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New cash flow management help for SMEs

COVID-19 created cash flow headaches for many SMEs. The ATO has now released a digital Cash Flow Coaching Kit designed to help them get back on track. Here’s how it works.  

Mark Story | February 2021

The digital Cash Flow Coaching Kit (dCFCK) is now available following an Australian Taxation Office (ATO) extensive pilot program with 1200 industry professionals, including 150 CPA Australia members. 

It is designed as a coaching device for practitioners to help build the cash flow capability of small-to-medium enterprises (SMEs).

While a hard copy of the kit remains available, the digital version has the added benefit of being able to import a client’s cash flow data which, in turn, can help practitioners provide clients with greater insight into their financial position.

For example, as well as helping to identify upcoming bills, it can detect change or action levers that could be used to enhance business performance and strengthen cash flow.

COVID-19 has raised the degree of difficulty around managing cash flow and liquidity issues, notes ATO Assistant Commissioner Andrew Watson, who is now working with small businesses, their tax professionals, advocates and software developers to deliver better services to support small businesses meet their tax obligations.

The digital version of the kit helps practitioners better manage often awkward cash flow conversations at a time when they are most needed, Watson maintains. 

“Through our consultations with practitioners involved in the initial pilot, we recognised how important it was for them to be able to continue high-level [face-to-face] client engagement – even during a lockdown – and the [dCFCK] allowed this to happen,” he says. 

Good cash flow aids better tax outcomes

While the dCFCK enables better cash flow management by SMEs, it also has strong benefits for the tax system. 

The ATO’s small business random enquiry program (based on a sample of reviews and audits relating to the 2014–2015, 2015–2016, and 2016–2017 financial years of 2098 taxpayers) shows a 90 per cent correlation between SMEs’ tax being calculated correctly and paid on time and those SMEs that use both cash flow and accounting software, along with practitioner advice. 

“While good cash flow is the cornerstone to good tax, poor cash flow is the number one problem cited by businesses when they’re under tax and financial stress,” Watson says. 

“Our research reveals that the better companies are at managing cash flow, the greater the likelihood of them having their tax affairs in order.” 

Four easy steps to client conversations

The dCFCK comprises four easy steps to guide practitioners through cash flow coaching conversations with SME clients. The steps are supported by various tools such as a “health check” to quickly identify how a business owner feels about their current cash flow situation. 

Practitioners can choose to undertake all or some of the steps contained in the kit to tailor conversations with their clients, which can be used with all business types at any stage of the business lifecycle. 

Other helpful tools include a cash flow canvas to show how cash flows (in and out) of the business. There is also an action checklist to record both agreed goals and the actions the business needs to take to bring about positive change.

While it will not solve all clients’ liquidity problems, Watson says it heightens the importance of cash flow considerations and raises awareness for some SMEs “who don’t know what they don’t know”. 

He notes that the resources were designed – first and foremost – as a value-add tool for practitioners to help small business clients better understand the actions they can take to more effectively manage cash flow.

“While we’re not necessarily excluding SMEs from the kit, it was designed to be used with the assistance of an adviser, as opposed to being a self-service tool.”

As a result, Watson believes SME owners will benefit from advice – now more than ever before – on how to navigate to the right information, improve their business and financial acumen, make critical decisions, forward-planning to maintain viability, and meet financial and regulatory obligations.

For practitioners who want to learn more about dCFCK, the ATO has developed a series of practical “show me how” videos

In addition to an introductory video, there are also cash flow-related videos plus useful case studies demonstrating a coaching conversation between a trusted adviser and a client.

Opportunities to create unique points of difference for your firm

While digital and paper-based versions of the kit can be used independently or together, it is also available in an open-source format. Therefore, it can be used to complement different software accounting packages clients may currently be running.

Once it is in the hands of practitioners, the ATO says how they price it is up to them. 

Knight Partners director Peter Knight FCPA expects the added functionality of having the digital kit embedded on one’s website will have strong appeal to those looking to segue gently into the advisory space.

“With the aid of these relevant and useful tools, practitioners could create conversation starters with clients around what they’re going to do when JobKeeper stops,” Knight says, who was involved in the early stage of the pilot exercise. 

He also suggests practitioners recognise the marketing opportunities dCFCK may offer in helping their firm create a unique point of difference. 

The added benefit of helping clients manage cash flow, he adds, is that practitioners also improve the likelihood of remaining on their books as viable, fee-paying going concerns in 2021.

Indeed, Knight suggests hosting an afternoon cash flow workshop and inviting, say, 10 clients to attend for a small fee. 

“Key conversation points could include myriad issues around pricing: for example, have you increased your prices, are you being squeezed by suppliers’ prices going up, and what other constraints are you experiencing?” he says.