Managing cashflow is the biggest challenge facing agribusinesses in the current economic climate, according to a survey conducted by the National Australia Bank.
Cashflow was chosen as a 'challenge' by 56 per cent of agribusiness respondents, and the 'biggest challenge' by 37 per cent of agribusinesses.
It was also considered a significant challenge for other small businesses involved in the survey (51pc overall).
Agribusiness respondents also listed drought and climate change as challenges to be faced in 2009.
NAB’s general manager of agribusiness, Khan Horne, says the availability of cash is critical for business success.
"If conditions are tough, you need to tighten the belt to squeeze cash out of your business while still remaining profitable," Mr Horne said.
"If you have cashflow, there may be attractive investment opportunities that can be fully maximised in the future.
"You can't change everything at once. So you need to consider what levers you can pull to improve your cashflow in the short, medium and long term."
Mr Horne offers five tips to help small businesses manage their cashflow:
1. Understand the difference between cash in the bank and cashflow. Cash in the bank is only a ‘point in time’ measurement, before paying creditors, overheads and fixed costs. Cashflow is more dynamic, and takes into account income being received and expenses being paid out over a period of time.
2. Control and reduce operating expenses. Make sure you fully understand the true cost and profitability of everything you do, and how it aligns to your business plan. Talk to staff to get their buy-in and ask them to help you to identify and reduce costs.
3. Release cash invested in fixed assets. Capital investment in production technology will help to boost business efficiency over the long-term. However, prioritise purchases and look at how these assets are funded, as there may be alternatives such as leasing.
4. Manage risk to protect profits and create certainty. Protecting your future cashflow from the effects of external influences can be a smart move. Risk management solutions can include fixing interest, hedging exchange rates and taking a forward position on prices. The right insurance – for people as well as buildings and equipment – is also important.
5. Use your networks. See what the neighbours are doing, attend courses, and keep learning. It’s also a good time to be talking to your team of experts - your accountant, financial adviser and your Business Banker - about your business, where you want to take it and what the economic environment means for you.
Sign up for our newsletter to stay up to date.