How small businesses can build financial resilience

The recent findings from the Reserve Bank of Australia (RBA) paint a stark and sobering reality for small businesses. SMEs face a challenging path, grappling with surging inflation, sluggish demand, labour shortages, and the ongoing struggle to secure vital financing from traditional banks.

As the CEO of an organisation dedicated to building SME resilience, I understand the vital role these businesses play in our economy. They drive innovation, create jobs, and stimulate economic growth, but they’re also highly vulnerable during economic challenges.

The RBA’s report highlights a concerning trend: declining small business conditions and confidence due to challenges such as difficulties in accessing bank financing. However, adversity often leads to innovation and growth. The key to overcoming these hurdles lies in building greater resilience, and it’s time for SMEs to take charge of their financial future.

So, what can be done?

Financial support and working capital

Traditional banks often don’t grasp the unique needs of SMEs, as the RBA report rightly points out. Small businesses often struggle to secure quick and favourable financing. Fortunately, alternative financial providers can bridge this gap by offering custom-tailored financial solutions designed with SMEs in mind. It’s crucial for SMEs to explore these options to secure the financial support they need to weather economic challenges.

Supply chain management

Recent global supply chain disruptions underscore the importance of flexible and robust supply chain management. For SMEs, this involves broadening your supplier base, making informed inventory choices, and leveraging digital tools to maintain agile and reliable supply chains. A well-organised supply chain ensures a steady flow of goods and opportunities for cost savings and customer satisfaction.

Cash flow management for small businesses

Effective cash flow management is not a luxury but a necessity for SMEs. Monitoring cash flow, proactive invoicing, and efficient credit management are essential components of building resilience and can make a significant difference in surviving and thriving through economic challenges.

Now is the time to take action, and it’s a collective effort involving everyone in the business community. The RBA’s report leaves no room for doubt: SMEs are the lifeblood of our economy, and their resilience is not just important; it’s absolutely vital.

What does this mean in practical terms?

1. Policy reform: Policymakers should take proactive steps to streamline access to capital for SMEs, making it easier and more efficient. These businesses need the support to innovate, adapt, and grow.

2. Invest in resilience: The disruptions in the supply chain have shown the importance of being prepared. All stakeholders, including SMEs, must invest in supply chain resilience by diversifying suppliers, managing inventory wisely, and adopting digital tools for enhanced agility.

3. Strategic partnerships: SMEs cannot navigate this path alone. Actively seek partnerships that cater to their unique needs, as these partnerships can be the backbone of financial stability and growth.

This is a defining moment for SMEs, an opportunity to maximise resilience and profitability by taking advantage of the financial mechanisms that match the way SMEs operate. But this is not a journey that SMEs need, nor should take alone. It’s a collective effort involving SMEs themselves, policymakers, and the entire business community. We need to stop relying on outdated methods and stop deprioritising the 97% of businesses that power our economy.

SMEs hold the promise of a stronger economy, and it’s time to fulfill that promise.

Wayne Morris is the CEO of FIFO Capital.