Guiding SME clients to success can be tricky. The harsh truth: many SMEs face formidable financial challenges, contributing to a high business failure rate in their early years. In Australia, nearly half (48%) of startups falter before their fourth year, with a quarter closing within their first 12 months.

SMEs are up against the odds as the financial system leans towards larger corporations, even though SMEs constitute 97% of Australian businesses. This underscores the crucial need for brokers to empower SMEs with effective working capital and cash flow management know-how.

Here’s how, as commercial brokers, you can assist your clients by dispelling these common misconceptions in SME finance.

1. Deciphering the Cash Flow vs. Profit Paradox

One common misconception is that profit automatically equates to positive cash flow. In reality, these two financial indicators differ and can misalign. It’s vital for SMEs and brokers to grasp cash flow nuances, especially during expansion or market diversification.

2. Optimising Cash Flow

Many SMEs extend supplier payment terms to boost cash flow. While this may seem practical, it can strain supplier relationships and harm reputation. An alternative solution is invoice financing, enabling SMEs to meet supplier obligations within standard terms or even earlier, preserving vital supply chain ties.

3. Unleashing the Power of Working Capital

A common SME misconception is the need for excess inventory, which ties up capital. The solution? Embrace ‘just-in-time’ inventory, a strategy used effectively by industry giants like Dell and Amazon. SMEs can explore this too.

4. Strategic Financial Guidance

Commercial brokers play a crucial role in SME finance. Rather than viewing loans as quick fixes, brokers should encourage clients to address underlying cash flow and working capital issues. Leveraging innovative financial solutions, such as Fifopay, SMEs can optimise supply chain payment terms for lasting stability.

5. Developing More Resilient Financial Strategies

Every SME should conduct periodic financial health assessments. These assessments pinpoint vulnerabilities in working capital and cash flow. Implementing solutions beyond traditional financing, such as negotiating early client payments or enhancing supplier terms, promotes a healthier financial outlook.

Unlock Financial Potential with Fifo Capital

Don’t let financial obstacles hinder your clients’ businesses. Partner with Fifo Capital to elevate working capital and cash flow. The Fifo team provides a free diagnostic service to all CAFBA members, helping you add more value to your clients. Fifo is proud to be a member of CAFBA and a specialised lender serving SMEs. Find out how we partner with brokers to provide better financing and support for SMEs.