One of the difficulties in managing a business is balancing the fluxes – things rarely run smoothly and consistently. Instead, it often seems you’re either overwhelmed with work, or scrabbling to find new clients or projects.
Depending on the sector you’re in, you could madly busy over the summer months, or able to sit back with your feet up knowing your hectic time is later in the year.
This seasonal ebb and flow can play havoc with cash flow, especially if your business is young or you’re gathering resources for an upcoming project. It’s not uncommon to find yourself in a position where you simply don’t have the funds you need. Whether it’s to cover wages or buy stock or pay for repairs and maintenance, yet you know that in a few months you’ll have plenty of money in the bank for these expenses.
Businesses in the contracting sector provide an obvious example of seasonal ebb and flow. During the dryer months they are working flat tack on a range of infrastructure projects, but come autumn and the wet weather, projects slow down or stop for months. Often, this quiet time is when they have the time to source new gear, maintain the equipment they already have, and look at hiring new staff for projects that are due to come online just as soon as the ground dries out.
The forestry is another industry is another which is impacted by seasonal fluctuations. Around Christmas, many logging crews and trucking business close for two or three weeks, which is a long time to go without income.
Other sectors have different high and low periods, which can make managing cash flow difficult at various times of the year. However, there are several options that will provide funds to smooth these cash flow lumps:
An overdraft allows you to access funds as needed. However, business overdrafts often require property as security against the debt. This tends to mean the size of your facility will be linked not to what your business really needs, but to the value of your property security.
A stock loan advances you funds to buy stock for your business. You may be able to borrow up to 100 percent of the value of the stock, however, the lender may want to see confirmed orders or a verified opportunity before advancing the money. Also, due to the liquid nature of these assets, financiers may seek additional securities.
With invoice finance, when you issue an invoice to a customer or client your lender advances you a percentage of the funds that client owe you. The remaining amount is paid once the invoice is settled in full.
A structured term loan can help you bridge the gaps in your cash flow. Depending on your requirements and repayment levels, the term and flexibility of the loan can be structured to suit.
By having a funding solution in place before you need it, you can ride out the seasonal cash flow bumps your business will face without stress or difficulty. Talk to your business partner at Finance New Zealand today about which option suits your business best.