Miscalculating profit margin results in desperate measures to source funds

Revenue is vanity, profit is sanity, but cash is king.

Time and time again as insolvency practitioners we see businesses experience cash flow issues for various reasons and seek funding to meet their trading obligations, usually with little regard to if the short-term funding measures will be viable in the long term.

Statistics from the Australian Small Business and Family Enterprise Ombudsman and Xero's Small Business Insights Report reveal that only 50 percent of small businesses were cash flow positive in January 2019 with a significant amount of cash tied up in accounts receivable. We agree with this finding as we often come across situations where supplier trade accounts well and truly exceed the agreed limit. Commonly suppliers look at the sales figure rather than keeping a close eye on the credit that is steadily increasing in size, which leaves cash tied up and them vulnerable should the creditor fail to pay. Sometimes sales targets exacerbate the issue, by