Business BACK UP
Cash flow concern
As small businesses brace for an economic slowdown, keeping a watch on cash flow is the answer to growth and sustainability, according to global business finance provider, Bibby Financial Services.
"2008 will be a challenging environment for cash flow," says chief executive of Bibby Asia Pacific, Greg Charlwood. "It's important for SMEs to be diligent in managing their working capital.
"While there is always a need for working capital in business, the need for cash flow becomes greater when a business is growing." Charlwood says growth in a tight credit market presents particular challenges for business owners.
"To compound the normal pressures of a growing business, simple sources of cash flow are naturally affected in tight credit conditions. For example, it is common for invoices to be paid late during tough times."
A Business-to-business Trade Payments report by Dun & Bradstreet, the world's leading source of commercial information, reveals that payment terms are increasing across all sectors in Australia.
"The figures show the average payment term across all sectors has risen to 52.6 days – that's almost four weeks above normal credit terms," said Charlwood.
"With some business owners already feeling the pinch of tight credit conditions, late invoice payments could place a major strain on cash flow and operations generally. The impact could be greater for those who do business with large or public companies, as they are commonly the slowest when it comes to paying accounts."
According to Dun & Bradstreet Australia CEO, Christine Christian, "Businesses receiving late payments will in turn seek to delay their outgoings in an effort to better manage cash flow. This sets off a late payment cycle which impacts broader economic performance."
Charlwood warns growing SMEs which lack cash flow are also at risk of over-trading. "Growing demand for products and services exposes businesses to over-trading, where the finance available is less than the cost of delivering orders."
Successfully managing cash flow throughout the financial year ensures you won't be distracted from business in a last-ditch attempt to put everything in order by June 30, suggests Alastair Welsh, Westpac's general manager business banking.
"If cash is not flowing well, a business will have a higher reliance on loans, concern about debtors and anxiety about their ability to trade," he said.
He acknowledged that for small business a steady year is unlikely, but proper assessment of the cash movements is essential.
"Successful business owners do not silo cash flow of their business, they see all the components of running a business as intertwined. In short, they plan and regularly take stock, particularly of cash flow," he said.
The bank has recently launched Business 10, a to business customers to source business information, tools online, face to face, or over the phone.
"Businesses can take stock using the cash flow forecasting tool on Business IQ to track incomings and outgoings," explained.
Managing your employees
To coincide with the introduction of the Federal Government’s new industrial relations laws, workplace relations legal specialists FCB, is launching a new online employment records management system dedicated to helping franchisors and franchisees comply.
Peoplelnsite is a web based management too common problems for franchises, including protecting the franchise brand and reputation through ensuring franchisee legal compliance, empowering franchisees to implement better employment practices and reducing the administrative burden.
"Peoplelnsite helps organisations create compliant contracts and employment documentation in readiness for the doubling of minimum employment standards to 10 and the broadening of the unfair dismissal regime," said Richard Breden, managing director of Peoplelnsite.
"Our system saves users time by providing a simple, online solution to creating and managing employee contracts, allowing franchisees to concentrate on selling and revenue generation," Breden said.
"As every employee contract needs to be kept for seven years after staff leave a business, the archiving feature alone is highly valued by many franchise systems."
Through Peoplelnsite a franchisor can protect both the franchisee and the franchise brand from the consequences of a franchisee failing to comply with their employment obligations. Breden predicts the Commonwealth Workplace Ombudsman will be policing small business compliance with the new laws in an attempt to demonstrate the increased protection afforded to workers under the new laws.
In Western Australia alone over the past year the Ombudsman has identified breaches across 23 companies in the fast food and juice bars industry. In 2006 and 2007 the Ombudsman finalised investigations into 18 separate Bakers Delight retail food and beverage franchises across Australia.
The inability to locate a signed workplace agreement can lead to a $33,000 fine. In a recent case, a lost contract cost a company $75,000 when an employee argued for greater compensation against entitlements.
"With new minimum standards and changes to the industrial relations laws, compliance issues remain an ongoing obligation – Peopleinsite both protects and minimises this administrative burden in a cost effective way for franchise businesses."
Corinne Attard, group legal counsel for Michel's Patisserie Westpac ’s top tips
How to deal with debtor processes, stock management and tax benefits.
- In debtor processes you should make invoice preparation a priority; outline payment processes for customers and identify their payment method; identify and deal with slow payers; reduce the grace period for late payment and increase the frequency of reminders to late payers; suggest a deposit with ongoing repayment schedule for repayment difficulties; consider receiving payment up front before providing stock or services; pay suppliers chronologically, not all on the same day.
- For stock management conduct a stock take: if you lack stock, identify the reason and whether the supplier or manufacturer process can be improved; if you have excess stock, order stock only when it is needed, hold a sale or consider giving stock to charity which will be a charitable donation.
- Check with your financial adviser about the benefits of pre-paying interest on loans, leases and insurances before the end of June.
This article appears courtesy of Franchising Magazine.
25.06.2008
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