Published on 18/09/2008

In the current climate of tighter economic conditions, business owners face the ever increasing challenge of trying to manage their day-to-day responsibilities whilst still maintaining the bottom line.

Now, more than ever, is the time to take a step back and reassess your business’ financial characteristics and see if there are actions which can be undertaken that can improve business cash-flow or profitability.

Whilst every business is different, some of the key elements you may wish to consider as part of your review process may include:

· Debtor finance: your bank may have the capacity to provide (partial) consideration for your current book of debtors. This will provide immediate cash inflow to your business whilst allocating responsibility of the collection of the debts to the bank.

· Early payment discounts: one way to accelerate cash inflow is to offer reductions in outstanding accounts to customers, whereby there is a receipt of prompt payment. These reductions need not be significant in order to prompt a reduction in debtors ageing and whilst there is a notional reduction in revenue, the additional cash-flow can potentially reduce finance costs and improve working capital.

· Sub-leasing: a review of existing leased premises may reveal excess capacity in terms of available floor space. In these circumstances it may be prudent to review the lease conditions and enquire with the landlord as to the potential to sub-lease to a third party.

· Extension of credit terms: suppliers will general stipulate trade terms with respect to the timeframe in which they require payment from the date of invoicing. Those suppliers, with whom a sound relationship has been developed, may be willing to entertain a short term extension of terms.

· Capital raising: for businesses who are seeking an expansion of operations or looking to undertake an acquisition of another business or major asset for growth purposes, restrictive cash flow conditions can often be a significant hindrance. Whilst raising additional share capital can potentially dilute existing shareholders’ notional interests in the business, the cash raised as a result of this process can facilitate a more profitable business and an increase in shareholder value.

· Sale and lease back: for businesses that have unencumbered assets, there may be the potential to obtain finance by disposing of these assets to a financier and leasing back those assets on agreed terms. This provides an immediate cash inflow, whilst still enabling the ongoing use of assets which are necessary for business operations.

· PAYG Instalment Variations: if business conditions have caused a reduction in profitability it may be worthwhile considering varying the PAYG instalments the business is remitting quarterly to the Australian Taxation Office, who base these instalments on previous tax information that may not be reflective of the current business performance. Penalties can apply for underestimations of projected income tax however.

· Review of insurance policies: it can be habit to pay annual insurance premiums without reviewing the level and type of coverage that is currently in place. It may well be that current business insurances are inappropriate for the mix of business assets and operations and, furthermore, there may be multi-policy discounts available from the insurer that aren’t being provided.

· Re-financing short term debt: a big constraint on a business’ ability to make commitments, which can drive and grow the business is an impending asset residual or borrowing facility that may be shortly falling due. There may be the potential to refinance this lump sum commitment over an extended period which will relieve short term commitments.

Tim Stillwell, Melbourne

tstillwell@moorestephens.com.au