Cash flow struggles were crippling SMEs before coronavirus


SMEs were struggling with cash flow before coronavirus crisis and shutdowns

Small Business

By Loren Webb

Prior to the coronavirus crisis and subsequent shutdowns, Australian SMEs were already struggling with cash flow; this is according to new research which shows 52 per cent of business owners had issues with paying themselves. 

Why were employers so quick to let their staff go when coronavirus came? When the government announced the shutdowns, many businesses made the immediate decision to stand down their employees. New research points to exisiting cash flow issues as the answer, suggesting over one million small businesses (nearly one in two SMEs) were already facing financial difficulty.

The findings come from Money.Com.Au, a new online financial information platform for both businesses and consumers.

They commissioned a survey of an independent panel of 261 Australian business owners to learn how healthy or unhealthy businesses were before the pandemic via their cash flow circumstances.

Cash flow is not a new or surprising problem for SMEs, it is one of the hardest challenges that business owners must navigate. The coronavirus outbreak has added to this pressure of paying outgoings undoubtedly, however this report shows that over half of the businesses involved in the study were experiencing problems prior to the crisis.

Cash flow help for SMEs:

Before the shutdowns came into place, more than half (52 per cent) of business owners and 73 per cent of small business owners (between 11-50 employees) had forgone or delayed paying themselves an income due to cash flow issues within the business.

Small business owners were most affected, with 49 per cent of employers delaying paying themselves often.

The study went on to discover that many small business owners with cash flow issues also had financial hardship in their personal lives, showing that a business owner’s personal life quality is strongly impacted by the quality and health of their business.

50 per cent of business owners overall and 66 per cent of small business owners specifically admitted that they were earning less than their top employees.

Licensed financial advisor and Money.com.au spokesperson, Helen Baker, said that this is one of the factors that is likely leading to cash flow issues.

“These business owners might have taken a leap to hire a highly qualified employee when they aren’t in the most financially stable position to do so. They might have an expectation they will find the income to cover the high salary, meanwhile taking a dip in their own income. I see this more commonly in service-based businesses.”

The Government’s stimulus packages will be providing much-needed assistance to struggling SMEs. However, small businesses clearly need more support in managing cash flow, regardless of the crisis situation that has unfolded.

“Those whose income has reduced significantly rather than ceased will find the Government assistance most beneficial. Those businesses that have been struggling with longstanding cash flow issues prior to the pandemic will be struggling to stay afloat during this time. The Government’s measures may assist the business slightly, but this is likely to come at a cost once again, seeing business owners sacrificing their own pay.”

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