For the small and medium-sized enterprises (SMEs) that comprise 99.8 per cent of Canada’s private sector, recent economic factors such as high interest rates, inflation and the lingering effects of the pandemic emphasize the importance of optimized cash flow.
Company owners and decision-makers agree.
According to the "Modernizing cash flow management" white paper, 66 per cent of SMEs said it's important to improve their cash-flow efficiency. Sixty per cent said small businesses that don't embrace digital technology will struggle. But businesses in the major industries this report studied remain dependent on manual cash flow management processes.
That’s shortsighted, says Stephen Murphy, group head of commercial, personal and wealth at CWB.
“Cash is the lifeblood of your operation. Managing it well is vital to meeting your goals.”
Digitizing cash flow management processes is a critical investment, but it can be overlooked. Many businesses prioritize cost cutting in a challenging business environment. However, those same challenges only bolster the argument that entrepreneurs should invest in improving cash flow with digital tools to weather the storm.
While external factors are beyond the control of SMEs, investing in cash flow technology is about taking back control and putting your business in a better position to thrive and grow.
The white paper also highlights that 60 per cent of SMEs have experienced challenges in managing cash flow, including delayed invoicing and receivables. Still, 26 per cent have no software for managing cash flow, and no plans to obtain any. That’s especially true among small businesses. Making such a vital part of your business operations an afterthought is not sustainable, says Mr. Murphy.
“If you’re not closely managing your cash flow, you risk a cash flow crunch. That could limit your opportunity to grow, perhaps by adding a new piece of equipment or diversifying your business through an acquisition. Worse, it could put your business in jeopardy if you start struggling to make payments or meet payroll. Nothing is more important to the viability of a business than cash flow.”
Many businesses feel overwhelmed
Even if your business is resilient, putting cash flow management on the back burner can mean borrowing more money than needed. In this higher-interest-rate environment, it can be an expensive mistake.
SMEs that want to make cash flow process improvements a priority say there are obstacles to adopting technology. In our report, the top barriers noted include cybersecurity risks (67 per cent) and feeling overwhelmed by digital technology (49 per cent).
Business owners who want to transition from manual to digital systems, including accounting software and online banking tools, should lean on trusted advisors in their network.
For example, the right financial partner can help assess technology options, including considerations for those that best connect to banking platforms. Banks can also provide information about the latest cybersecurity trends and how businesses can protect themselves.
Strong financial relationships are a pillar of every successful business. They facilitate the best advice from an accountant or banker, and that supports a strong cash management plan. Owners should ensure their banking partners have the most accurate financial picture of their business and its financial needs. This cultivates trust in the relationship and enables a bank to deliver the right financial solutions for the business.
Being proactive is key, says Mr. Murphy, because banks are often asked to be a backstop for SMEs when times are tough and extra financing is needed. When you’re on top of your cash flow, invested in the digital systems to get you there and have a close relationship with your bank, he adds, you reduce risk and create room to focus on customers and clients.
“If you’re reactive and scrambling to bring the right information together, it’s hard to get the most out of your financial partner, and it’s hard for your financial partner to do the most for you. You’ve got to understand the cash flow needs of your business now and in the future. This makes your life easier and builds your financial partner’s confidence in your business. It helps them provide the loan type and amount your business needs to succeed.”
Gap between awareness and action
The "Modernizing cash flow management" white paper revealed some key gaps between awareness and action. 7 in 10 businesses are confident in the digital technologies they use to create efficiency. But only 46 per cent would invest in cash flow management technology if they knew it could help improve their financial processes.
Mr. Murphy says this is proof of a concept trap he often sees among entrepreneurs: an acute focus on business operations to the point that they let financial management slide.
When SMEs invest in better cash flow management processes, Mr. Murphy says they’re able to spend less time reacting to daily cash needs and reconciling their books. That gives them more time to drive their business forward.
Active financial management is especially important as the economic landscape shifts unpredictably. Businesses can set themselves up for success through strong cash-flow management, an enabler of strong financial results.
Adopting cash-flow technology and collaborating with the right advisors is the ideal combination. This includes selecting a banking partner that has the focus, experience and genuine interest to understand and support your business.
CWB has advisors who are not only financial experts, but also deeply understand and have specialized experience with their client’s industry. They can help turn insights gained from a cash-flow management system into positive actions, with recommendations that help clients prioritize investments, customize financing arrangements and capture growth opportunities.
“Banks are only as successful as their clients, so the best results come from forming a true partnership,” Mr. Murphy says.
Being well-organized and transparent is part of a process that creates mutual benefit. Plan with your financial partner, he says, so they can be in the best possible position to help you prosper.
“Trust is a big thing in financial relationships. It’s about thinking, ‘How can you get the solutions that are going to help you be successful?’ Ultimately as a bank, that’s our main goal.”