How can small businesses beat negative cashflow?

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Chronic cashflow stress threatens to impede small business growth globally. A new report we recently released found cashflow challenges undermine the growth of at least 9 in 10 small businesses in Aotearoa.

In fact, the average Kiwi small business struggles with negative cash flow for a third of the year while one in six (17%) facing cash flow crunches for more than six months each year.

Negative cashflow is when a business’s monthly expenses are higher than the revenue to cover these costs, which can spell trouble for a business’s bottom line – especially if the issue is ongoing.

The rising cost of living and inflation continues to impact consumers and their behaviour, with many tightening the purse strings to weather the current challenging economic times.

Unfortunately, this reduction in discretionary spending appears to be translating into less money available to spend with local small businesses.

Add to this the balance of supporting employees with higher, more competitive wages and this puts small business owners walking a tightrope.

In fact, according to the latest Xero Small Business Index data, wages were up 7.3% year-on-year in the Bay of Plenty in June. But in order to remain competitive, small business cashflow needs to continue to flow.

These cashflow challenges are a major barrier for small business success – something especially damaging during ongoing economic pressure.

It’s increasingly important Kiwi small business owners ensure their customers pay on time as a key step towards improving cash flow.

This sort of volatility can introduce huge amounts of uncertainty to how owners invest in sustaining and growing a small business, directly compromising their livelihoods and those of many in the community.

The sooner we take deliberate action on stabilising cash flow for the New Zealand small business community, the better-placed they and our economy will be to reach their full potential.

What can small business owners do to counteract negative cashflow?

Luckily, small business owners don’t have to sit back and accept regular cashflow trouble.

Taking the time to analyse their finances means business owners can begin to anticipate periods when cashflow often dips into the red and adjust how they operate to improve their monthly cashflow position.

And for any businesses who regularly experience cashflow crunches, prompt invoice payments and more support in budget planning could unlock huge growth opportunities.

Ensuring customers pay on time is a key step towards improving cashflow.

Pandemic-led changes in business models – such as the adoption of food delivery models in hospitality or e-commerce sales for retail – can also help improve cash inflows in the longer-term.

For any local small business owners in the Bay of Plenty feeling the pinch, now’s the time to get in touch with your bookkeeper and begin putting a plan in place.

Supporting your local community by buying local and paying invoices on time will help us all weather this economic storm.

Related: Small business employment improves post lockdown

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Craig Hudson
Craig Hudson
Xero Managing Director for New Zealand and the Pacific Islands

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