Small
Business
When you have cash flow in check, not only do you gain piece of mind, you’re in a better position as a small business owner, to navigate unforeseen circumstances, reinvest in your business and people, and just as importantly, yourself.
Every year, about the time that Christmas trees and festive decorations are finally taken down, I like to ‘annoy’ our retailer clients with their “Legal Shopping List” for the year. That is, things that all retailers, no matter how small or large, should be getting on top of before the year becomes too hectic.
Get your Cash Flow Game Plan Together
Emily Roberts
General Manager of Consumer and Commercial Sales
Close to half of Australia’s small business operators (49%) admit cash flow management is the most stressful aspect of running their business, according to findings from American Express’ Working Capital research.
For many small businesses struggling with cash flow, proactive working capital management is critical
Retailers across Australia have been dealt unimaginable operational and economic challenges over the past few years and their resilience has been nothing short of remarkable. While one would hope 2023 is a less turbulent year, increased economic pressures combined with the day-to-day challenges of running a business continue. It is amidst this environment that we now have a clearer picture of the toll that has been placed on small business owners’ mental well-being.
In August last year, American Express conducted research among (500) small business owners to better understand the impacts that cash flow uncertainty was having on their business and personal well-being. From the research we learnt that working capital was an area of particular concern for operators.
Approximately half (49%) of small business owners say that cash flow management is the most stressful aspect of running their business. Working capital cycles are already lean for many, with just over half (53%) saying that they rely on their customers to pay on time, otherwise their business would struggle to pay its own bills and suppliers.
Despite cash flow being critical to any small business’ success, just over a third of owners (35%) say they don’t know where to start when it comes to managing their working capital cycle. Just under half (49%) confess that they often use personal funds to cover business expenses when they come up short.
The impact of cash flow worries
Stress from managing cash flow is not something that operators can easily ignore, but the impacts of doing so are significant on both mental and physical health.
From loss of sleep to declines in physical wellbeing and even strain on personal relationships, lack of capital – or insufficient knowledge around what it is and how to optimise it – is something that is negatively impacting owners and is a reason why many small businesses fail.
31% loss of sleep
21% physical wellbeing has suffered
22% strain or break down of personal relationships
Where to start with your game plan?
When you have cash flow in check, not only do you gain piece of mind, you’re in a better position as a small business owner to navigate unforeseen circumstances, reinvest in your business and people, and just as importantly, yourself.
To help operators be at their best and to navigate this year’s uncertainty with a competitive advantage, it’s vital to have a game plan. Only with a plan in place can business owners have the agility to seize growth opportunities when they arise.
When formulating your plan, the first question to ask is: do I have the right type of working capital to deliver the business growth I desire? Or do I need additional capital?
Next, determine if your business requires a short-term cash injection to capitalise on a one-off growth opportunity or if greater capital is required for a longer-term optimisation or larger project.
Third, analyse where cash flow gets constrained within your business. For example, slow-turning inventory is often referred to as ‘dead money’ as it takes time to realise profit after the stock is purchased. With pandemic-related supply chain challenges, many small retailers were forced to outlay more capital upfront by buying bigger stock quantities to secure supply, but they may now be feeling the impacts of overstocking.
Small business capital can also get tied up if customers are slow to pay. Consider reviewing these processes to find efficiencies, as prompt collection means small business owners free up capital for other uses.
It’s worth pointing out the importance for small business owners of nurturing their supplier relationships to see what flexible payment terms can be negotiated to support their working capital management.
Finally, consider cash flow tools to provide immediate, flexible cash flow suited to operational flexibility by extending payment windows and offering rewards that can be redeemed for business benefits.
Small business optimism despite the challenges
Australia’s economy performed well in 2022, helped by favourable terms of trade (underpinned by commodity prices) and solid labour market conditions. The resulting boost to household incomes saw strong post-pandemic consumer spending and a recovery in travel, which supported the retail sector more broadly.
Looking at economic headwinds as inflation and increasing cost pressures continue to bite, there are a wide range of market views speculating the impact that global uncertainty will have on the Australian economy. As a nation, whether we experience a downturn locally or feel the impacts of a global slowdown more strongly, we will have to wait and see.
Given this continued macroeconomic uncertainty, financial pressure on small business owners’ operations is unlikely to go away any time soon. Particularly as consumers may spend less on non-essentials this year and the cost pressures will squeeze business’ profit margins.
Despite the challenges, optimism abounds. Around three quarters (72%) of small business owners remain optimistic about their business’ future.
To support the optimism of small business, it’s essential that we all help the sector to thrive.
Small businesses contribute 32.7% of the country’s GDP2 and make up 97.5% of all Australian businesses3. Not only are small businesses critical to the ecosystem of big businesses, they are critical to the diversity and vibrancy of local communities.
While we’ll be doing our part by providing flexible working capital to help drive small business’ growth, we encourage everyone to rally behind and support the success of the small business sector in 2023.
For access to mental health support and resources for SBOs, head to:
Footnotes:
1 American Express Working Capital Research. The survey research was commissioned by Ogilvy PR and American Express and was conducted by Lonergan Research in accordance with the ISO 20252 standard. The survey was conducted online amongst members of a permission-based panel, between 12th August 2022 and 18th August 2022.
2 Based on The Australian Small Business and Family Enterprise Ombudsman report ‘Contribution to Australian Gross Domestic Product’ August 2022, found here
3 Based on The Australian Small Business and Family Enterprise Ombudsman report ‘Contribution to Australian Business Numbers’ August 2022, found here
Retailers’ Legal Shopping List for 2023
Olivia Hitchens
Principal
You must make data security and privacy compliance a key business risk and focus for 2023. You and your employees need a clear picture of how data is collected, stored and used in your business across the various data streams.
