Managing cash flow over a slow or prosperous summer

Effectively managing cash flow during the Christmas and summer holidays presents both challenges and opportunities for businesses across various sectors. 

While some industries, such as retail, hospitality, and the food and beverage sectors, often experience a surge in activity, others may grapple with a slowdown in sales as regular consumers take time off or alter their routines. The level of preparedness becomes a critical factor, as even businesses anticipating a seasonal sales boost may find themselves financially strained due to heightened trading costs associated with factors like increased staffing and supplier payments. This juxtaposition of fortunes during the festive season underscores the diverse experiences of businesses in different sectors.

The consequences of a slow or slower summer can be severe, potentially leading to permanent closure for some enterprises. Alarming statistics from the Australian Bureau of Statistics (ABS) reveal that in the 12 months leading up to June 2023, a staggering 386,000 businesses ceased trading. Notably, the retail, administration, and wholesale trade sectors bore the brunt of these closures.

Recognizing the economic challenges posed by the holiday season, small and medium-sized enterprises (SMEs) are adopting proactive measures to navigate through potential income gaps or capitalize on increased demand. According to Reece Ketu, Moneytech’s Head of Small Business, SMEs are increasingly seeking finance facilities, with a particular focus on options like a Line of Credit. This financial tool provides the flexibility required for businesses to cover various expenses, including stock replenishment, bill payments, and subcontractor engagements.

“SMEs forecasting a slower summer are applying for finance facilities to boost their bottom line and bridge a one to two-month income gap,” said Moneytech Head of Small Business, Reece Ketu. “On the other side, we also have businesses that have an increased demand for their products or services over this time and need to be prepared to ensure the availability of necessary resources, such as inventory, raw materials, and skilled labour, to scale operations as required. Smaller SMEs are much more likely to seek finance to maintain cash flow[ii] and this can be done with a variety of finance facilities including a Line of Credit to boost cash flow quickly.”

A line of credit finance facility is a set amount of funding which can be used by the business to pay for stock, bills, or sub-contractors. The funding limits and interest rates offered to clients are determined by a number of factors including a business’s years in operation, the status of their current balance sheet, and which company assets can be used to secure the loan. 

“Used for identified business requirements including wages and paying supplier invoices, a line of credit facility can improve cash flow over a difficult period and position a business for greater success in the new year,” said Ketu. 

Demonstrating that finance facilities such as a line of credit are not only sought by relatively new businesses or those facing short-term cash flow interruptions, Moneytech recently completed a Line of Credit facility solution for a 25-year veteran of the catering industry. The company needed working capital to operate the business and clear some existing debt obligations. 

Moneytech shares their top tips for improving cash flow this summer. 

Incentivise early invoice payment

Encourage payment of outstanding invoices by incentivising early payment. If your payment terms stipulate a net 30-day period, consider offering a modest discount to customers to settle within a shorter timeframe.

Streamline Accounts Payable

Efficiently managing your accounts payable system is crucial for enhancing your company’s cash flow.  Prioritise essential invoices ensuring that unpaid bills don’t go unnoticed.

Outsource Select Business Functions

Identify areas where outsourcing may be more cost-effective. Functions like IT, human resources, accounting, payroll, and marketing can be outsourced to specialised firms which can save money and provide staffing flexibility.

Renegotiate Service Contracts

Review internet, telephone, photocopier, software, and cleaning/building maintenance contracts to find cost-saving opportunities.

Maintaining a Rolling Cash Forecast

Implementing a rolling cash forecast is a valuable practice for enhancing overall cash flow. This forecast should include estimated inflows, such as customer payments, and outflows, including vendor payments and payroll. Update this data on a weekly basis at the very least.

Reece Ketu underscores a crucial aspect of Moneytech’s finance facilities: they do not require personal assets as collateral. This distinction provides business owners with an added layer of security, ensuring that even in the unfortunate event of business failure, personal assets remain untouched

“The customer had several facilities with a number of different providers and wanted to consolidate these into one simple revolving facility at a better rate to give them greater flexibility,” said Ketu. “A $250,000 Line of Credit facility from Moneytech consolidated their existing debt facilities, allowing them to save money on interest and fees and manage their cash flow better.”

To learn more about finance facilities to assist and grow your business, visit www.moneytech.com.au.

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