Most Australian SMEs don't fail because of bad ideas — they fail because the money runs out at the wrong time. Profit looks good on paper. Cash flow keeps the lights on.
The Evidence: Cash Flow Tops SME Concerns
The latest NAB SME Business Insights Report (May 2025) found that 43% of small and medium enterprises ranked cash flow as one of their top three business worries, higher than profitability and inflation.
Even as price growth has eased within the RBA's 2–3% target band, pressure on liquidity remains relentless: rising input costs, tighter lending conditions, and slower customer payments.
Why Profit Can Mislead
- Timing: You can recognise profit while cash hasn't arrived.
- Working Capital: Inventory, WIP, and receivables can absorb cash even in a profitable quarter.
- Paper Gains: Accruals and non‑cash adjustments look healthy in a P&L but don't pay wages.
The Cash Discipline: A Practical Operating Rhythm
- 12‑Week Cash View: Maintain a rolling 12‑week cash forecast updated weekly. Focus on inflows (receipts) and outflows (wages, BAS, rent, suppliers) rather than accounting profit.
- Receivables Sprint: Call, not just email. Move from 45–60 days to <30 days with structured follow‑ups and small incentives for early payment.
- Payables Triage: Negotiate terms where appropriate, but protect critical suppliers. Align payment runs to receipts timing.
- Inventory Breath: Reduce slow‑moving stock and right‑size order quantities to release cash without starving sales.
- Scenario Tests: Model “what if” shocks — a 10% sales dip, a big debtor paying late, or a sudden supplier prepayment.
Simple Metrics That Keep You Honest
- Cash Conversion Cycle (CCC) = DIO + DSO − DPO
- Operating Cash Flow Coverage = OCF / (Wages + Fixed Outgoings)
- Net Cash Burn (if negative) and Runway in weeks
Rule of thumb: Profit is a story; cash is a clock. If the clock runs out, the story ends.
How to Start This Week
- Export last 12 weeks of receipts and payments; project the next 12 weeks.
- Highlight any week you expect to go negative — and plan actions now.
- Phone your top 10 debtors; set up direct debit for repeat customers.
- Delay non‑critical purchases; consolidate orders to reduce freight.
Want to turn this into a broader plan? Read: A Simple 7‑Step Strategy Framework