By Zilla Efrat

A recent government report shows that SME profits are at an all-time low, meaning that their owners need to look for savvy ways to boost their cash flow and profitability.

The Australian Small Business Ombudsman’s Small Business Matters report reveals that 43% of small businesses are making no profit, the worst rate since 2012.

Worse still, it found that three-quarters of self-employed small business owners made below-average wages despite working longer hours.

Indeed, 55% of owners working full-time with one to 19 employees earn less than the average full-time adult wage. And, 61% of them work 39 hours or more per week. The median hours worked in Australia is 38 hours per week.

Similarly, a report by global small business platform Xero has found that over a quarter (27%) of Australian small business owners have had to use their personal savings to keep their operations afloat and one-third (34%) have been unable to pay themselves.

If you are one of the small business owners facing these conditions, there are several ways to boost your profitability.

Cash flow solutions for small businesses

Obvious ones include managing your time better and perhaps delegating more. As they say, time is money. More time will help free you up to work on your business (not in it) so that you can develop growth strategies, such as growing your customer base, expanding your product offerings, increasing your average transaction size or order frequency and improving your pricing and margins.

It’s also said that cash is king. It’s crucial to keep a keen eye on your cash flow so that you have the money to meet your financial obligations, invest in growth opportunities and remain solvent over the long term.

A whopping 60% of small business owners surveyed recently by Xero said they had experienced cash flow issues, with 14% experiencing significant challenges. Nearly a third checked their cash flow position daily.

Tools and resources to monitor cash flow

The good news is that there are lots of tools available to help you better monitor your cash flow. A good start, however, is to create a cash flow forecast to identify when money will be coming in and going out of your business so that you can anticipate potential cash shortages and take steps to counter them.

Also, keep a strong focus on the money owed to you by your customers or clients. Check their creditworthiness before you do business with them and follow up on late overdue payments.

Be clear about your terms of payment on your invoices and consider ways to encourage customers to pay on time, for example, by offering discounts for early payment or charging penalties for overdue payments.

The longer your customers take to pay you, the more they use you as an interest-free loan.

Be especially proactive with very big debtors to ensure any issues are resolved early and follow up quickly if they fall outside terms. And ensure you invoice customers promptly and accurately so there are no holdups in their payments.

Finance options to improve cash flow

You could consider invoice financing, where your invoices are used as security for a loan, and in extreme cases, hiring a debt collector agency. It can save you time and money pursuing the debt but may take a slice of the money recovered as payment for its service.

It’s also important to carefully manage the money you owe to suppliers and other creditors to avoid late fees and maintain good relationships with them.

If your business keeps inventory, this is another area to monitor. Besides collecting dust, having too much inventory means that money is tied up that could have been used more profitably in other areas. Consider discounting slow-moving or obsolete stock.

There may also be areas where you can “pull in your belt” – for example, by outsourcing some tasks, reducing office costs by becoming more energy efficient and cutting down on travel by having virtual meetings.

Plus, you may benefit by diversifying your funding sources so that you can access finance when you need it and possibly at low costs. Options include debt finance, equity finance, crowdfunding, government grants and non-bank lenders.

If you’re looking for finance solutions to help with your business’s cash flow, give us a call. This article was originally published on ScotPac.com.au.