It can be tough running a small business over the holiday period – while everyone around you is planning trips to their favourite coastal town, many small business owners are facing a time of either feast or famine.
Each brings their own challenges, from either organising extra staff and negotiating cash flow over shut down periods to making sure you get paid before everyone disappears for the holidays.
Here’s how you can minimise these common financial stresses for your business ahead of the end-of-year (EOY) period.
Negotiating cash flow strains
Planning ahead to ensure your cash flow over the EOY period can cover holiday pay and other expenses is vital, says Tibor Mackor, Director at Auckland-based Better Business Strategies.
“A lack of cash flow can cause payment challenges where you, as the owner, are not able to pay your staff, suppliers or yourself,” he says.
Phil Holland, Owner and Founder of Tauranga-based Love Your Business, says it’s critical you start planning early.
“If your business does close down over Christmas or it’s a quiet time, make sure you’ve reflected this in your forecast and working capital,” he says.
If you think you’re going to come up short over the EOY period, Holland suggests you:
Chat to your main suppliers about stretching your terms during that period.
Get deposits from customers if you’re able to do so.
Minimise any unneeded expenses while you’re shut down.
Chase up debtors now – don’t wait or try to do it over the holiday period when they’re away.
Meanwhile, to make sure you’re on the front-foot next year, Mackor recommends you build up a buffer throughout the more prosperous times of the year to act as a safety net if needed during the EOY period.
“I usually recommend business owners save 5% of turnover and teach them to run their businesses on the remaining 95% turnover,” he says.
Chasing up debtors before EOY
When it comes to making sure your invoices are paid before everyone takes off on holidays, Holland says the key is communication and setting expectations.
Get your invoices out fast to increase the chance of being paid on time.
Offer a payment discount or gift if clients pay their December invoice by the due date.
If you have a slow payer, get in touch early and have a discussion about paying on time – set your expectations and boundaries.
To help with tardy debtors, Mackor recommends you obtain a 50% deposit on any work to be done for a client, which helps bring immediate cash flow into the business.
He also suggests making sure your invoice terms and conditions are watertight, so that payment happens when it should.
Using accounting software where your clients are regularly reminded about the outstanding amount, can also help speed up payment. “For example, Xero has a facility where you can program the sending out of a statement weekly,” he says.
When looking to put on additional staff, she says the first thing you need to do is define exactly what role you need.
“Where most smaller companies fall down on recruitment is, they just say ‘Hey, we need staff, PM us if you’re interested’,” Saw says.
“But they haven’t really got a clear idea of what they can pay or the role they’re offering, before they go to market, and that causes confusion and delays.”
She says recruiting new staff doesn’t need to cost you hundreds of dollars on recruitment platforms such as SEEK, either.
In fact, she suggests posting jobs on Facebook, in relevant local community groups.
“There are a lot of job boards on Facebook that won’t cost you anything. You can even do promoted posts for a very low fee and target specific demographics,” she says.
To stay open or closed on public holidays
Another big financial decision you’ll have to make in the lead up to the EOY period is choosing what public holidays to stay open for, and what public holidays you’ll be pulling down the shutters for.
To assist you in your decision, we’ve created this handy infographic, which runs you through all the costs and benefits to keep in mind.
If the best-laid plans aren’t looking like enough to get you through the holiday period in one piece, talk to one of Prospa’s business finance specialists about how a small business loan might help ease any cash flow strain.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
DNA 1st Solution owner Anita Vaafusuaga didn’t want cash flow issues to cause her to miss a fantastic opportunity to grow. So, she used a Prospa Small Business Loan to overcome the problems caused by late-paying customers and buy space to nurture a program that helps South Auckland youth.
Hear more about DNA 1st Solution’s story:
Anita and DNA 1st Solution’s second calling
After spending 25 years of her life working for a manufacturing company – 13 on the factory floor and 12 as a warehouse supervisor – Anita leapt on an opportunity that presented itself.
In February 2012, by chance, she overheard her bosses saying they needed a product packing contractor. The idea sparked Anita into action, and she soon launched DNA 1st Solution, a packing and labelling business that prepares cosmetics and other products for shipping and sale.
