SME sector feeling pressure from rising inflation, interest rates

Andrew Ash explained that cash flow management has been deemed as too complex for business owners in the SME sector, and are looking for a more reactive approach.

A recent survey conducted by Xero revealed that nine out of 10 small businesses struggle with negative cash flow at least once per year, and at least one in five are feeling the pinch for six months with expenses greater than revenue.

Further findings showed that 92 per cent of SMEs experienced negative cash flow at least once per month during 2021, with 20 per cent stating that it lasted for more than six months.

On average, small businesses went through 4.2 months of negative cash flow in 2021, according to the survey.

“They see the easier option being to react to issues as they arise, but this approach carries substantial risk and can result in missed opportunities,” Mr Ash said.

“Not having enough cash in the bank, or seeing your cash balance decline over time, is one of the more stressful things a business owner can go through but getting on the front foot is critical to mitigating issues further down the track.

“There are many reasons why business owners are being caught short, and inflationary pressures is one of the more significant. Inflation has reduced demand for products and services, and it’s also leading to increased costs.

“Other reasons for cash flow mismanagement include industry disruption, the business taking on too much debt, debtor collection issues, and investment in equipment following a period of growth and scale.”

Mr Ash further stated that business owners should be cognisant of factors, such as inflation, which are beyond their control, and should plan ahead for all possible outcomes.

“If you create a forecast, put together a plan to manage the unexpected, review it continuously, don’t overextend yourself, get advice and build a buffer, then you will be on your way to never being caught short again,” Mr Ash concluded.

Mortgage lender Better Choice has launched an enhanced range of commercial loan products in an effort to boost lending to the SME sector.

The lender’s parent company, BNK Banking Corporation, has announced a shift in the strategic direction to pivot the lender’s trajectory into SME lending as a part of its next stage of expansion.

[RELATED: Better Choice launches new SME product range]