Managing cash flow

Cash flow is imperative to the success of your business, however, it is an area that is often neglected, and business owners can be left short when they need funds, or miss opportunities to get their spare cash working for them. 

Things can be exacerbated in industries that are seasonal – much of your money is made in one half of the year, yet for the remaining six months there are still bills to be paid. It is prudent to ensure you don’t drain your cash reserves in the months money is flowing in. 

When times are good, it’s easy to overspend on growing your business or to get locked into a rapidly amortisation finance deal (a loan you pay back quickly) – leaving you struggling to repay debt if things get a bit tougher.  

We would recommend you make yourself aware of the economic lifespan of your assets – that is, you need to know when different pieces of gear are likely to need upgrading or replacing. Then, when you borrow to fund this gear, match your lending terms to this. You don’t want to pay back debt too quickly and risk running short on cash, or too slowly so that you may owe more than the asset is worth when it needs replacing.

It always pays to check if your finance offer will penalise you for lump sum repayments too. If you’re likely to have a lot of cash at one point (whether through your work cycle or planned sale of other assets) it may be preferable to be able to pay off a chunk of your loan without penalty.

If your lending facility is non-redrawable – that is, once you’ve repaid funds you can’t access them again – it is advisable to not repay too much too soon. While you do build equity in the asset by making repayments, should you need this equity at a later date, it can be difficult to access funds again. 

Your Finance New Zealand business partner can work with you to plan any future purchases, or you could consider using a revolving credit facility.  We’re happy to answer any questions you have around cash flow and finance terms.