Being a small business owner is not for the faint-hearted. 

A recent survey by accounting firm Xero found 34% of small business owners have used personal savings to get through a tough period, while 46% say they haven’t been able to pay themselves in the past 12 months. 

For those who are struggling, it can take courage to step back and view your business’s wider financial picture. 

With more than 3.7 million subscribers globally, the team at Xero have gleaned valuable insights into five common mistakes even seasoned business owners can learn from.

Not understanding what’s available 

Many business owners don’t understand the plethora of useful digital tools that can help drive growth.

According to Xero’s latest research with the New Zealand Institute of Economic Research (NZIER), a 20 percent uptake of cloud-based tools, such as e-invoicing and job management apps, could increase NZ GDP by up to $7.8 billion a year by improving productivity. 

That’s a massive opportunity to digitalise the small business sector so, with the help of digital tools, businesses can get paid faster and drive efficiencies that will benefit the wider economy.

The importance of healthy cash flow habits

A second mistake small business owners make is not realising how important healthy cash flow habits are to ensure the business is financially strong.

This includes invoicing clients immediately; using digital tools for automatic follow-up; using ‘pay now’ buttons offering different payment methods and using reminder tools to see what invoices are outstanding and who your habitual slow payers are.

Failing to measure and understand your financial situation

One of the most pressing issues is owners failing to measure and understand their full financial situation. Having an accountant doesn’t mean you can just hand everything over and ignore what the numbers are saying.

Collaborating closely with your financial adviser will allow them to help you make smarter, more informed, business decisions. You’ll be in a better position to take risks, to consider whether more staff is a good idea and prepare for the downtimes all businesses encounter. 

That’s been the case for Chandra Harrison of Access Advisors, whose firm works with businesses to ensure their websites and digital assets are accessible to people with disabilities. 

Chandra bought the business, which was originally part of Blind Low Vision NZ, in 2019. She has a PhD in human-computer interface and emphasises her employees all have lived experience of chronic illness or disability, either personally or through whanau.

Initially Chandra worked with just a virtual assistant but two years ago demand ballooned and she now employs seven people.

As new staff came on board, the firm had what she describes as “speed wobbles”.

“My accountant said it was growing pains – but things weren’t so fabulous. I had to put on my big girl pants and get some help.”

Her accountants, Kendons, introduced Chandra to business adviser Liam O’Shea and over the last year they’ve worked on the cash flow complexities associated with fast growth.

As staff joined more admin and project support was needed, leading to greater operational costs and more unbillable hours. Liam helped identify where changes could be made and how to be more aware of the outgoings. “We were leaking billable hours,” she says. 

“I was pretty ad hoc when it was just me… but more people equals more processes.”

He also helped Chandra adjust labour costs by using appropriately experienced people for certain tasks.

Chandra has used Xero from the start as she understood a robust billing software and accountancy package was important and working with Liam and garnering greater insight from Xero tools has given her more awareness of the firm’s financial and cash flow status. 

It’s important to her that the data is easy to understand and, with the clarity the Xero dashboard offers, she believes she’s making smarter, better-informed business decisions.

Communicate

Xero also notes communication with suppliers and customers is vital for effective cash flow management. 

While it may feel awkward to start a conversation about money, following up on unpaid invoices, or sending a reminder before they are due is just good business practice. 

And it’s important you communicate with your suppliers if you hit a rocky patch.  

Considering 94% of small business owners suffering from stress say they are not achieving their business goals and 90% are no longer confident they’ll be able to meet financial obligations, knowing your numbers intimately means you can work out a plan to pay suppliers once your cash flow issues are resolved. 

Failing to develop a plan

Failing to develop a robust business plan, to help clarify your ideas and identify problems that could arise, is another misstep owners make. 

It needn’t be difficult. Xero has developed a straightforward 10-point guide that will take you through the important steps to produce a valuable and inspiring plan. 

Xero is keen to support small businesses struggling with cash flow, and has launched a competition for SMEs to win $5,000 to spend on digitalisation. Click here to enter.

Struggling with your business cash flow? Check out Xero’s cash flow resources to better manage your cash and get paid faster.