With ongoing economic challenges expected throughout the year, it's essential for businesses to review their funding structure and strategies. This article from Adrian Hunt highlights the importance of aligning funding terms with revenue cycles, consolidating debt, and structuring asset loans appropriately. By optimizing cash flow management, businesses can navigate financial difficulties and improve their overall performance.
It’s early in the FY24 financial year and we have already seen a number of businesses face pressure on their business and cashflow as reported in the media.
With the economic environment expected to present ongoing challenges for businesses throughout the year, if you haven’t already, this would be a great time for you to review your business and its funding structure to ensure you are able to achieve your business goals and anticipate possible cash flow problems well in advance.
There are many strategies that a business can employ to assist with your cashflow management e.g. reduce costs, increase margins, invoice immediately, shorter customer payment terms, more favourable vendor payment terms, etc. How your business funding is structured can also have an impact on the effective management of your cashflow!
A few points to consider:
Do your funding terms match your revenue, debtor and creditor cycles? A mismatch here can result in missed and/or delayed payments which can impact your credit rating and your ability to meet your finance needs in the future.
Does your current debt repayment structure have loans with different payment dates throughout the month putting pressure on your cashflow? Restructuring or consolidating of your debt into one facility can minimise pressure on your cashflow.
Are your asset loans structured over the useful life of your assets? Paying off your assets too quickly can put pressure on your cashflow. At the same time, paying off your asset too slow can lead to negative equity over the longer term.
Do you have capital tied up in unencumbered assets and/or accounts receivable? Equity in your business assets or outstanding invoices can be released to improve your cashflow and be utilised to generate additional cashflow.
Working smarter in times of distress is important. Streamlining your cashflow is part of that process and all elements of your business impact it. If you haven't quite got that nailed, give us a call, we'll be glad to provide guidance on how that can be improved.
Adrian Hunt is an Asset Finance Broker with over 30 years’ experience in the finance, banking and leasing industries. He works with businesses to secure tailored finance solutions and minimise their finance costs throughout New Zealand.