Australian businesses are missing out on this one big thing
Australian businesses have lost sight of the importance of cash flow, which can determine whether a business thrives or fails. Businesses must take steps to get tighter control of and visibility into cash flow, according to RSM Australia.
Peter Saccasan, national head of Business Advisory, RSM Australia, said, “Every single decision affects a business’s cash flow, whether it’s a capital investment or simply ordering new stationery. Buying items on credit can help preserve cash flow, while selling items on credit reduces cash flow. It’s essential for business owners to make smart decisions about when to use cash versus credit.”
In the first year of operation, the availability of terms from suppliers for most purchases can produce a good uplift in cash surplus. However, in the second year, that uplift is much smaller since it’s only measured on the change from one year to the next.
Businesses can also inject cash into the business through a one-off sale of an asset or a one-off investment from the owner. The emphasis here is on the “one-off” nature of these injections.
Peter Saccasan said, “Sustainability is judged by assessing whether or not the business cash flow next year will be in surplus without these one-off injections. Investors and owners need to understand why the business may have needed a one-off injection this year, and whether that injection fixed the problem so that, next year, cash flow will be in surplus again.”
RSM’s 2016 thinkBIG study revealed that 77 percent of business owners were planning to fund their business growth through cash flow, indicating that management of the underlying business cash is a key factor to business sustainability and expansion.
The study also showed that 29 percent of businesses fund operations through debt and 28 percent choose to reinvest profits to fund the business. Furthermore, another recent study showed 32 percent of business owners dip into their own accounts while 44 per cent use credit cards as their primary tool to manage cash flow – an expensive habit that one.
RSM Australia recommends the following when it comes to improving cash flow in your business:
1. Budgeting for tax liabilities:
Many businesses spend or reinvest all of their pre-tax profits without considering their tax liabilities and the timing of when they will fall due. During the last quarter of the financial year, it is crucial to review financial results for the year with an advisor
2. Clearly understand your bank obligations:
Although debt is cheap to maintain at the moment, be wary about leveraging the business with too much debt.
3. Review your debtor collection policy:
Don't fall into the trap of not chasing up non-payment by customers, and make sure that you have a strong policy in place for collecting fees.
4. Push creditor payments out until they are due:
Be organised when paying bills. Paying just before the due date maintains cash flow without missing out on early payment discounts.
Peter Saccasan said, “A cash flow statement tells you a lot about a business. RSM recommends that businesses ask their adviser for a cash flow statement each year, as well as a profit-and-loss statement and balance sheet, so that the decision-makers can see just how sustainable and healthy the business actually is.
“Australian businesses seem to have lost sight of the importance of this crucial tool and it’s essential for them to put it back on the radar as an indispensable measure of business performance and sustainability.”
C-suite spotight: Melanie Perkins, CEO, Canva
Who is Melanie Perkins?
She’s the co-founder and CEO of Australian unicorn online design platform Canva, who ultimately became one of tech’s youngest female CEOs, at just 30, and recently became a billionaire aged 35, making her one of Australia’s richest and youngest.
Why is she in the spotlight right now?
Because less than a year after securing a US$6bn valuation during the pandemic, which provided a big boost to business, Canva has recently more than doubled its valuation, securing a $15bn valuation, which makes Perkins a billionaire, according to Forbes. The valuation comes in the wake of a new funding round in the first week of April 2021 led by T. Rowe Price and Dragoneer and raising $71m. At the same time, Canva announced its business has passed $500m in annualised revenue, up 130% from the year before.
What is Canva and why is it so successful?
Launched in 2013 by co-founders Melanie Perkins (CEO), Cliff Obrecht (COO) and Cameron Adams (Chief Product Officer), Sydney-headquartered Canva is a free-to-use online graphic design product that allows users to create everything from social media graphics to presentations and other visual content, as well as offering paid subscriptions like Canva Pro and Canva for Enterprise, with 3 million of its now 55 million users taking paid subscriptions.
Accruing 750,000 users in its first year, following a number of rounds of investment including from Mary Meeker’s Bond Capital in 2019 and this month’s massive funding round, Canva now boasts 55 million users across 190 countries, with offices in Sydney, Beijing, Manila, and most recently Austin, Texas, and is valued at $3.2 billion.
And while the company was originally most popular with SMEs, helping them draft and design print and digital assets, it’s since grown to become a real-time collaboration suite that’s being used by big firms including McKinsey, Salesforce and American Airlines. In fact, Canva claims that 85% of Fortune 500 companies use the platform’s services. They continue to add new features and during the pandemic, added presenter video recording tools.
How did Perkins get there?
The idea of Canva came to Perkins when she was at the university of Perth, where to earn money on the side she taught students design programmes. Many of her students found platforms like Adobe complicated and frustrating, and the ideas came to her to simplify and democratise design, to make it more approachable and accessible, more collaborative, and ultimately to empower all in design. So, she and university peer Cliff Obrecht, who became Canva co-founder and Perkins’ husband, created an online school yearbook design business, Fusion Yearbooks, to test it out. Operating from her mum’s living room, the yearbook design business was a massive success, expanding to New Zealand and France, and remains the largest yearbook publisher in Australia.
However, Perkins did not give up on her dream to create a one-stop-shop design site and at one point spent three months living with her brother in San Francisco where she pitched to more than 100 venture capitalists, all of whom rejected Canva. It was following a chance encounter at a conference in Perth with Silicon Valley venture capitalist Bill Tai, Perkins was winning over major investors including Hollywood celebrities Woody Harrelson and Owen Wilson and building out Canva’s design platform with a fast-growing team of tech engineers and a high-profile tech advisor, Lars Rasmussen who co-founded Google Maps.
It was in 2012 when things really kicked off however when Perkins and Obrecht found a tech co-founder in Cameron Adams. The same year, they closed their first funding round, which was oversubscribed and raised $1.5m, with Canva going live in 2013. In 2019, an $85m funding round led by Silicon Valley investor Mary Meeker’s Bond Capital gave the company a valuation of $3.2bn, before the most recent funding around in April 2021 leading to a valuation of $15bn.
In her own words…
"I think it's pretty important to know that every single person is going through their own trials and tribulations. Knowing that it's tricky for everyone, that any adventure will be filled with rejections and littered with obstacles – somehow makes the adventure a little less lonely. And it's most important for people who feel like they are on the outside to know this."