Zealand (IFD), turnover for the industry increased by $AUD2 billion (24%) during the June 2006 quarter, taking the industries total volume to over $AUD41 billion.

In the UK a similar trend is emerging, over the past seven years turnover for the industry has doubled. It is estimated that total volume for the factoring and discounting industry has reached $AUD405 billion.

Moreover, in 2005, global turnover for the industry reached $AUD1.7 trilllion, up 18% from 2004. 

Bobby’s top tips

TIP 1: Plan, plan, plan
Sit down with a professional business advisor and develop a detailed plan outlining strategies you can implement, to ensure your company survives any slowdown in activity.

TIP 2: Take control
Make sure you are firm with your debtors and that you have a watertight credit control system.

TIP 3: Examine expenditure
Carry out an internal audit of your costs and identify, if there are any areas compromising profits that can be cut back on.

TIP 4: Stock Matters
Review your stock levels carefully and look back at last year’s sales figures to determine seasonal peaks and troughs. Don’t get yourself into an over-stocked position, where all your money is tied up in goods that you may not necessarily be able to sell.

TIP 5: Partner Power 
Work smarter by teaming up with non-competitors in a similar situation to share advertising or printing costs.




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