CPA Australia has released a series of tips for Small Businesses that we thought might benefit some of our clients. We will cover a new tip each month for the next 5 months. Tip 1 provides some information on reducing your external debt (apologies to any bank managers reading this!). However, as this is general information, we strongly recommend discussing your situation with us before making any major decisions.
Tip 1 – Reduce your reliance on external debt
Results in a recent small business survey indicated that some businesses are taking on debt at the same time their businesses are stagnating or declining. In such circumstances, it may be more appropriate for businesses to be reducing their reliance on debt, not increasing it.
To reduce your reliance on external finance, businesses should be focused on increasing the productivity of existing assets and employees and improving cash flow. Improving cash flow can free up money to fund necessary purchases or investments without having to seek external finance and can be used to pay down debt.
We therefore recommend that you consider undertaking the following to improve cash flow:
- follow up on outstanding debts
- prepare regular cash flow forecasts
- prioritise your marketing to products and services that can be turned into cash quickly
- make full use of your suppliers' payment terms, but do not pay late
- reduce stock levels and replace slow-moving and obsolete stock with stock that has a faster turnover
- sell unnecessary assets
If you’d like further information – or would like to discuss whether this tip is relevant for your business - please do not hesitate to contact your accountant.