How to beat the business growing pains

Finance expert, author, speaker and taxation specialist Dr Steven Enticott has worked with SMEs for nearly two decades. One of his areas of specialty is helping small businesses overcome the financial obstacles to growth that can stand between them and long-term success. Here he shares some of his insight on how to beat the growing pains and get ahead.

What are the key teething problems every business goes through?

From 18 years of accounting experience, dealing mostly with small to medium businesses as well as being a small business owner myself, I’ve found the biggest challenge – and the most important to deal with – is managing business cash flow. The faster the business grows, the trickier this becomes.

What strategies do you use to address this?

Cash flow affects us all, and based on my experience I’ve come up with five key tips to stay on top of it:

  1. Remember that the money coming in the door isn’t all yours!
  2. Put aside a percentage of your income for GST, superannuation, WorkCover, tax, etc.
  3. Fund your business activities properly and ideally via a loan.
  4. Make sure you stay up to date with taxes, and make your payments at least every quarter.
  5. Tax planning should be done at three-quarter time, not after the final siren (30 June)!

How important is it for businesses to anticipate and manage these issues?

It’s critical for businesses to address these issues, and I can’t ram home these tips hard enough to our self-employed clients. They are vital. Cash is king and so is cash flow. Without managing it, things can unravel very quickly indeed.

If a business owner is reading this and thinking “I could be in trouble”, what are the first practical steps they should take?

If cash flow is causing trouble then the first step is to not ignore it, but be proactive about it and see your advisors. Much can be done prior to disaster to change the course – when it’s too late, it’s too late. Bankruptcy issues are something no one wants!

How much of a turnaround have you seen from the businesses you’ve worked with?

One example is Peter and Mary, a couple who started a new business venture providing a basic “disaster rescue’ landscaping service for homeowners after a building project has messed up their garden. The more their business grew, the more their earnings had to be allocated elsewhere. After paying the business’s bills, a part of each dollar had to be put aside for GST, income tax and employment costs (such as superannuation) for their contractors and employees.

They sat down with an accountant and agreed on a small percentage to deduct from every paid invoice to be placed into a separate bank account so they wouldn’t be caught short, enabling them to pay their liabilities as they arose so they never fell behind.

The problem was that, by doing this, they weren’t able to fund their own wages, small equipment purchases and marketing costs in the startup stage. So they took out a $35,000 loan to fund the business until it could pay for itself and then eventually pay dividends on their time. In April each year, they would sit with their accountant and review their year to date and project this forward until the end of June. This way they could look at their potential tax liabilities and seriously consider any changes well before 30 June.

In the above, you have a major route to manage and stimulate growth. Can you explain what that is?

Yes – get your foot in the door. Earn trust and showcase your qualities! In Peter and Mary’s case, they identified that there is a point after a renovation when homeowners have the least amount of money to spend, so instead of offering a top-level garden-landscaping package, they offered a base-level option.

This allowed them to create relationships that could be further developed later. But you must go much further than just a foot in the door – you must be proactive in collecting email addresses and have a regular newsletter (seasonally) to remind clients you are there, offer specials and watch the growth.

What about the need to add service offerings to be more competitive?

It’s essential. For example, a burger café can add home delivery, a swimming pool sales outfit can offer a cleaning service or – as in our garden-rescue example – they could offer a regular garden-maintenance package. Think service, service, service!

What’s the best piece of advice you received when starting in business?

One that has stuck with me is the need for balance. When I began as an accountant, it coincided with the birth of my first child, and the senior partner advised me to spend plenty of time with them while they were young. Because as children age and develop into independent adults, they will spend less and less time with you and that window of opportunity is gone. Eighteen years later, it was very valuable advice!

As your business grows, you may want to find accountancy software that can scale with you. Find out what the most effective finance system is for your business.

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