The holiday season can be a tough time for business owners. According to research released earlier this month by global financial technology platform Intuit QuickBooks, small and medium-sized businesses are expecting an average of eight invoices will go unpaid between now and Christmas Day.

One big headache is unpaid invoices. A recent article from the Adviser mentioned that these unpaid bills have led to a huge $22 billion shortfall for small and medium businesses. This problem gets worse during the holidays when expenses go up.

But with a little planning, you can beat the cash crunch. Being organized can help you start the new year with enough cash and let you enjoy a well-deserved break during the holidays.

Here are 8 simple tips to keep the cash coming in over the festive season, and tackle the issue of unpaid invoices.

Create a Cash Flow Forecast

It’s been a year like no other for businesses in Australia. But you can still learn from previous years and gain a better understanding of what to expect over the coming months.

Take a look at your historical sales revenue and outgoings to predict your working capital requirements. While this has been a year of uncertainty, cash outflows and seasonal sales trends should be similar to previous years for most businesses.

Using this data, you can create a cash flow forecast. Getting to grips with your working capital needs and identifying potential cash flow gaps is key to starting the new year on the right foot.

Get Ready for the Holiday Shopping Spree

This year, the holiday shopping spree is expected to be bustling, with Australians ready to shell out around $30 billion on everything from presents to festive outings1. That’s a 10% hike compared to last year’s spending. On average, each person is anticipated to spend nearly $1,400 to $1,479 during the Christmas season.

It’s a substantial pie, and a significant slice of annual revenue for retail businesses comes from this period. The Australian Retailers Association forecasts a total spending of $66.8 billion between November and Christmas Eve.

But to make the most of this spending bonanza, planning is your best ally. Ensure you have enough stock to meet the demand. If you run low, securing new stock amidst the holiday rush might be a tall order.

Also, having some funds ready can be a lifesaver. It’ll help you quickly restock hot-selling items and keep the cash registers ringing. If you need to, arrange for a line of credit or other funding sources well before the season hits full swing.

Start your preparations early, so when the holiday shopping fever sets in, you’re not just ready; you’re thriving.

Invoice Customers Early

Most businesses close over the festive period. You’ll be waiting until January to receive payment if you don’t invoice customers well before the Christmas break.

Sending out invoices early and setting up payment reminders can keep money flowing and help you avoid a cash flow crunch.

Offering your customers an early payment discount can also be an effective way to speed up payment cycles. Providing an incentive for your customers to pay early can provide access to capital when it can benefit your business the most.

Clear Unsold Seasonal Stock

Having unsold stock when the season ends can tie up your money, which could be used to cover important expenses like salaries, rent, and other bills.

It’s good to have enough stock to meet the demand, but having too much left over can lock up your capital and profits.
You’re the expert when it comes to your business, and you know the best time to stop buying seasonal stock.

As the season winds down, consider slashing prices on leftover items. Offering discounts can help bring in some extra cash to tide you over during the quieter post-Christmas period. Plus, it saves you from the hassle and costs of storing unsold merchandise. It’s a win-win: you free up some cash, and your customers score a deal.

Set Aside Funds for Tax Payments

Higher sales during the holiday season also mean a higher Goods and Services Tax (GST) bill. With all the hustle and bustle, it’s easy to overlook tax and GST payments.

Have a system in place to ensure you pay your bills on time. Whenever money comes in, set aside a portion to cover your tax bills and other overheads.

Planning for these costs ahead of time can help you manage your working capital better. This way, you won’t face cash flow problems when it’s time to pay up. It’s all about being prepared, so when the tax bill arrives, you’re ready and not caught off guard.

Strike Fresh Agreements with Suppliers

The holiday season is an important time for both you and your suppliers.

Use this chance to try and stretch out credit terms with your current suppliers. This way, you can fill up your shelves without draining your cash upfront.
If that doesn’t work, Trade Finance facilities might boost your buying power, freeing up some cash. Your supplier gets paid right away, but you only pay after you’ve sold the goods.

Also, it’s a good time to look around. You might stumble upon other suppliers giving better deals or lower prices on goods. This could save you some money, helping ease cash flow during this busy season.

Pause on Big Buys

Cash can run thin quickly during the bustling festive season. It’s wise to hold off on big purchases that can wait until the new year.
If a buy doesn’t boost your sales or revenue for the holidays, maybe save it for later.

But if new gear will help you hit your targets quicker, think about Equipment Finance. This way, you can get what you need without a big upfront cost, spreading the expense over a longer period and keeping your cash flow steady.

Secure Financing Early

Having some external funding can be a lifesaver to bridge cash flow gaps and grab opportunities during the festive season.
Even if you’re on the fence about needing extra cash, it’s smart to be ready and know what’s out there. This way, if you do need some funding, you can act fast and snag the right kind of financial help when it matters most.

There are many different cash flow financing solutions that can be tailored to the needs of your business, including:

Trade Finance

Trade Finance can fund the purchase of inventory or raw materials to help you capitalise on peak sales demand. It enables you to bridge the cash flow gap between ordering from your suppliers and generating sales revenue.

