Small Business Cash Flow Crisis

In 2014/15, 20,018 businesses in Australia became insolvent, with inadequate cash flow being a key reason. At 30 June 2016, small business owed more than $12 billion in collectable debt, accounting for almost two-thirds of total collectable debt.

Evidence shows that businesses which manage their cash flow effectively are more likely to succeed.

Despite the large amount of information on cash flow management already available in the market place, it is recognised that cash flow remains a significant issue for small business.

The ATO provided the following information on statistics and research:

  • There are more than 2 million small businesses in Australia.
  • The ATO defines a small business entity as a business with less than $2 million aggregated turnover.
  • 96% of all Australia’s businesses are small businesses, producing over $330 billion of our nation’s total economic output.
  • Small businesses employ 4.5 million people, almost half of the labour force.
  • In 2014/15, 20,018 businesses in Australia became insolvent. Key reasons for insolvency included inadequate cash flow or high cash use (18%), poor strategic management of business (18%) and trading losses (13%).
  • ATO research indicates 65% of small businesses found that managing cash flow was a big concern for their business.
  • The majority of small businesses either don’t seek advice at all, or seek advice only from informal sources, when starting their business. This can be an obstacle for businesses in successfully meeting their financial commitments, including tax and superannuation obligations.
  • Small business trends and patterns indicate that more could be done to educate small business and prevent them getting into unplanned debt during the early stages of their business.
  • Poor finance/cash flow (particularly when combined with a lack of financial management skills) are the main causes of aged tax debt. Businesses tend to state that their cash flow is the biggest issue and it’s outside of their control. Agents also cite poor management of cash flow, as well as issues outside of the business’s control.
  • Kate Carnell (Small Business and Family Enterprise Ombudsman) said at the ATO Small Business Leadership Conference that “90% of small businesses fail due to poor cash flow and $26 billion is currently owed to small business in unpaid invoices.”

You’ve heard the saying “Cash flow is king”.

Speak with us today for a complimentary cash flow assessment and ensure your business is viable for the long term.