Surviving as an SME in a competitive business landscape is never easy.
A mere half (51 per cent) of businesses are still running four years after opening their doors, according to McCrindle Research. Further to this, ASIC figures show 46 per cent of insolvencies in Australia are due to cash flow issues or high cash use.
That’s the bad news, but what’s the good? With the right risk prevention and risk minimisation strategies, such as implementing trade credit insurance, as part of their overall business insurance program, SME owners can prevent poor cash flow from crippling their business.
Cash flow is the number one issue affecting small to medium businesses right across Australia. According to The Invoice Market’s research that’s $76 billion worth of outstanding invoices and two million businesses drowning in a sea of unpaid bills.
If this issue was fixed, close to half a million jobs could be produced, reducing Australia’s unemployment rate to almost zero.
The Invoice Market’s SME Cash Flow Crisis Report illustrates that Australian businesses are constantly owed an average $38,000 each, with corporate customer excuses ranging from ‘lost in the system’ and ‘in dispute’ to ‘being reviewed internally’ and ‘being processed offshore’.
SMEs often misjudge how much stock they’ll need. Having capital tied up in inventory that’s sitting dormant on warehouse shelves isn’t an optimal use of funds, particularly if you’re paying additional storage, handling and insurance costs.
However, failing to have enough stock on hand to fulfil orders can leave customers frustrated, leading to churn, reputational damage and profit losses.
Establishing a sophisticated inventory management system is crucial to avoiding these problems. Many SMEs automate their inventory management processes using technology to optimise stock replenishment.
ASIC’s data revealed that poor financial control is the third most frequently cited reason for insolvencies, suggesting business owners could tighten up on their spending.
Savings can be made across a number of areas, including:
Even with the best preparation, businesses can encounter cash flow problems.
Contact us to review the business insurance risks to your organisation.
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