Insights- Xerocon- Cashflow Challenges
Xerocon shared some interesting statistics around cashflow in business.
- 1 in 5 small businesses have had cashflow issues in the last 6 months.
- It is estimated that in Australia $120b is required in capital for small businesses.
- Small business lending is approximately $400b across short term loans, overdrafts, secured loans and long term loans.
- the ATO are currently issuing around 100 DPN’s (Director Penalty Notices) each week.
When COVID hit, we saw the ceasing of funds from lenders within the first few months, after which the government stimulus kicked in, which meant lenders were competing against the government.
Now that government support has reduced, lenders focus have changed, making it more difficult to obtain finance.
Lenders are now looking to see if businesses can repay their debt. Clients with ATO debt need to be on an existing payment plan or actively communicating with the ATO; otherwise they will have no chance of obtaining finance.
When looking to obtain a loan, the need for robust information is very high. Financiers all have different capital requirements, however, clients should be aware that their lender will consider:
- uncertainty to risk
- can they service the debt
- what security is there if something goes wrong
How Can Alto Help?
The role of your accountant should not just be someone who prepares your tax return once a year, it needs to be a an advisor role.
We focus on knowing our clients and what is going on in their world to help solve their problems – lift our clients heads up and provide a true picture of what is going on – even if that means having a hard or uncomfortable conversation.
When should you ask for help? It’s too late if you are coming and saying you need funds to pay wages next week. We would normally work assist our clients to ensure they have sufficient capital to fund at least 6 months of expenses.
Going earlier to a lender provides a better outcome and we can help you to be well organised when going for finance and think about things like serviceability and security requirements.
The quality of information in your profit & loss and balance sheet is paramount. Make sure they are clean by keeping business and personal separate, make sure lodgements are up to date, and have budgets and forecasts ready to go.
We as accountants, also sometimes need to have the courage to say to our clients that we don’t feel debt is the right thing for them. Further, our clients need to understand what they are getting into and ensure they can meet the required commitments and loan covenants. We can work with them to explore all options to get the best outcome.
Let us know should you wish to discuss your current cashflow position and options that would be best for your business.
Author: Tanya Holtham