On the one hand, both the Australian government, as well as private lenders, are putting in efforts to revitalize the country’s SME sector. On the other, however, it seems that small and medium enterprises in Australia are dealing with a situation that involves debt, being owed money, as well as some degree of poor financial management skills on the part of the businesses’ owners.
The vicious circle of debt
According to the latest data on small business debt, released by one of Australia’s top four banks, companies turning over under $2 million per year are caught up in a toxic spiral of debt, which they both create and maintain. This situation also includes a lot of debt being carried against small Australian companies, which are currently being owed no less than $10.4 billion. An overwhelming proportion, specifically 62 per cent of that debt, is overdue. On average, small Australian businesses are owed $18,624. This sum, which is far from insignificant, is at the very core of a snowball effect, in which small businesses go on to withhold or postpone the payments that they, in turn, owe their partners.
The bank which completed the poll analyzed the responses of 761 small business owners, which mostly proved that overdue payments are the norm on the Australian SME business scene. 57 per cent of the respondents agreed that making payments with a certain delay is ‘standard practice’ these days, while another 29 per cent are late with their payments on purpose, in order to avoid a complete lack of liquidities. While this strategy is understandable, a situation such as this one, in which the cash flow of an emerging company is constantly strained and jeopardize, means that said business has little to no prospects for profit.
Also, a business that is constantly indebted or owed money has significantly lower odds at applying for a business loan, which could propel the venture into new realms, or even a bigger league. Since the banking scene is also ‘strapped for cash’ as it were, at the moment, many banks are targeting small businesses with their newest products, in hopes of conquering this particular segment of the market – only recently, one of the country’s Big Four banks announced it would invest $1 billion into small businesses. It’s definitely not the only one trying to get a piece of this pie, but, given current levels of debt, it’s unlikely they will achieve spectacular results any time soon.
Solutions to save up and avoid debt
The spokesperson of the bank behind the poll agreed that proper financial management is the very obvious priority of most small businesses. Many business owners are doing a good job of keeping their finances in check – yet not all of them. Here are some expert tips for SME owners who would like to avoid falling into the trap of ongoing debt: