With the world's banking systems undergoing one of their biggest upheavals in decades, experts warn that small to medium sized companies could be in for a rough ride as credit is drying up and business confidence is falling. Without the financial clout of their bigger brothers, it is often the smaller companies that are most affected when the going gets tough.
In fact what's happening to small business is similar to what's been happening with Australia's dwindling water supplies. Cashflow could soon dry up unless precautions are taken. As a finance broker that understands the pressures on smaller to medium business, Finlease is able to advise small to medium business owners on measures they can take right now. Founder Mark O'Donoghue has some words of advice to help small businesses survive the drought.
"Small business owners need to be acutely aware that as the economy moves through this next 12 - 18 month subdued cycle, there is a real potential for many other small businesses, including their clients and suppliers, to delay payments to creditors and aggressively chase debtors. This can put real pressure on a business's own cash flow. However there are some steps that can be taken to help you survive:-
1) Follow suit and play the same game.
2) Don't be lulled into a false sense of security seeing that your bank balance is OK, only to find the next BAS payment "cleans out the kitty".
3) Maybe you had a good prior year but this one is not fairing as well. That may mean your BAS statement could include a large PAYG income tax instalment. Did you know that you can ask the ATO for an amendment to reduce this cost and gain some breathing space?
4) How's your overdraft limit? If it's not sufficient, increase it to a level that lets you sleep at night. Banks generally allow debt limits of up to 80% of any residential property used as security. If they don't, talk to someone who will.
5) Look at an overdraft alternative. There are plenty of property based lenders who will advance 80% on residential property as a "line of credit" at home loan rates which would be far less expensive than Overdraft Facilities.
6) Similar organisations will advance 65% against commercial and industrial properties.
7) Consider 'debtor discounting' which can give you 80% of the invoice value within 24 - 48 hours of presentation.
Finlease advises that the companies which will survive this crisis will be those organisations who have recognized the dangers well 'up stream' and have put in place arrangements to ensure they stay liquid or have access to liquidity through that period.
So, what can be done right now? Take stock of where you are right now, assess what dollar amount of facilities will get you through your worst case position. Maximise the lowest cost and most flexible options initially and use any higher cost options only as last resort, however have them in place and ready to go. Finlease is happy to advise you on how to evaluate all of these facilities and what the benefits to your business can be day-to-day.
One final word of advice which is not unlike putting on your parachute before you jump out of the aeroplane. Get your facilities in place early, before you see a crisis approaching. Being prepared ahead of time will ease the stress and for certain businesses it could make the difference between surviving or not. Or put another way, put the plug in now before your cashflow goes down the drain.
If any of the above options would assist your business in weathering this anticipated cashflow drought, we suggest you contact your Accountant, your Bank or talk to Finlease to explore these options in more detail.
Mark O'Donoghue is the Principal of Finlease, an independent finance broking firm which specialises in finance to the small to medium businesses, who can be accessed on 1300 FINLEASE (346 527) or (02) 9959 3122