Innovate and regulate? What is the temperature gauge out there for SMEs?

30/09/11: What's the temperature like in your business right now? I am having to be more innovative and more astute with my planning than ever before. The market is reporting businesses are taking longer to pay their bills, which is affecting cashflow which in turn is pushing up bankruptcy rates. Even big business is taking advantage of tougher times and many larger clients are taking more than 60 days to pay bills. Discounting strategies are fine for the short term, but for many it's not enough to keep businesses afloat. Business failures are spiking to their highest levels this year.

For remaining business owners, the pressure is severe, and it is reported that motivation and training of staff is dropping off the priority list as a must do under the pressure. In survival mode, difficult decisions have to be made.

"Lengthening payment terms puts cashflow under greater strain for SMEs businesses when they still have to pay their staff on time," says Peter Knight, of Knight Partners.

"With the economy slowing and retail spend reducing, cash flow pressures for many are at breaking point," he says. "The combination of a longer wait for payment, less availability of credit, and a slowing economy puts cashflow under enormous pressure. The market is predicting it will lead to record levels of insolvency among small businesses this year leading up till Christmas."

With small business in Australia responsible for 3.6 million jobs, the government would be well advised to act fast to protect us in small business and our employees. But things appear to be getting tougher.

As we know, the retail sector has been the first to be hit, with stores having to rethink their strategies, the need for large spaces for storage and merchandise display and the move to online. The shopping experience of the future may be very different. The growth to online shopping for consumers continues at a life changing pace.

Even eternal optimist Harvey Norman chief Gerry Harvey says, "I see unemployment going up, small businesses going under, manufacturing under huge duress and tourism hit very badly. I don't think the outlook will improve."

The changes aren't limited to retail. John Hogg, CEO of STL Warehousing provides state of the art warehousing and supply chain to small businesses and he saw the writing on the wall two years ago. He has re-designed his business to create eWarehousing — an online service where small businesses don't even have to make a phone call to book space. It has cut out the middle man, provided more flexibility and a range of payment plans. His business is booming.

John says, 'Market pressures, the need for innovation and higher expectations by customers add to the pressure being felt by SMEs. Discounting is a cost, but should customer service be ignored to save more? Poor customer service by SMEs during these times of stress, will only result in less repeat business. Mistakes to customers cost up to three times more than doing it right the first time.'

So what do the experts say?

Forecasts for cash flow:

• Look ahead and prepare worst and best case cash flow scenarios it is really important to have an accurate picture of your future financial needs

• Identify the cause find the source of your real financial issues and work with your bank or advisors to find possible solutions, for example:

o Spending freezes and better debt collection procedures

o Think about less expensive materials or supplies

o Look at raising prices not discounting

• Always keep track of the sales compared to the capacity of finances and resources

• If sales are slowing down, you will have to make changes. Have a look at your product/service range and leverage profitable products and eliminate or reduce the amount of weak products/services to increase revenue

• Think about your headcount and what you do and don't need

• Start by looking at the internal funds you can draw on instead of starting to look for external sources, these could include discounts, lower stock supplies or reduce salaries and drawings to survive

Tough times are a chance for new opportunity and strategic re-thinking. When things are tough, don't panic, seek help, think logically, deal with 'real' figures and plan accordingly.

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