How to recharge your cash (and energy) levels

Running out of cash and energy?

Running a business in financial difficulty is physically draining for business owners. Unfortunately, this means that existing business problems can start to compound, and an exhausted business owner may not move quickly enough to stop a minor cash shortage from becoming a major cash shortage.

Given that in the small businesses that dominate the Australian economy, there is often no one else to pick up the slack, and it is fair to say that business issues are, almost always, well-being issues. 

Here are some tips on how business owners can better manage their health and well-being to get through the hard times. 

What can hurt cash?

So, what are some of the common causes of these cashflow issues in small businesses? Potential causes that we regularly identify in our line of work include: 

• Poor cash and/or debtors management — in a busy small business, the owner-operator is often hard at work in the day-to-day operations of the business. E.g., in a construction business, they are out on the building site; in a trucking business they may actually still be out in the truck.This means that it can be easy to get behind on the office work and books, and to lose track of debtors and the fact that major accounts have fallen behind. After only a few months, this can snowball into a big problem. 
• Unexpected large expenses — some expenses are inherently unpredictable. For example, if a refrigeration unit suddenly needs replacing, it can put unexpected pressure on cash reserves. Similarly, a natural disaster can require a significant unexpected outgoing (the insurers may come through eventually, but often you need your premises and equipment working as soon as possible). 
• Poor staff performance — in smaller businesses, staff can feel like family. Sometimes this can make it difficult to deal with poor staff performance, and over time, this can have an outsized impact on the company’s profitability. In essence, the wage expense on that staff member may no longer justify the income they bring in or contribute to through their labour. One of the problems in Australia is that managers often try and be ‘mates’ not managers with their staff and run their business like a BBQ. 
• Unprofitable product or service lines — not every product or service line is a winner. Sometimes a business can let a less-than-optimal service or product continue longer than it should, effectively cutting margins across the business.

All of these issues cause business fatigue over the medium-term because business owners take on too much of the ‘manual work’ due to a weak business structure.

What do business owners under pressure need?

Where the cash and fuel reserves are at a low, what steps does a business owner need to take to turn things around? Based on our experiences with hundreds of small businesses over the years, we suggest: 

• Put your health first. This can feel counterintuitive. When the business is in trouble, the responsible owner’s natural instinct is to work longer and harder. But this rarely works to make effective business change. Better sleep, weekends off, eating right and regular exercise are all important to put you in the headspace to work most effectively. One of the other problems in industries such as transport and construction is reliance on alcohol and other substances to relieve pressure.  
• Consider a bridging loan. A short-term cash injection may be necessary to tide you over while you work out a plan. Sometimes negotiating an instalment plan with the ATO may be enough. 
• Work out a business recovery plan. The goal is to avoid insolvency (the inability to pay debts as they fall due and payable), or, if a state of insolvency is already in place, take immediate steps to try and get out of insolvency. The first step here is usually an in-depth assessment of the company’s books to find the company’s true financial position. The outcome of that review will determine which next steps are feasible, such as a strategic realignment of the business, rescue financing, a formal restructuring or a pre-packaged insolvency arrangement. 

Who can help?

When taking the next step, it is crucial to have the right support from those around you, this might mean: 

• Accountants. Initially, this will be required to get the books in order and assess the company’s financial position. But an accountant will also be needed to ensure that ongoing tax obligations are met. Accountants will also set up KPIs and budgets to ensure that the company continues on the right track. For businesses focused on products, robust cost accounting can help determine what the true cost of an individual product is and which product line may need to be cut. 
• The Australian Tax Office (ATO). The most significant debts for most small businesses in Australia are tax debts. If they are contacted early and in good faith, the ATO may be flexible on tax payment arrangements. 
• Business advisors. The best business advisors for a struggling small business will be able to advise on both strategic issues and more practical issues. One framework for business advisors is a ‘turnaround board’ — read more about the concept of turnaround board.  
• Restructuring practitioners. Where the business is insolvent and otherwise qualifies (e.g., the debt is less than $1 million), appointing a restructuring practitioner may be the best option. The appointment of a restructuring practitioner initiates a moratorium on creditor proceedings against a company, and gives directors the opportunity to develop a restructuring plan (with the support of that restructuring practitioner) which will settle the debts of the company. 

The journey to cashed-up (plus energy in the tank) 

Success for any smaller business means having rigorous systems and responsive staff in place (the ‘right people in the right seats’). Where a business is beginning to struggle and running short on cash, it is important to immediately take steps to address the issue and begin turning the business around. The focus must be on core revenue and cutting down unnecessary expenses until the business is breaking even, at the very least. 

But it’s hard to do this on your own: Business owners need to be willing to accept help where needed. And last, but not least, business owners should recognise the importance of looking after themselves: The health of the business is intrinsically connected to the health of the business owner.