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Addressing the three common cashflow challenges

Apparently, poor cashflow management and understanding is a contributing factor in 82 per cent of small businesses failures. And last year, almost half of small businesses in Australia were found to have negative cashflows.

It’s the biggest threat looming over many SMEs – the pinching off of the circulation of their lifeblood in mid flow – but there are ways to shore up your operations.

Of course, an overdraft/line of credit or other bank arrangements may be necessary, but can often be costly and insufficient to address long-term cashflow obstacles. Many SMEs would benefit from purchasing their equipment with asset financing to enable them to evenly distribute payments instead of making a large initial outlay – in fact, we found that those that do so forecast an impressive 63.6 per cent higher growth than those that don’t. Financing your assets with the right partner can achieve three goals that help SMEs stay afloat: 

1. Scale your operations quickly without burning cash

While seeing orders flood is an initial thrill, it can also cause panic. Every small business knows growth periods can be as risky as failing to sell. Finding the cash to maintain and grow your operations in response to increased demand can be difficult and delicate to balance – if you can’t build capacity and scale to improve your fulfilment time, you’re heading for a big cliff.

Rather than deploying cash to purchase your new equipment, however, you can use asset financing to reduce your capital outlay while still meeting needs for new equipment, and ensure you’re able to keep growing.

2. Ensure your business stays innovative

If capital equipment is essential in your industry, you’ll already be aware of how, in today’s rapidly changing world of technology, keeping pace can be a pretty expensive proposition. You may get away with using old machinery for a while, but lacking the latest capabilities can hold you back from business innovation and growth.

Asset financing allows you to take advantage of new technology and innovate your product or service without finding a lump sum for capital outlay. You may even be able to sell your old equipment for some additional cash via technology, on auction house sites like GraysOnline. 

3. Access alternative financing

Securing (affordable) debt financing can be hard for an SME owner – the interest rate and repayments can be limiting, or you may not get approved at all. Especially when you’re starting out as creditors may see you as high risk, but also for more established businesses, since banks sometimes have blanket policies against certain industries or geographies.

With asset financing, you can use your own balance sheet as security, even (on occasion) to secure a lower interest rate. Asset finance providers tend not to have blanket policies, since they are specialists assessing each business on its merits.

These financing options aren’t a substitute for focusing on cashflow fundamentals like prompt and accurate invoicing and controlling costs, but they can strengthen your cashflow situation and the sustainability of your business.

As published in Inside Small Business 

Anthony Roberts
Anthony Roberts
As Managing Director of Eclipx Commercial, Anthony is a true asset and equipment finance expert, having specialised in this area for over 20 years. Anthony’s role encompasses sales leadership, business development and strategic growth for Eclipx Commercial. He is passionate about delivering smarter, more innovative finance solutions to the market and empowering both staff and clients to achieve greater success.

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