9 crucial steps to cash flow success

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.

How to manage small business loan repayments

For the vast majority of small businesses, being able to access cash at the right time is critical to keep your business going and growing.

A small business loan is one way to access that cash. Follow these tips to ensure you’re putting your best business foot forward when it comes to getting the most out of your small business loan.

Manage your cash flow carefully

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.

6 times you might need a small business loan

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.

How to get a business loan

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:

3. Master your business pitch

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.

4 different types of finance to help your business grow

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.