Canadian Treasurer

January 26, 2015

Managing cash flow critical for SMEs

Calgary, AB--More than four in 10 of Alberta small and mid-sized businesses (SMEs) surveyed run deficits at any given time of the year. That's one of the key findings of the latest ATB Financial Business Beat. While 57 per cent of SMEs say they never run deficits, 42 per cent say they experience a shortfall at least once a quarter.

Seasonality plays a significant role. Of those businesses that run deficits, 60 per cent said seasons were a contributing factor.

"Having control over your month-to-month cash flow is more critical now than ever due to the uncertainty of the Alberta marketplace," says Wellington Holbrook, ATB's executive vice-president, Business & Agriculture.

"Proactively taking control is key to helping your business thrive at any time, and survive through tough times."

Despite a significant number of SMEs that experience shortfalls, only 29 per cent said they did not pursue growth opportunities due to a lack of funds.

When asked how they deal with shortfalls, 34 per cent of SMEs said they take out a loan or a line of credit from the bank. Other possible solutions include borrowing from within the organization, taking on more contracts and reducing costs and staff.

The survey also asked SMEs what they would do with a sudden injection of $100,000 cash. The majority, 54 per cent, said they would invest the money back into their business. One quarter would pay off debt, while others would pay outstanding invoices, purchase inventory or simply save it.

"There is so much you can do to help manage through but you need to jump on it early and seek expert advice," adds Holbrook.

"Be realistic with cash flow forecasts and identify any gaps early. Talk to your banker about managing through using things like postponing principal payments, rescheduling or consolidating payments, and seek interim working capital."

As we reported earlier this month, the ATB Economy Index has slipped below 50 for the first time since we started tracking sentiment. The current score of 44.5 suggests more Alberta SMEs feel the economy will be worse off in six months than those who feel it will be better off.

The ATB Business Index, which measures optimism among SMEs about the future of their own business, is at 67.5, down slightly from October.

"Alberta business owners are resilient," adds Holbrook.

"They've been there before and they'll be there again. It's their tenacity, hard work and conscious efforts that will help them manage through a softer Alberta economy."



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