Yesterday, the Institute of Public Accountants backed the Australian Small Business and Family Enterprise Ombudsman’s report highlighting how businesses struggle for growth due to the lack of adequate capital, finance and support.
According to the ASBFEO’s ‘Affordable capital for SME growth’ report, a key factor for a small business in successfully obtaining capital is the quality of a credit funding application, which is dependent on them being able to demonstrate their credit worthiness.
That is done through the client having current business plans, a cash flow forecast, demonstrable profitability and a track record of paying bills on time, the report said.
Therefore, the ASBFEO advised small businesses that they should keep their accountants up-to-date with business plans, so any advice given is relevant to financing needs and future growth.
“SMEs need to work with their bookkeepers, accountants and trusted advisers to prepare the business for lending,” the report said.
“SMEs need to be aware that stretching payment to creditors, such as the Australian Taxation Office, may be seen by a financial provider that the business is not able to meet its debts on time.
“Similarly, claiming all development costs upfront can reduce the apparent profitability of the business.”
The ASBFEO said that, where possible, small businesses should seek capital before it is needed, noting that if the intention is to expand into a new location in the next 12 months, for example, finance should be sought while the business is profitable, rather than a week before a contract with a developer is due to be signed.
Of particular concern to the ASBFEO was that almost half of SMEs are yet to take advantage of accountancy software.
“Transitioning toward digital accounting and point-of-sale systems would help SMEs to maintain up-to-date and accurate financial records,” the report said.
“More importantly, being automated and linked to the finance provider saves time and allows a capital-seeking SME to easily produce a record of performance, business plans and cash flow projections.”
