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Cashflow Concerns Impacting 3 out of 4 Small Businesses

Cashflow Concerns Impacting 3 out of 4 Small Businesses

(15 June 2021 - Australia) Cash flow concerns continue to dominate the minds of small business owners despite a considerable drop in those reporting such issues, research by Scotpac shows.

ScotPac’s latest SME Growth Index based on research conducted by East & Partners shows that while reports of healthy cash flow among small businesses is up to 27.5 percent from 10 percent in 2019, a staunch 72.5 percent reported having cash flow problems. While businesses report being cash-strapped as a result of bloated payment times, “government red tape and compliance” was the leading cause for cash flow woes, as 44 percent of business leaders said it caused them problems.

More than one in four SMEs reported having a renewed focus on cash flow forecasts, particularly among larger firms with A$5 million to A$20 million annual turnover. Among the larger SME cohort, one in two said they would plan cash flow forecasting, while just nine percent of those with revenue less than A$5 million said they planned to do the same. Smaller businesses instead reported an interest in turning to alternative finance strategies to relieve pressure.

ScotPac noted that, despite significant cuts to red tape under the Morrison government, small business leaders have reported it as the leading cause for cash flow issues since the inception of the SME Growth Index in 2014. ScotPac CEO Jon Sutton pointed to extended payment times as the primary cause for cash flow issues among small businesses. He said that if SMEs “never had to wait”, they would hold onto an additional 42.8 percent working capital, on average.

“Fledgling businesses, five years or under, have on average 59 percent of their working capital tied up in unpaid invoices, while for older businesses it is 36 percent. This reinforces the importance of prompt payment for small businesses, and for business owners to look for funding solutions that can smooth out cash flow if they are having to wait for payment” stated Scotpac CEO Jon Sutton

“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. 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” Mr Sutton added.

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