Every year, about the time that Christmas trees and festive decorations are finally taken down, I like to ‘annoy’ our retailer clients with their “Legal Shopping List” for the year. That is, things that all retailers, no matter how small or large, should be getting on top of before the year becomes too hectic.
Here’s Hitch Advisory’s list of the things retailers should be focusing on now to minimise legal risks in 2023 (in no particular order).
Privacy and Digital Security
Most of us can name the large businesses that have recently suffered very public (and costly!) data breaches. Data breaches and cyber security are, however, just one element of Privacy Law that you must be across.
At the end of 2022, the Australian Parliament passed key reforms to privacy legislation which not only give the regulator larger powers of investigation, but which significantly increase the penalties for breaches of privacy regulations.
The new penalties are massive – the greater of $50M, three times the benefit of the contravention or 30% of domestic turnover. Wow.
What does this mean for retailers? It means you must make data security and privacy compliance a key business risk and focus for 2023. You and your employees need a clear picture of how data is collected, stored and used in your business across the various data streams. You must have up-to-date privacy policies, internal protocols and training for staff on managing privacy compliance. Your IT security and protective regimes must be gold standard. Privacy and digital security compliance impacts almost every area of your business – stores, marketing, IT security, customer service and insurance. One weak link can be costly – not to mention the media and PR risk. If there is one thing you want an A+ mark for this year, it’s privacy compliance.
Intellectual Property
A broad topic, but there have been some reoccurring IP issues in 2022 which will no doubt continue to arise in 2023.
The protection regime for creative design in Australia is lack lustre. While there is not a lot for small creatives to do legally when a big retailer “rips off” their designs, the PR risk for retailers who are seen to steal ideas from smaller players is immense. We encourage all retailers to have internal training and policies for new concepts, prints, designs, slogans, product names, etc. to ensure any ‘inspiration’ doesn’t go too far.
Further, ensuring you protect key product names, phrases and logos with a trademark is essential – as is conducting searches before using these in the market. Lastly, when you engage developers, designers and contractors, make sure your contracts contain IP ownership and assignment clauses.
Advertising Compliance and Greenwashing
There have been some pretty dodgy advertising claims made by large retailers in the past year – some so crazy it’s hard to imagine how they snuck past the keeper. While the wild claims are (hopefully) easy to avoid with a bit of common sense, all retailers need to be mindful of how they advertise their goods and services.
The things we suggest clients focus on this year to avoid penalty are:
False discounting and price establishment – ensure savings claims are substantiated with an appropriate “price establishment” policy. If you don’t know what this means and you offer “Save X%” or other discounts/sales, please contact us asap.
Greenwashing and health benefit claims – consumers are more alive to greenwashing and flimsy health claims than ever before. If you are marketing ‘healthy’ or ‘green’ products or claiming vegan, organic, toxin-reducing, environmentally friendly, anti-inflammatory (the list goes on) elements, you best have some strategy and proof behind those claims. Even one little word is enough to bring the best unstuck.
Social media and influencer marketing – there are strict rules for the use of influencers and social media promotion. This includes where products are ‘gifted’. If you don’t have a policy or understand how to engage with talent online, this is a risk for both you and the influencer involved – particularly with sponsored posts that are not appropriately labelled as such.
Comparative advertising – be careful making any comparisons against competing products and services without proper basis and justification.
Director Identification Number
A quick win – but all directors of Australian Companies should have now registered for their 15-digit director identification number. If you are a director and haven’t done so, do so immediately. If you intend to become a director, please ensure you register for your DIN prior.
Employment Law
Employment law compliance and, in particular, payroll and wages continues to be a huge risk area for retailers who have to juggle the various awards, enterprise agreements and other legislative requirements.
Other areas which need some awareness in 2023 are pay secrecy bans, limitation on fixed and maximum term contracts, family and domestic violence leave, multi employer bargaining and the positive duty for employers to prevent sexual harassment under the Respect@Work regime.
Leasing
Everyone’s favourite topic. Now that the Covid-related lease protections have ended, many landlords are getting heavy on rental arrears and breaches and seeking to increase rents on expired leases. Lease disputes are on the increase. Hot topics continue to be making good compliance, eviction for unpaid rents, landlords refusing assignments, contribution clawbacks and refurbishment disagreements. Please, please have your leases reviewed and negotiated by a leasing expert before you sign!
Franchising Code of Conduct Compliance
For those retailers who operate franchised networks, there were some key changes to the Franchising Code of Conduct in 2022 which you should be aware of. In addition, there is a number of new disclosure requirements including the uploading of certain mandatory information on the Franchise Disclosure Register.
As always, the team at Hitch Advisory would love to chat about your legal needs – and all ARA members are entitled to a free 30 minute consultation, no matter how big or small your business. Hitch Advisory remains Australia’s leading retail law firm and we look forward to helping you minimise your legal risks for 2023.
Reach out to us via hello@hitchadvisory.com or via the ARA.
About the authors
Olivia Hitchens
Principal
Olivia is regarded as Australia’s leading expert on retail law – including in respect of consumer goods, franchising, fitness and beauty and hospitality. Olivia is the exclusive legal advisor to the Australian Retailers Association and regularly comments in the media on matters impacting Australian businesses. Olivia leads a team of expert lawyers in Sydney, Australia (operating domestically and internationally).
Emily Roberts
General Manager of Consumer and Commercial Sales
Emily Roberts is the General Manager of Consumer and Commercial Sales at American Express. She has over 20 years of experience in sales, marketing and general management roles, developing customer-led strategies that drive value and growth. Emily is responsible for enterprise-wide card acquisition, supplier payments and foreign exchange services. She is passionate about diversity and inclusion and is the Executive Sponsor of American Express’ Disability Awareness employee network and an active PRIDE ally.
Expert contributors