Shipping and staffing
While packing is Anita’s main business, she uses her company to benefit the local community too. As part of their Kingfisher Program community outreach initiative, Anita employs young New Zealanders with little-to-no experience.
It’s a program that’s designed to give young people a start in life, and was something Anita launched in memory of her late husband, who loved to help his close friends and family. Twelve days after his death, a kingfisher bird came to her home, which is where the program’s name comes from.
“The most rewarding thing is the stories of the young people I hire, whether they’ve moved on to other things or they’re still with me,” says Niue-born Anita.
“We train them in the warehouse. From there, we see if they go into the packing part of the business. If not, we send them out skilled to work for other companies.”
Stop-and-go cash flow
Of course, for the Kingfisher Program to be successful, the business must be too.
“I tried a few times,” she says. “It takes too long. It’s too stressful. The questions they ask, the forms they want me to fill in.”
Then when an opportunity to grow the business by moving into a new warehousing facility presented itself in May 2019, Anita knew she couldn’t miss out.
She had a window of a week to complete the deal, so she called Prospa to take out a small business loan – and within seven days the company was in new premises.
“When the opportunity came about, we had to decide quickly, what do we do from here,” she says.
Fortunately, she had learned about Prospa’s 24-hour approval on Facebook.
“What I liked about Prospa when I applied for the loan was the speed,” Anita says. “Questions, done. On the spot decision. Finished.”
She also appreciates Prospa’s convenient small business loan repayment plan.
“My repayments are weekly and it’s for a year. I love that. I’m not going to be bound by that for 10 years or something.”
Cash flow is still an issue, but now it’s one that doesn’t impact the business.
“Right now, I’m waiting on $60,000 to be paid,” Anita says. “But because I’ve got the loan from Prospa as a buffer, I’m not worried.”
What’s next for DNA 1st Solution?
With the Prospa Small Business Loan, Anita has tripled DNA 1st Solution’s warehouse space, setting themselves up to expand their packing capability and the Kingfisher Program.
Anita plans to expand the Kingfisher Program to provide avenues for young Aucklanders to learn more about themselves and their interests.
She also has big plans for the business, including bringing the company’s services to Pacific Islands.
“I can’t wait to do what we have planned. I can’t wait to put it into action,” she says.
A Prospa Small Business Loan has helped DNA 1st Solution:
Triple available warehouse space.
Grow the Kingfisher Program and help more inexperienced Auckland youth.
Smooth out cash flow issues.
If you’re like Anita and want to seize an opportunity but don’t have the cash flow to do so, talk to Prospa about how a small business loan could help on 0800 005 797 or apply online.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
Healthy cash flow means so much more than your bank balance’s bottom-line at the end of the week. It’s a small business’s ability to cover expenses, pay back debt and plan for the future.
These nine crucial steps will help put you on a path to cash flow success.
1. Budget well
A solid budget is the cornerstone of healthy business cash flow. Without it, you’re likely to miss any warning signs of problems on the horizon. So, schedule time to build a robust financial plan, including forecasting your revenue and expenses. Then factor in savings for future growth – you’ll also be well placed for seasonal business cycles, one-off costs and any unforeseen issues that come your way.
2. Spend wisely
You’re the boss. So, you call the shots when it comes to purchases, right? That means reining in the urge to spend big on impulse buys and seriously think through the pros and cons of every dollar spent. For example, a set of ergonomic office chairs might be advertised for a bargain price, but will they ultimately improve your bottom-line? If the answer is no, think twice about opening the purse strings.
3. Keep personal and business separate
Are your personal and business finances wrapped up together? If the answer is yes, you’re not alone. Historically, many small businesses have only been able to access funding through personal mortgages, loans or credit cards.
But the finance landscape has changed in New Zealand with alternative lenders now enabling businesses easy access to capital. And in order to have a strong grasp on your business’s cash flow and financial health, it’s important to keep your personal and business finances separate.
4. Be proactive
Stay on top of all your transactions, and keep in mind that most suppliers will be open to working with you on a payment plan to help pace your expenses. Burying your head in the sand when it comes to cash flow issues caused by overdue taxes, missed loan repayments or unforeseen bills is never the answer. A small business loan might be able to help bridge any gaps.
