Running your business

How to manage your small business finances

Do you run your own business? According to the Australian Bureau of Statistics (ABS) as of June 2023, there were more than 2.5 million active businesses in Australia, from sole traders to large corporations. But over the preceding year, Australian businesses had an exit rate of 15 per cent.

To help avoid being one of the 15%: handling your money efficiently is crucial, especially in the crowded Small to Medium enterprise (SME) market. But how do you make sure you effectively manage your small business finances?

Consider a business bank account

Even if you are a sole trader who runs a small business that sells only your skills and time, both the government and financial institutions recommend using a separate business account for operating cash flow. You may also be able to integrate your taxation software at tax time. The features of your personal accounts may also not meet the needs of your business. Check out our article on Starting a Business for more details on business bank accounts.

Keep the books in order

The Australian Taxation Office requires that you keep your business records in order, easily accessible and legible, for between five years and seven years, depending on the records. The paperwork you have will vary from business to business and will generally include:

  • Profit and loss statements
  • A balance sheet
  • Statements from your business accounts and credit cards
  • Records of payments to employees and any PAYG tax
  • Invoices and receipts for goods and services, both bought and sold
  • Register of assets and stocktake details.

You may also consider collating your business cash flow statement with a profit and loss forecast for your financial year. Staying on top of the paperwork will help you with your tax return, see exactly how well the business is doing and could assist in providing insights for your next big business decision. Seek advice from your accountant about what paperwork you are required to retain and for how long.

Work out your limits

As you would when buying a house with a home loan, SMEs with limited access to capital may need finance, such as a business loan to facilitate investment in the business, for example for a new site expansion or company growth.

What factors should you consider?

Try to consider all of the variables. What kind of assets do you have as security for a business loan, and how much are they worth? What repayments can you feasibly afford over the set term? What’s your loan value ratio (or LVR, the ratio of your loan against the asset), and how big a deposit will you need?

At IMB, we have a wide range of business finance products and services that cater to businesses both small and large. Our personalised service means we can help you find a financial solution that may fit your objectives and financial situation.

How to manage cash flow

Cash flow can be a constant concern for any business. Whether you own a grocery store or are a self-employed tradesperson, cash flow might dictate your success and failure. According to ASIC, inadequate cash flow was an identified as a cause in 52% of of business insolvencies in the 2023 financial year.

Learn how to better handle cash flow and help prevent your small business going under.

Keep on top of your debtors

In the business world, payments can be a little more flexible than they are in day-to-day purchases. When you provide a service, you can end up with a backlog of unpaid invoices. It might be the case that you’re pretty certain that you’re going to get the money eventually, but debtors affect your cash flow.

To get that money in, you have several options and one of those is to chase them up yourself or hire a company to do so. Despite your best efforts this may not always achieve your desired results and if you need money right now to pay your staff or to buy new products or equipment, for example, debtor finance may assist.

Stay ahead of the game

We live in a rapidly changing world. Even the most traditional of businesses are seeing enormous changes due to increasing innovation - in technology, business management and equipment. If you want to keep ahead of your competition, you either need to do something better than everybody else or provide something that nobody else can. And many businesses are scrambling to do one of those two in new and innovative ways.

For long term success, businesses must keep up-to-date with innovation. The Australian Government provides a range of incentives for small businesses interested in research and development, but these might only go so far, especially if you do not have the ability to finance the investment.

Sometimes, you might need to spend money to stimulate growth, and if you want the latest equipment to access new customers and expand your business, it can pay (literally) to investigate your options in asset finance.


What is an overdraft and how can it help your business?

Those starting a business may be aware that cash flow is a key concern, but small to medium-sized enterprises are often hardest hit when debtors and customers fail to settle their bills in a timely manner.

Understanding business overdrafts

Overdrafts are facilities which give businesses access to temporary credit that extends beyond the businesses available cash. Having an overdraft can assist with emergency expenses, late debtor payments, and other short term cash flow issues.

Business overdrafts usually have no fixed term, so you can access funds up to your credit limit whenever necessary, although you should be aware that interest and fees apply depending on your usage.

One of the biggest benefits of business overdrafts is the speed and availability with which you can access cash. IMB Bank's overdraft facility enables you to withdraw funds via:

  • An IMB Bank branch
  • An ATM
  • Internet and Phone Banking, and
  • Visa debit card.

What’s the difference between secured and unsecured overdrafts?

Business overdrafts are available as both secured and unsecured lending. An unsecured overdraft means that you do not need to provide an asset as security for the facility. On the other hand, secured overdrafts require you to commit an asset (or several), such as residential, commercial and industrial property, as security for the facility.

Each option has advantages and disadvantages. An unsecured overdraft exposes you and your business to less risk to your assets, but the amount of available credit will generally be smaller and the interest may be high than what is offered for a secured overdraft.

Secured overdrafts usually allow you to access a much larger amount of credit. However, the lender will have the right to sell the assets you’ve put up as security if you’re unable to repay debts on your secured overdraft.

IMB Bank offers maximum unsecured business overdrafts of $20,000, while our secured overdraft facilities allow up to $500,000 – or more on a case-by-case basis.

Taking the next steps

Finding the right overdraft facility for your business will depend on a range of factors, so it’s important that you discuss your needs with a specialist adviser before making a decision. If you’d like to know more about IMB Bank’s business overdraft services, please contact one of our business banking specialists today.

NEXT: Find out how your bank can help you to expand in Part 4: Growing Your Business.

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Important Information

Important Information:

This article has been prepared by IMB Bank and contains general information only. It is not intended to be relied on as advice. It does not take into account your objectives, financial situation or needs. You should seek your own legal,  financial, taxation or other professional advice before you make any decisions about your business. Consider the relevant Terms and Conditions or Product Disclosure Statement and Target Market Determination before deciding whether to acquire any products or services offered by IMB Bank. Lending criteria, terms and conditions, fees and charges apply to IMB loan products.  

IMB Bank does not recommend any third party products or services referred to in this article and we accept no liability in relation to them. Any links to third party websites are for your information and we do not endorse any content on those sites.