Culling unnecessary business expenditure

Tristan Dakin explains what businesses can proactively do to manage their cashflow and stop wasting money in the new financial year.

It’s hard to believe we’re beginning a new financial year.

Over the past two years, business owners have had a lot of additional requirements and pressure added to their workload.

And I’m not just talking about managing vaccine passports, capacity restrictions or staff shortages as staff are required to self-isolate, but there are other Covid-19 adjacent factors at play that are hurting Aotearoa’s business community.

Supply chain issues and delays are causing costs to increase, resulting in high inflation and a rising cost of living. This is being compounded by talent shortages and the fear of the ‘great resignation’ which is increasing wages and will likely push inflation rates even higher.

It’s a perfect storm, and for businesses already struggling with added pressures caused by the pandemic, it can be overwhelming. After all, they’re working more, but the business is earning less.

With businesses’ earning potential continuing to be severely impacted, what can businesses proactively do to manage their cashflow and stop wasting money in the new financial year?

Revisit your budget and update your business plan.

First and foremost, it’s crucial to revisit your business plan and budget to ensure what you had initially set out to do is still achievable with the current economic situation.

It may not be, and it’s okay if you need to revise it. If we’ve learnt anything from the past two years, it is that being prepared for disruption and change is a crucial part of business planning.

To succeed and thrive, business owners need to have confidence and knowledge about where their business is heading and how they will achieve those outcomes.

The most important thing you need to do during this process is be honest about what’s achievable from yourself, your staff, your suppliers and your tech infrastructure.

Examine non-strategic expenses – particularly money wasted in fees.

When we talk about expenses, most are likely to consider personnel, subscriptions or, in the age of working from home, smaller office spaces. But what most don’t consider are the expenses you pay month on month without realising the convenience fees you’re being charged. These are the business expenses we need to investigate and cull immediately because they don’t add any value to the business.

Whether your business is sourcing products from international vendors, has customers overseas, or operates in multiple markets, you’re likely to be trying to manage payments in multiple currencies.

Out of convenience, most business owners use their bank to manage currencies, handle foreign exchange rates, set up foreign bank accounts, and pay invoices.

Independent researcher YouGov polled more than 4,800 micro small and medium businesses (MSMBs) across the world and found 76 percent of New Zealand micro-multinationals surveyed rely on bank transfers or card payments when sending international payments simply because it’s easier to stick with the same provider for both domestic and international payments.

Perhaps this is unsurprising. But by doing this, Kiwi businesses are simply pouring their money down the drain in unnecessary fees often hidden in exchange rate markups and high foreign transaction fees.

And yet, it’s the smallest businesses that gain most from the time and cost savings provided by modern payment providers.

Examine the money coming in – improving cashflow

Once you’ve revisited your budget and cut unnecessary costs within your business, the next step is to look to improve cashflow patterns.

Your small business cashflow may be weaker than it could be due to cash you were expecting to have on hand being tied up in open invoices. The result is a weaker cashflow, which could impact your ability to pay staff or suppliers on time.

Having shorter payable terms or implementing stricter invoicing practices can benefit your business by collecting customer payments faster.

If we’ve learnt anything from the past 24 months, it’s that agility and flexibility are no longer nice-to-haves, they’re mandatory.

During the changing workplace circumstances and requirements, it’s crucial to review whether your business processes are working smarter, or if they’re simply causing tension at another point down the road.

This is clearly an uncertain time for businesses and the impact is both large, and ongoing.

Tristan Dakin is New Zealand Country Manager for payment provider Wise Business.