5. Chase invoices
Sounds simple, but we know finding the time to chase invoices is hard to come by. That’s where an online accounting system is worth its weight in gold, thanks to its ability to schedule reminders for overdue invoices weekly, fortnightly or monthly.
6. Cut back on stock
Holding onto old stock can suck the lifeblood out of any business. But there are ways you can shift it, while still earning some money. Consider offering customers a discount on bulk orders, host a stocktake sale or find out if stock that is simply unusable can be written off. And remember, clearing stock means freeing up space, which could lead to savings on extra storage.
7. Keep it lean
If you’ve been running your business for a while, you might have forgotten what you signed up for in terms of daily utilities, equipment hire or rent. Remind yourself. Speak to your accountant and see where you might be able to make some savings when it comes to your ongoing costs. Do you really need an office this size? After moving your business online, do you still require a shopfront? Keeping your overheads low is a great way to help keep you in the black.
8. Modernise payment systems
Make paying easy and convenient for your customer, otherwise you run the risk of losing the purchase or delaying payment. You can do this by clearly outlining links to payment options, including a credit card payment method seamlessly linked with your accounting system, and issue invoices online.
9. Limit low-profit products
Offering some products or services that generate little (or no) profit is a common tactic for most businesses, with such items known as a ‘loss leader’. Sure, they can help to secure new customers, but they do come at a price.
The key is to find the right balance. Check that the product’s price balances out your costs, taking wages, supplies and stock into consideration. And keep a close eye on things, making sure that those products that do come with a negative margin make up for it by generating ongoing interest from customers who turn into profit-makers.
Most small businesses experience cash flow highs and lows throughout the year. If you have cash flow concerns, contact Prospa to find out how a small business loan may be able to help.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
Cash flow is important to the success of any small business – this you know. So it pays to keep it front of mind in the good times, and the bad, especially when you have loan repayments to consider. Keep a close eye on it by:
Issuing invoices on time – the earlier you invoice, the earlier you’ll get paid.
Regularly updating all other accounting and reporting – this will ensure you’ll notice any issues sooner and have them fixed faster.
Building a cash reserve, if possible – it’s always good to have something to fall back on should the unexpected happen. It will also stand you in good stead during seasonal slumps.
Projecting your cash flow well in advance – a cash flow calculator tool will be your best friend in this.
Get ahead of the game at peak times
So, business is booming? Great news. And while it may be tempting to celebrate, now’s the ideal time to consider paying more towards your loan. After all, it’s a move that will save you a significant sum of money down the track.
Let’s take Alison, for example. She’s a restaurant owner, has a $50,000 small business loan that she’s paying off at a rate of $600/week over 1 year and 9 months. Her business is doing well and she could pay more, but she’s just cruising at the agreed rate.
Alex, a mobile handyman, has a $50,000 business loan that he’s paying off at a rate of $600/week over 1 year and 9 months. His business is booming and he decides to add $200 to his repayments. This saves him $1,000 and he pays the loan off 5 months early.
Note: These are examples only and general in nature.
Keep a strong credit score
Good credit makes life much easier for a small business owner. Having a great credit report will open up more options when it comes to accessing finance, and has the potential to save you money in repayments.
Build and maintain a good credit score by:
Scheduling reminders to ensure bills are paid on time.
Limiting repayments by consolidating your credit cards.
Keeping a close eye on your credit cards by not hitting the limit.
Going over credit card bills with a fine-tooth comb so you can address any errors.
If your business is ready to take the next step, talk to Prospa today on 0800 005 797 or apply online for a small business loan.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisers. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
Running a small business comes with many ups and downs, as well as many occasions that may require a bit more cash than you have at your fingertips.
Here are six scenarios where a small business loan may be just what you need to keep your small business moving.
1. You need more space
If your employees are using the table in the kitchen as a workstation, or your office is now doubling up as a stock room, you could probably do with a little more space. But just because you’re ready for expansion doesn’t mean you necessarily have the cash on hand to make it happen. Whether the answer is a refit, full-on renovation or even a move to new business premises, a small business loan could provide quick funds to expand the operation.
Remember to calculate the financial benefit when deciding whether to go ahead or not. For example, will the renovation or refit enable you to sell more stock or take on more clients? Or will it just make room for Molly the office dog’s bed? Speak to your financial advisor who can help you crunch the numbers.
