Worried about your cash flow?

Karen Anstis | Assistant Commissioner, ATO | Small Business Engagement and Support

Cash Flow Management Education - helping businesses succeed and grow

Small businesses in Australia play a significant role in the economic health of the nation. There are three million small businesses in Australia, producing over $330 billion of our nation’s total economic input and employing 4.5 million people.

In 2016/17 it is projected that the franchise industry in Australia will continue to grow and contribute $178 billion to the nation’s economy (IBISWorld).

Similar to franchises, the types of small businesses are diverse, covering all industries and operating across metropolitan, regional and rural communities. They contribute a range of goods and services to local and international consumers.

Small businesses, their accountants, and business advisors indicate that issues with cash flow are a major challenge when running a business, leading to financial problems that impact on business viability. Statistics show that only 60 per cent of small businesses are still trading after four years, 90 per cent of small businesses fail due to cash flow (Kate Carnell, Small Business & Family Enterprise Ombudsman). The key reasons for business failure and insolvency include inadequate cash flow or high cash use.

Most starting out in business don’t know what they don’t know. Research shows that despite 79 per cent of new small business owners saying they think about their business tax requirements before or as soon as they start operating, 28 per cent say they don’t actually seek advice from anyone. A further 41 per cent seek advice only from informal sources such as family and friends. The primary source of advice when starting a business is an accountant (25 per cent) and 13 per cent look to business and industry associations. Evidence shows that businesses which seek advice about how to manage their cash flow effectively are more likely to succeed.

Owning a business can help you achieve your financial goals, and for many people a franchise can be a great way to go. However, despite the large amount of information on cash flow management already available in the market-place, it is recognised that cash flow remains a significant issue for small businesses. There is a lot of information freely available on how to manage cash flow, nevertheless, the challenge is helping time-poor business owners understand the issues and how to take action to improve their situation.

To support small businesses in having the best chance of success, the Cash Flow Management Education Program was developed for use by new and existing businesses.

The ATO engaged PwC Indigenous Consulting to co-design with industry, small business, advisors and government to develop a simple suite of products on cash flow management based on a conversation between an accountant or an advisor and their client to identify and take action to improve cash flow.

For the past five months the ATO has undertaken a pilot consulting with a range of partners across the country including accountants, bookkeepers, business advisors and the franchise sector to familiarise them with the program. The program contains practical tools to help small businesses analyse their cash flow and identify areas where they can take action. For example, improve their pricing or management of debtors.

We recognise the value that the Franchise Council of Australia and franchisors add to the training and support of franchise owners. We are excited by the opportunity to work with them to help develop the necessary cash flow management skills and knowledge vital to the success of franchise owners.

Everyone learns differently so the Cash Flow Management Education Program has been created to be simple and flexible to meet the needs of individual small businesses. The suite of products supports discussions between accountants and small business owners, to understand and positively influence the cash flow position of their business. The products are adaptable for all types of businesses and at all stages of the business lifecycle.

Whilst every business is different, every business shares the common need to manage cash flow effectively in order to survive and grow.

No matter what industry your franchise is in, what stage of business it is at or what your goals are, you can get help to succeed by addressing the cash flow fundamentals.

The Cash Flow Management Education program is based on the four fundamental cash flow success factors – profit, provisioning, liquidity, and meeting goals.

Based on ATO user testing and research, we look at the six different knowledge topics a small business owner should understand in order to effectively manage their cash flow.

These are:

• Planning your business
• Budgeting and record keeping
• Funding your business
• Managing your cash flow
• Planning your regular commitments, and
• Tracking your performance.

Whether you want to learn one new thing about cash flow, or be able to make more informed decisions, you can use a range of tools in the Cash Flow Management Education Program to help drive success in your business.

For example, the Cash Flow Canvas is a tool that provides a simple cash flow picture for businesses to understand and make informed decisions about their ‘Cash In’ and ‘Cash Out’. The Canvas is designed to visualise responses to the four fundamental cash flow success factors.

During the pilot phase small businesses have been using the Cash Flow Canvas up on their wall and find the Review/Forecast/ Plan & Track options very useful. Using the Change Lever Cards, small business owners can explore a range of options to help make changes to address issues and make improvements in their cash flow and create an action plan.

The effectiveness of the Cash Flow Management Education program is being evaluated in a pilot with advisors, and small businesses. Feedback has been very positive. Accountants have recognised that the program is different to current offerings in the marketplace. It is well designed  for small business and supported by industry. We are currently in pilot and further implementation is proposed.

Karen Anstis works in Small Business Engagement and Support, focusing on ensuring that small businesses are offered tailored and integrated services that are easily accessible, at the time and in a manner that suits them best.

The ATO is the principal revenue collection agency of the Australian government. We aim to be a leading tax and superannuation administration, known for our contemporary service, expertise and integrity.