By Tracy Miller
Sep 09, 2021
| External CFO | News

The COVID-19 pandemic has created some of the most challenging circumstances modern businesses have ever faced. From economic uncertainty, to navigating lockdown restrictions, businesses have had to quickly adapt and pivot to survive. The conditions have intensified some of the more common accounting challenges businesses face. Here’s how you can approach these challenges and find solutions.

Cash flow bottlenecks

Cash flow is one of the biggest accounting challenges businesses face, even when conditions are less volatile. Not having enough cash to pay the bills can quickly cause even the most successful businesses to unravel.

There are several strategies to remove cash flow bottlenecks. The major one is to meticulously forecast cash flow to anticipate and prepare for any issues down the track. This will give your business enough notice to employ strategies to raise cash when needed such as seeking short-term funding or creating a cash flow reserve when cash flow is strong to draw on when cash flow is a challenge. It will also alert you to fluctuating cash flow which can prompt you to execute strategies to smooth out cash flow such as through developing a recurring revenue stream like a subscription, membership or freemium product. Another strategy to employ is improving your process for payables and receivables so you’re paid on time while maximising the time you have to pay creditors.

Keep in mind that not all accounting services will advise on cash flow. This kind of high-level accounting advice is more typical of external CFO services, such as those provided by Keeping Company.

Low profitability

Maximising profit margin is a constant business challenge, but it can be particularly difficult when economic conditions are uncertain. One of the main reasons businesses can struggle with profitability is because they don’t have a deep understanding of the profitability of each product and service. That means that certain products or services can drag down the profitability of the entire business.

The best place to start when it comes to solving this problem is to calculate the net profit margin on individual products and services by accounting for the direct costs and overhead per unit. Check out our detailed guide on how to calculate this here. You may discover that some products or services are surprisingly unprofitable. If it appears that your direct costs or overheads on the item are too high, then it’s time to investigate how you can reduce those costs. One option is to look at reducing labour costs through automation or outsourcing. If there isn’t a meaningful way to reduce costs, then it may be time to abandon that product or service. Alternatively, you may find there is scope to increase the price on the item, especially if the price is currently below market value. On the other hand, you may also unearth products or services which are surprisingly profitable and therefore may warrant expansion.

If you choose to invest in external CFO services such as those provided by Keeping Company, you’ll benefit from advice on how to maximise business profitability. This can be a key factor in helping your business reach its goals.

Rising debt

Increasing debt is a common problem during periods of uncertainty and can have serious consequences such as the threat of legal action by debtors.

The first step to solve this problem is to have a real-time and detailed view of your debts and your progress in paying them. This will help you avoid any surprises down the track. Other options to address rising debt include consolidating business loans to reduce the total debt owed, seeking short-term funding to pay off creditors or negotiating more flexible payment terms or payment plans with suppliers. You can also find ways to quickly raise funds to pay off debt such as through liquidating assets, cutting costs or boosting short-term revenue.

If you’re currently in a jurisdiction where stay at home orders are in place, rising debt could very well be a big issue. The inability to attract the same revenue during lockdowns naturally makes it difficult to pay down debt. The best thing you can do is seek out expert advice to intervene early, such as Keeping Company’s accountants in Sydney, who can help you get on top of any debt issues.

High costs

If your profitability is suffering, it may be due to high costs. There are several ways you can optimise your costs including reducing headcount or minimising discretionary spending such as on entertainment or gifts. Consider whether any costs can be consolidated to reduce overall spend, whether supplier contracts can be renegotiated, whether you can refinance to a more cost effective facility, or whether you can consolidate any credit cards to one with a lower rate or fees. You may also be able to reduce overheads by signing a new office lease or moving to a fully virtual office model.

By investing in expert accounting services or external CFO services, such as those offered by Keeping Company, you’ll gain access to invaluable advice on how to optimise costs without sacrificing your business strategy.

Lack of transparency

The number one accounting challenge businesses face is a lack of transparency into their finances. Usually this is a result of poor data management and reporting. A lack of visibility can lead to your business not recognising financial issues until it’s too late or missing out on opportunities to maximise revenue or profitability. The key is to ensure your business is reporting on the right things such as cash flow, profitability, revenue forecasts and the budget, to allow for a more sophisticated level of financial governance. This will enable you to make stronger and more informed business decisions which will help your business reach its full potential.

In July 2021, the government announced a number of measures to provide financial support to businesses struggling due to the stay at home orders. Find out how these measures may be able to help you address some of these accounting challenges in the short-term.

If you’re looking for accountants in Sydney which can provide expert accounting services and external CFO services, Keeping Company can help. Reach out to us today to see how we can help you solve the accounting challenges in your business.

At Keeping Company, we’re not just accountants, we’re business people too. With our counsel, your business can reach its full potential. 

We have a team of experts; Cloud Accountants, Business Advisors, Finance Specialists working together and ready to help, contact us today.

1300 533 787

For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.