Do cashflow issues stifle innovation?

In the business world, those who look to be progressive will get ahead. At the organisational level, putting a system in place to leverage technology, use the most up-to-date practices and generally trying to break new ground will present the best results.

Of course, being able to put a new system in place within any facet of the company requires funding. Consequently, ensuring that cashflow is at an appropriate level is critically important to more than just the enterprises accounts.

Cashflow challenges stifle innovation

In fact, research from The Invoice Market has found that small to medium enterprises (SMEs), in particular, will be lacking innovation if the flow of capital across the business is not in good health. Long payment terms and inflexible loan agreements are found to be the main culprits in restricting company funds, making it harder to invest in areas of the business that most need attention.

As many as 32 per cent of Australia's SME owners explained that they would be willing to dip into their own personal finances to support their operations, while 5 per cent have explained that cashflow challenges are making them consider closing their doors altogether.

Despite those statistics, the fact remains that small businesses are actually some of the most progressive entities in Australia, with as many as 90 per cent looking to leverage innovative practices consistently.

However, cashflow issues can prevent them from doing so, with over one in 10 businesses looking to turn to disruptive systems of financing just to ensure they're in a position to stay afloat.

The consequent inflexible repayment terms will only cause bigger issues further down the line, so the fact that so many enterprises are ready and prepared to enter into such agreements is far from healthy.

Accentuated problems for startups

It's little surprise that companies are looking towards unstable sources of income, particularly as SMEs will typically have it tough in the period after commencing operations. For example, a research paper from the Journal of Economics and Behavioral Studies explained that one in every two small businesses will fail in the first 12 months.

The absence of thorough and effective cashflow management is often the cause. 

So, what can businesses do? Well, the first step is to put a plan in place centred on cashflow, including where the business is currently and where it's likely to be going forward. To that end, at WMC Accounting, we have a long history of helping businesses with their cashflow forecasting. 

If your company needs help getting the finances right, particularly if there's the pursuit of innovation on the horizon, then contact us and find out how we can help.