The biggest problem for your business

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The inaugural small business commissioner has offered some blunt advice to small business owners.

“You’ve got to get better at operating your small business,” Mark Brennan said to Fairfax.

He said people are often very enthusiastic when they go into business, prepared to work 100-plus hours a week, but they haven’t planned properly.

“They've either chosen an area where the rent's going to be too high for them, they've chosen a market where they've already got plenty of competitors or they haven't 'boutiqued' themselves well enough; but they believe if they work 100-plus hours a week they'll do better than everyone else.''

Brennan has the experience to back up his statements, being the Victorian small business commissioner for the past nine years. He is also a lawyer and has run his own small business – a legal consultancy.

"I see the role as being an advocate for small business. And not just advocating to governments, but to businesses about what they can do to improve the business environment. No small business should fail through lack of information," Brennan said.

Professor in entrepreneurship, innovation, Marketing and Strategy at University of Western Australia, Tim Mazzarol believes one of the most important issues for small businesses is their ability to manage cash flow.

He analysed three papers that addressed the issues of cash flow management and liquidity amongst small firms.

All drew upon large samples and tracked the firms’ performances over time periods of several years.

He summarised their key findings into lessons for small business owners:

First, you should monitor your cash conversion cycle by tracking debtors and creditors and setting measures of how long it should take to receive payment from customers and make payments to suppliers.

Second, you should also recognise that cash flow management is an integral part of your firm’s financial system and will impact on its working capital requirements and overall financial performance.

Third, there is a potential relationship between the firm’s profitability and its working capital requirement and each firm may have an optimal level of working capital.

Fourth, each industry may have different factors influencing liquidity levels.

Finally, manage your firm’s cash flow and working capital requirements towards a future in which you no longer need debt financing.