2. You need more stock
Buying products that will enable you to provide a service and improve your offering is a crucial part of doing business. Every business needs an up-to-date inventory, and if you’re a seasonal business, you’ll want all your stock in place before peak sales periods. If your turnover is dependent on the stock you’re carrying, but you don’t have the capital to invest, then a small business loan could be worth considering to bridge the gap.
3. Opportunity knocks
Many opportunities emerge for small businesses, and knowing which ones to chase, and which ones to pass by, is a skill in itself. If you have completed your due diligence and believe an opportunity is worth grabbing, but you don’t have the cash flow on-hand to do so, a small business loan could be the answer. It provides a simple cash lump sum that puts business owners in control of how they respond to opportunities.
4. You need to recruit to grow
Small business owners often wear many hats, but sooner or later juggling your supply channel, bookkeeping, marketing, customer service and tea-making all by yourself can take its toll. Ultimately, if you’re going to grow your business, you will need time to give the operation the attention it deserves. Employing staff can free you up to do just that. If there’s a clear connection between the hiring decision and an increase in revenue, then a small business loan could make good business sense.
5. Your premises need a makeover
First impressions count a lot in business, and if you’re a cafe with shabby furniture, you may be losing customers based purely on your interiors. Alternatively, if you’re an office-based operation, your poor ergonomic set up may be negatively affecting your employees’ productivity and/or your ability to attract star candidates. A small business loan could help give your small business the face-lift it needs.
6. You need more customers
Build it and they will come? Not quite. You could have the best product and service in the world, but if no one knows about it, you’ll not sell a bean. An investment in marketing is critical to attract customers. A small business loan could help you fund a promotion or marketing campaign to acquire new customers.
If your business needs funds for opportunity, growth or cash flow support, get in touch with one of our small business lending specialists on 0800 005 797 to discuss your options, or find out more.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
Four quick hacks for business owners when applying for a small business loan
Obtaining finance can be challenging for small business owners, especially as cash flow challenges are common when the business is in its early stages. If you’re a NZ small business owner and you need to access business finance, these four tips could get you closer to being approved, not declined.
1. Dig up your documents
Traditional lenders in New Zealand will demand all paperwork relevant to your business’s prospects of success and won’t begin to assess your application without it. These may include a business plan, competitor analysis and financial statements like P&L, cash flow forecast, revenue projections and much more.
Online NZ lenders like Prospa, however, go out of their way to make it easier for small businesses. Unlike traditional lenders, the entire loan application process is much simpler, and depending on the amount you want to borrow, fewer documents are required. And that means you can spend more time focusing on growth opportunities.
2. Check your credit score
Credit history is usually one of the most important factors for a traditional lender. NZ banks will obtain a copy of your credit report, so it’s crucial you examine yours before applying. Otherwise you may not understand what sort of negotiating platform you’re starting from.
Even if you think your record is clean, double-check it to ensure there are no inaccuracies or nasty surprises. You may not be aware that every time you apply for credit and a credit provider obtains a copy of your report, an enquiry is logged. Credit providers may take a negative view of multiple inquiries made in a short space of time, which may affect your ability to obtain credit (and indeed the interest rates you are offered).
You have the right to obtain your credit score and request a copy of your credit report to correct any wrong information. There are three credit reporting companies in New Zealand:
Obtaining business finance from a bank is essentially a pitch. You’ll probably need to sell yourself, your business and your plans for the future, while being both professional and passionate.
This can be daunting for those with little experience presenting or selling. It’s a good idea to rehearse and think of any possible questions or shortcomings that might be brought up. It also pays to be ready with evidence that can back up how you will overcome specific business finance issues. One way to do this is to prove your ROI or showcase your business growth in easy-to-read graphs and charts.
Fortunately, getting a small business loan from Prospa doesn’t require a pitch. Once you explain the intended use of funds, Prospa will see if you meet its lending criteria by determining if your business has the cash flow to support repayments.
4. Know your security
Traditional lenders often require the borrower to offer an asset as security upfront against the loan. This could be a property asset, or another asset like a vehicle or piece of equipment.
Before locking your home in as upfront security for a small business loan, you should always consult with those who will be most affected, like your family or business partner.
