Drop in number of businesses reporting cash flow issues

The 2021 first-half results of the SME Growth Index, Australia’s longest-running in-depth research on small business growth prospects, found 27.5 per cent of the 1,253 businesses polled experienced no cash flow issues in the past 12 months (72.5 per cent said they had cash flow problems). In the 2018 and 2019 rounds of research, a much-smaller figure of only 9.5 per cent to 10 per cent of small businesses reported having no cash flow issues.

ScotPac CEO Jon Sutton has indicated that cash conservation is responsible for a drop in the number of businesses reporting cash flow issues, in the face of extraordinary economic conditions and uncertainty around border closures. However, he adds that is not to say cash flow concerns don’t exist, the data also shows three in four businesses are still struggling.

“It’s telling that three-quarters of small businesses experienced cash flow issues despite the low interest rate environment and extensive SME loan support options available,” Mr Sutton said.

“Cash conservation moves by small business owners is understandable given the year they’ve had. The concern is that conserving cash means they are not actively looking to invest in their business to grow, so they run the risk of becoming less relevant in their market.”

Strategies SMEs plan to use to control cash flow

The ScotPac research found that post COVID-19, small businesses are planning new cash flow strategies to manage working capital:

• More than one in four businesses plan to focus on cash flow forecasts.
• One in six intend to use invoice finance to smooth out revenue peaks and troughs
• One in nine will look to online funders
• One in nine will rely on their personal finances (such as credit cards) for business expenses
• One in 10 will look to a new or expanded overdraft

Mr Sutton issued a warning for the SME sector to businesses continuing to conserve cash rather than put in place funding strategies that could drive growth.

“SMEs said they are trying to grow revenue via new and existing customers, but so many also indicated that they are not looking to invest in the business to grow that revenue,” he said.

“In the pandemic aftermath, there has been a markedly low uptake of the government’s bank loan initiatives, with business owners understandably unwilling to add more debt on to already over-leveraged balance sheets.

“However, the result of this reticence is that many businesses have looked at funding and kicked the can further down the road, instead of sourcing more appropriate business funding solutions.

“If businesses do have cash reserves off the back of stimulus and being more conservative to get them through the pandemic, a great use for those cash reserves is to see an expert adviser to guide you into wise decisions about rebounding, growth and how to fund it.”

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SME Growth Index: Twice a year since 2014, market analysts East & Partners conduct this research, Australia’s longest-running in-depth research on small business growth prospects.

ScotPac is Australia and New Zealand’s largest non-bank business lender, providing funding to small, medium and large businesses, from start-ups to enterprises exceeding $1 billion revenues.

Date published 25 Jun 2021 | Last updated 25 Jun 2021