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Small Business Cash Flow - A Mine Field

Tim Levchenko-Scott January 2010

Small business cash flow, and how to negotiate your way through this minefield is the number one issue for most small business owners. This has become even more of an issues since the credit crunch occurred, because banks are less willing to cover the inevitable cash flow valleys that occur.

If an enterprise has other smaller businesses as customers, they will find them paying more slowly because they are facing the same problems.

If their customers are consumers, they will find that unemployment, reduced consumer confidence and lack of credit will be affedcting their cash flow.

So, if they have big companies as their customers they'll be fine....right ? Wrong. What the big businesses will do is push the working capital problem back on to their suppliers - why ? Because they can. Their big business customers will also be experiencing issues with working capital, cash flow and credit. They can fix this by forcing their suppliers to carry storage costs of goods. Enforcing longer credit terms for themselves - 60 days instead of 30 days. Larger businesses use their market position to relieve their own cash flow problems.

In an interview with AAP in December 2009, Graham Hodges, Deputy Chief Executive of ANZ bank, said that "Larger businesses have been using their market position to push the working capital pressures back into the small suppliers....". The bank was expecting to see many smaller companies suffer working capital difficulties in the first half of 2010.

This problem is not just a function of the current difficulties though,

is alaways and issue. The skill of the entrpreneur is to ensure that they don't run out of cash, whilst honouring their obligations and moving towards their business goals.

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