Many small businesses are in it for the love not the money, but if you find yourself unable to pay yourself each month, something has to give.

Brooke Vulinovich from Social Club (pictured above) based in Perth submitted just that question for our recent Kochie’s Business Builders: The Cash Flow Comeback digital masterclass panel, supported by American Express:

“A few weeks ago for the first time in six years I found myself in a position where the business felt like it was making money and all bills were paid. However, somehow I didn’t have enough to cover my own wages and staff wages and had to stop paying myself for two weeks and also put my personal money into the business for the first time ever in order to do payroll. How can I avoid this from happening?”

Like many small business owners, this was a question that panellist Sarah Davidson, co-founder of global health and beauty brand Matcha Maiden and Melbourne café Matcha Mylkbar could really relate to.

“I felt that pain for longer than I care to admit that situation was,” Sarah said. “I would say the first five years of our business. You have to get something out of it and eventually the goal is to be able to pay yourself a full wage. But sometimes that’s just what it takes to get the business to a certain level.”

Sarah and the rest of the panel had some great insights for Brooke and other small business owners who are struggling to keep on top of cash flow.

Firstly, go easy on yourself

“Don’t be too hard on yourself,” Sarah said. “There are times where you just can’t pay yourself, but you do put a bit of money back in… The business will suck everything out of you in the first few years and, and you will get to a point where it changes.”

The fact is that most new businesses have cash flow challenges. American Express’ Working Capital Research¹ found that 49 per cent of small business owners found that cash flow was the most stressful part of running their business. Another 53 per cent say that they rely on their customers paying on time, in order to be able to pay their own bills or suppliers. Or, in Brooke’s case, themselves.

It’s happened to all of us,” our masterclass host David Koch agreed. “All of us, absolutely. So don’t think it’s anything bad for you.”

At a recent discussion on cash flow in Sydney

Barry Fletcher, Alexi Boyd, Sarah Davidson and David Koch at the Kochie’s Business Builders: The Cash flow Comeback digital masterclass.

Treat yourself as a separate entity

Beyond the hardship of not being able to pay yourself, Alexi Boyd, CEO of COSBOA (Council of Small Business Organisations Australia), was quick to point out that Brooke does need to consider the obligations she has to herself if she is an employee of her own business.

The legal requirements will vary depending on how her business is structured, so Alexi encouraged Brooke to get professional advice to make sure she is checking off every necessity. “It’s very important that you understand that you’re not missing those deadlines, you’re not missing super for yourself and that you know what it is that is your requirements.”

Things to consider in this area are tax obligations, superannuation, annual leave and record-keeping.

Put buffers in place

You know what you need to pay out each month in terms of payroll and other outgoings, so one strategy is to have a buffer in place that covers those expenses.

Sarah has what she calls a rainy day fund, where in good months she puts money aside to cover months where cash flow is limited. And how much is in her rainy day fund? “Three months of my bare minimum expenses, like paying employees, all the payroll expenses, all the overheads. When you’re going really well and you can afford, put it aside because there’ll be a month where you need it.”

She suggested asking a financial adviser how much Brooke should have in her own fund. “Business every month is not going to be the same,” she explained. “It’s always going to be a roller coaster, so use the good times to cover you for the bad.”

Another kind of rainy day fund worth investigating is having a credit card to buffer your outgoings while you wait for income to come in. Look for one with a long interest-free period to ensure you’ll be able to pay your debt off in full when it’s due. That way you can avoid interest charges but still enjoy the peace of mind of having a cash flow cushion ready to apply.

Business loans for unexpected costs

As Brooke’s experience shows, you can be making money in your business but still have unexpected costs making you feel “behind”. This is especially common when businesses are going through periods of rapid growth – a key issue discussed throughout The Cash Flow Comeback digital masterclass.

“I don’t actually think I’ve felt ahead very often in our business,” admitted Sarah. “But that is one of the hardest parts of any kind of exponential growth… So you’re probably going to have to get comfortable with not necessarily feeling ahead. You might not have your payment cycles catching up to you on time for the next big outlay. That’s the most uncomfortable part of growth, but it’s a good sign if those expenses are getting bigger.”

That’s where cash flow management options like business loans can be useful for purchases you need to grow your business, such as advertising or new machinery.

“Business loans tend to be something our customers consider when they’re in this kind of situation,” Barry Fletcher, Vice President and General Manager, Asia Pacific, for American Express Foreign Exchange International Payments, said during the panel. “Most business loans cover terms from six to 36 months. So that gives you some options around how far out you want to extend that.”

For example, American Express’ Business Loans offer small businesses the option of unsecured working capital of up to $300,000 and repayment terms that range from six to 36 months, as Barry shared. This gives you greater flexibility and the ability to help plan expenditure with fixed repayment schedules and no upfront or ongoing fees.

Watch The Cash Flow Comeback digital masterclass:

Look after yourself

A further benefit of using a credit card to buffer your cash flow each month is the rewards points you can accrue.

“Small business owners make a lot of sacrifice to run their business,” said Barry. “One of the benefits we see when we talk to small businesses is where they’re accessing Membership Rewards programs and loyalty programs. They can redeem those points for themselves. So many of our small business owners only get an annual holiday because of the points they earn using certain products… it’s a great way to treat yourself.”

Running a small business is undeniably stressful and you need to treat yourself where you can. So try to make an annual holiday and other smaller self-care rituals part of your business routine.

Check your accounting

Buffers aside, if you’re finding that you have a regular shortfall each month, Sarah said it’s important that you audit your accounting processes. “If it’s a regular shortfall of a similar amount, in my experience, it can be helpful to look at the dates that you have. Are you paying your expenses too quickly? If you’ve got longer, can you reorganise your cash flow a little bit so that you can maybe take a little bit more out for yourself than you might otherwise be able to?”

Sarah recommended speaking to your financial advisers to make any necessary changes to your accounting procedures. To free up the cash flow you need to cover your payroll, you may need to pay your suppliers in a different way or cut back on other expenses.

“Understand what your income ebbs and flows are and, and where your expenses ebbs and flows are as well,” advised Alexi. “So, you know when that rainy day is going to happen.”

The American Express Business Card is designed to support small business owners and extend their working capital cycles with a market-leading² extended cash flow benefit of up to 110 days to pay for purchases3 and no pre-set spending limit4.

This article is brought to you by Kochie’s Business Builders in partnership with American Express.

The program is general in nature and viewers should seek financial advice from an expert before making any business or financial decision based on the information presented.

¹The research was commissioned by Ogilvy PR and American Express and was conducted by Lonergan Research in accordance with the ISO 20252 standard. Lonergan Research surveyed 500 Australian Small Business Owners. Surveys were distributed throughout Australia including both capital city and non-capital city areas. The survey was conducted online amongst members of a permission-based panel, between 12th August 2022 and 18th August 2022. After interviewing, data was weighted to the latest population estimates sourced from the Australian Bureau of Statistics. Small business owner/manager is defined as someone who owns or part-owns a business with up to 19 employees.

2Market leading” based on CANSTAR data analysis of business credit and charge cards in the Australian market as of September 2022.

3Depending on your method of payment, when you make a purchase, when your statement is issued and whether or not you are carrying forward a balance on your account from your previous statement period. If you pay by direct debit, your payment will be processed 10 days prior to your due date.

No pre-set spending limit does not mean unlimited spending. Your purchases are approved based on a variety of factors, including current spending patterns, your payment history, credit records, and financial resources known to them.

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For the first time, I couldn’t pay myself. How can I avoid this happening again?