In today’s challenging environment of inflation and rising operating, fuel and transport costs, methodical planning and forecasting is critical to turn your dream into a profitable business.
Knowing the common reasons SMEs fail is a good place to start.
In Australia, 44 per cent of small businesses fail due to poor strategic management, 40 per cent have inadequate cashflow or high cash use and 33 per cent suffer from trading losses.
Here’s my checklist to turn your vision into a success:
1. Learn from others and develop a support network
Many local government areas offer free or low-cost business mentoring programs to aspiring entrepreneurs. Some programs provide experienced business leaders as mentors to help new entrepreneurs address new opportunities and resolve issues. The Australian Government also offers a range of free services for aspiring small-business owners such as its Entrepreneurship Facilitator Program. Facilitators provide advice on the benefits and challenges of self-employment; opportunities that align to your skills, experience and interests and referrals to other small business support programs.
2. Cashflow forecasting
Forecasting cashflow should be a key priority for any business. The predictions of revenue versus expenditure can help you determine whether your business needs to set aside a portion of revenue for an anticipated quiet period or large expense, or can afford to invest in a new product or service. Make sure you forecast for different scenarios and plan to weather difficult periods as well as take full advantage of periods of upturn.
3. Enlist an expert
If the thought of forecasting revenue and expenses seems overwhelming, make an appointment with your accountant early in your planning phase. They will be able to assist you in understanding the cashflow impacts that your business may face and suggest effective systems to make tracking cashflow easy.
4. Keep business finance separate from personal finance
Keeping your business finances separate enables you to set up accurate bank feeds into accounting software, making tax time easier. If your business uses external funding, keeping personal and business finances separate can make application processes easier and enable tax benefits for the costs of funding.
5. Think about your funding needs
A business line of credit may provide cash when you need it across a set term, and interest is usually only charged on the funds you use, while you use it. Therefore, a line of credit may be a good choice when you anticipate you will need funds in future but are unsure of the exact amount or timing. Business loans may help you move quickly on a growth opportunity or business investment. Business loans are generally provided as a lump sum payment for a specific purpose with a fixed interest rate and repayment term. A business overdraft is a revolving loan that has a credit limit and allows a business to draw on funds up to a pre-agreed credit limit. A business overdraft can allow fast access to flexible funding within existing accounts.
6. Establish good cashflow management habits from the outset
- Be frugal with overheads
Manage and minimise your energy usage and assess contracts to establish the best value for you. Make sure your premises are fit-for-purpose to avoid energy ‘leakage’, and select energy-efficient equipment. - Get paid faster
Invoice clients as early as possible. Shorten payment terms if possible and consider offering incentives for early payment. Ensure your payment terms are clear and follow up late payments quickly. - Pay on a longer timeline
Negotiate longer payment terms with your suppliers where possible.
