With 2023 predicted to be a year where the economic environment is likely to continue to be challenging, now could be a good time to look into your business’s funding structure to make sure that it is suitable and most effectively meets both your business and personal goals.

A critical factor to meeting any goals that you may have set for yourself will be managing your cash flow effectively. How you structure your funding can have an impact on cash flow, either positively or negatively.

To ensure that your business has the appropriate structure in place, it is worth undertaking a Business Finance Health Check, where you consider the following points and questions to assess whether what you currently have in place is effective and helps you achieve your business objectives:

1. Cash or trade cycle: Is the funding term matched and suitable for this? Your working capital facilities must be matched to your turnover and your debtor and creditor payment cycle. Inadequate working capital facilities can lead to businesses struggling to pay their creditors in a timely manner and cause general cash flow pressure.
2. Useful life of assets: Are asset loans structured in line with the productive useful life of your assets? Payment profiles that are too aggressive may suit a lender’s security position but can lead to cash flow pressure within a business. In contrast, paying off your assets too slowly, such as by using property-secured debt for asset funding, can result in negative equity over time. It is important that your funding structures align with the true working life of assets within your business environment.
3. For older/used assets: Are there any restrictions imposed by the funder? Some funders can often require larger deposits or generic short repayment terms for older equipment.
4. Current cash flow problems: Are current debt repayment structures contributing to this and could a restructure or consolidation of your debt provide cash flow relief? Often, businesses repay debt too quickly or have not negotiated larger working capital facilities to accommodate growth in turnover.
5. Asset rich but cash poor: Is there an opportunity to use the equity in your business assets to provide liquidity, bolster cashflow and improve performance while funding these assets over appropriate terms? As we move into a potentially worsening economic environment, it is important that your asset base can be used to generate cash as required.
6. Terms of agreement, conditions and covenants: Are these restrictive from your current funder limited flexibility within your business?
7. Personal assets propping up business funding: Is there an opportunity to remove the need for funding to be secured against your personal assets and to better leverage the balance sheet or assets in your business? Funders will rarely volunteer to release security that they no longer need and we regularly see prospective clients offering their lenders more security than needed.

A Business Finance Health Check could be a smart New Year’s resolution that puts you on the right track for the year. As January is generally a month where businesses take some time to get back into a normal operating cycle, it is also a great time to review all your current funding structures. Getting on top of things early in the year and considering all the above points (as they relate to you) can be a good opportunity to make appropriate structural changes to optimise your cash flow and help put you in the best position for the future. Finance New Zealand is well positioned to support you and meet your business funding requirements whether they are business or personal. We have a highly experienced team of Business Finance Advisers who love any opportunity to reconnect with and help existing customers or to be introduced to new ones. Please feel free to get in touch with us if you would like to make a start on a Business Finance Health Check to ensure you are best positioned for success in 2023.