And if you aren’t comfortable locking your house in as upfront security under a business loan contract, then there are trusted online lenders that offer small business loans that don’t require upfront security to access the funds. This option may be more appropriate for you.
When opportunity knocks for NZ small businesses, there’s a range of new choices for raising funds. Prospa can help you access the funds to manage cash flow or take advantage of opportunities when they arise. Talk to our NZ small business lending team on 0800 005 797.
The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.
A new wave of lending is revolutionising the way small businesses in New Zealand access finance. Here are some of the game changers you need to know about.
Cash flow lending
Cash flow loans are usually short-term loans to help you maximise a business opportunity or manage a lumpy cash flow.
Alternative lenders like Prospa offer small business loans up to $100,000 with no security required, so you don’t have to put your family home on the line. Other positives include faster applications and less paperwork, cash-flow friendly repayments and transparency around the total amount to be repaid.
Keep in mind that not all lenders are created equal: some don’t offer a fixed upfront price, leaving owners susceptible to interest rate rises, while others may include hidden fees and charges. Look for a lender with specific expertise in small business, a reputable track record and great customer feedback.
Invoice finance
Invoice finance helps small businesses and tradies maintain cash flow when waiting for customers to pay. There are two types of invoice financing:
Invoice factoring: Where you sell your invoices to a third party at a reduced cost in exchange for instant payment.
Invoice finance: Where you use an invoice you have issued as security to get a loan.
Some invoice finance providers offer 100% of the invoice value in exchange for a small drawdown fee and an ongoing weekly interest rate. Invoice financing is a good tool to have in your kit if you often have to wait for payment after completing projects and purchasing materials. To use invoice finance you need to be the kind of business that issues invoices – like a professional services firm, rather than a cash-based business like a café.
Crowdfunding
Popular in the social and charitable space, crowdfunding has recently matured in the business arena, with platforms like Snowball Effect facilitating substantial amounts of private investment in New Zealand.
The most common crowdfunding model is based on rewards and incentives. A ‘backer’ pledges money to support your business or product idea in exchange for a discount on the new product or another reward. Rewards can be anything from a percentage of revenue to free products or the opportunity to help in the design process.
On the upside, business owners keep full ownership and clients are investors – providing direct access to market feedback. For investors, there is low risk for small amounts.
On the downside, some platforms are all or nothing, with no access to funds if the overall goal isn’t reached. Business owners need to commit time to promoting the campaign and dealing with backers, and still need to deliver on their promises if things don’t go to plan.
Crowdfunding is a form of equity funding – meaning you usually have to give up equity in the business, and is best suited to a start-up rather than an established business. It’s not a viable solution if you need help managing cash flow.
Venture capitalists and angel investors
If you need a large cash injection to start up or take your business to the next level, angel investors or venture capitalists could be good people to meet.
Angel investors
Angel investors are often business owners or high net worth individuals who see the potential in your business and want some involvement. They usually invest in industry sectors they’re familiar with and will want a targeted return on their investment. They may structure their involvement as a loan, or as equity, or a combination of both. Angel investors often come on board in the early stages of a business and contribute their experience and knowledge in addition to funding. It’s important to choose an investor who can add value and has the same vision for your business that you do.
In the technology sector, angel investment is having a big impact, particularly in Wellington.
Figures from this year show record levels of early-stage investment, with combined funding from New Zealand-based angel investors and domestic crowdfunding increasing by 35% to $112 million. Angel and crowdfunding investments into the tech sector have risen at an annual growth rate of 18% over the past four years.
Angel Association New Zealand is a great place to start if you’re looking for this type of investment in your small business.
Venture capitalists
Venture capitalists are investment companies or fund managers who provide cash in return for part-ownership of your business. They tend to look at larger businesses and differ from angel investors in that they typically want to invest larger amounts and have more comprehensive requirements.
VCs may not want to play an active role in the management of your business, instead taking a seat on your board. To find out more about venture capital opportunities in NZ, check out the NZVCA.
When opportunity knocks for small businesses, there’s a range of new choices for raising funds. Prospa can help you access the funds to manage cash flow or take advantage of opportunities when they arise. Talk to our team on 0800 005 797.
