Most owners of small to medium enterprises are experienced, passionate people in their field of experience.
This is true wherever you look – from builders, vets, nurses and manufacturers, hospitality, tourism and more; however, experience doesn’t always translate into the knowledge required to run a successful business, which means that many businesses aren’t always as prosperous as they could be.
Time and again, one of the key reasons for this is that they’re running negative cash flows every few months.
A positive cash flow requires work and constant attention.
It’s one of the biggest areas of concern for most small to medium businesses. When good data is available for analysis, generally through Xero or the business’ accountant, the next step is to review and understand the information and to take the steps to mitigate any issues and improve your situation – this can often be complicated and isn’t always easy to get right the first time.
If your revenue projections show negative cash flow on the horizon, several steps and some planning are likely required, especially if the changes will take a while to work through.
Given the current business environment, finding the time to work on your business is not always easy to factor in – if you find yourself in this situation, here are some of the questions you should ask yourself
….keep in mind that there could be more than one answer!
- Is it a major priority, and what actions do you need to take first?
- How much money and time will be required to fix it?
- Do you need to go to the Bank to get an extra overdraft or perhaps a mortgage?
- Can you take advantage of funding available, perhaps a government source such as the Growth Fund?
- Do you have to try to increase revenue or decrease expenses – or maybe some of each to increase margins?
- How do you increase productivity?
- Do you need to make changes to your product or service offering?
Businesses in NZ are finding things hard
Xero recently published the results of research they carried out with 200,000 businesses in NZ, Australia and the UK, showing that:
95% of Kiwi SMEs experience at least one month of negative cash flow each year
An average SME in NZ has negative cash flow for four months of the year
17% of NZ SMEs have a negative cash flow for six months of the year
These results show that Cash Flow is a “persistent and systemic” challenge in NZ to SME success – especially damaging during periods of inflationary pressure.
How can we change this?
One of the key business goals that SMEs should have in their plans is to ensure they have a positive cash flow all year round.
The first step to achieving this is to look at the basics AND have a plan in place. Then make sure you’re working to implement all the required processes to achieve your goals.
Here are a few things you may want to review and consider:
- Who is your Target Market, and who is your ideal customer?
- What problem does your product or service solve, and what is your Unique Selling Proposition (USP)?
- Do you have an up-to-date Business Plan?
- How do you gain the attention and trust of your prospective customers?
- How can you improve productivity? Will it require Training? Technology? Mechanisation?
- Do you understand local market dynamics – has the market changed, and are you still offering a relevant product or service?
- Do you know what your competitors are doing?
The overall goal is to understand what is not working, how to fix it and then implement and work through a plan that will result in positive cash flow every month.
If you can do this, positive cash flow and profit will improve your bottom line and accounts, which will also increase the value of your business if and when you want to sell your business in the future.
It’s a win all around.
If you want help working through some of these things, please reach out and give me a call.
Robin Martin
P.S. This article is part of my Secrets of Success series, aimed at helping business owners and entrepreneurs with some of the key components of business success. The insights I wish I’d had at the start of my business career. I hope that by passing on these little gems of knowledge I can give you some support and help you along the pathway to growth and prosperity.