With readily available capital to pay suppliers upfront, you can also negotiate early payment and bulk buying discounts to increase your margins. When combined with an Invoice Finance facility, Trade Finance can cover cash flow gaps of up to 180 days.

If you want to learn more about this type of funding and how it works, check out Trade Finance.

Asset Finance

Asset Finance helps businesses to fund the purchase of new and second-hand equipment, machinery, and vehicles. Instead of tying up capital in assets and equipment, you can spread the investment cost over a more extended period.

If you need to replace equipment or expand to meet seasonal demand, an Asset Finance facility can help you get the tools you need to succeed.

Navigating the financial waves of the festive season can be smooth sailing with the right strategies in place. These steps are your toolkit for harnessing the holiday hustle to your advantage, ensuring a merry season for your business and a prosperous kickoff to the new year.

If you need funding to capitalise on an opportunity or bridge a cash flow gap, call our friendly team of Business Finance advisors today.

As we head into the Christmas trading period, supply chains will be stretched thin. In this email, we explore ways to manage supply and demand through the holiday months while ensuring your business has the cash flow required to survive the summer break.

You would think advances in technology and a globalised, connected world would mean enhanced supply chains. While there had been signs of easing supply chain distruptions earlier in 2022, the ongoing impacts from the Russia-Ukraine conflict and international shipping disruptions to global shipping, some sectors are likely to be impacted more than others. 

Many manufacturers are being forced into bidding wars to secure vessel space due to shortages of critical components and rising raw material and energy costs are pushing freight rates to record levels. Some exporters have therefore raised their prices or cancelled shipments altogether.  

With delays expected to extend well into the holiday period, mass shipments have been mobilised globally in an attempt to meet demand. Here are some tips to minimise your reliance on supply chains and get ahead of demand: 

Forecast your holiday season sales

With supply chains stretched thin, it is important to try and only order the stock that you will need. Your business doesn’t want to be caught short either, so using historical sales data is a great way to project how much you’ll require. 

Chart the trajectory of your sales with the help of your historical sales data. Taking data points from various points in the past will allow you to understand your most recent seasonal variations; applying those historical insights to your most recent data may help you forecast your inventory and chart sales. 

What if there is no historical data?

There are several ways you can forecast your requirements without historical sales data. Firstly, analyse your competition and their results. Then, access what historical sales data you can from your current operational period and contrast with the behaviour and actions of your competitors.  

Secondly, there are forecasting software tools available that will enable you to input variables and develop a reliable forecast for Pipeline or Opportunity sales, Historical sales, and even survey forecasting software. 

Finally, survey your market to understand near term demand from your existing customer base. Surveys and polls can give you solid predictions to understand what your customers are thinking about your products and their likely behaviours. 

By getting your data together now, you can stay on-track, purchase stock, and take sales orders confident that you will be less impacted by supply chain issues this holiday season.  

Get in touch to ask us about our Trade Finance and Invoice Finance options for further assistance. We’d be more than happy to help you navigate this tricky time with you and see your business set up for success in 2023. 

Here at ScotPac, we offer a range of Business Finance solutions that can help you manage your cash flow over the busy festive season. Our team of lending experts can help you unlock the capital and tailor a solution best suited to your business needs. 

Use our simple enquiry form or give us a call, and our team can get to work on securing the funding your business needs to thrive. 

 

The instant asset write-off is a temporary tax deduction scheme available for all businesses with an annual turnover of less than $5 billion. 

The scheme has recently been extended to cover the 2022/23 tax year. 

Eligible businesses can now claim an immediate tax deduction for the full cost of qualifying assets installed or in use by June 30, 2023. 

Under the scheme, businesses can claim an immediate deduction for the full cost of an asset up to $150,000. For small businesses with an aggregated annual turnover of less than $500 million, the scheme includes both new and second-hand assets. As long as each purchase is under the threshold, there are no limits on the number of assets that can be claimed.

 

What The Instant Asset Write-Off Means for Your Business

When you purchase an asset to be used by your business, the value of the depreciable asset can be included as a deduction on your tax return. This usually involves general depreciation rules that set the amount that can be claimed per year based on the estimated lifespan of the asset. 

The instant asset write-off accelerates the speed of this process.

Business owners can now claim a tax deduction for the full cost of the depreciable asset. in the same income tax year as the purchase of the asset. 

The $150,000 threshold for the scheme is calculated on a per asset basis. As a result, businesses can purchase multiple assets under the threshold and write-off the total expense on their yearly tax return. 

 

Example of How the Instant Asset Write-Off Works

Here’s an example of how the instant asset write-off can be used to reduce taxable income and free up capital for business investment. 

A small business has a turnover of $1,200,000 and a net taxable income of $240,000. With a company structure and a turnover of less than $50 million, the company pays the current Australian company tax rate of 25%. 

The total tax payable is $60,000 (0.25 x $240,000).

Under the instant asset write-off scheme, the company purchases $75,000 of eligible assets during the financial year. The total value of the assets is deducted from the net taxable income to reduce the sum to $165,000.

As a result of the instant asset write-off scheme, the total tax payable is reduced to $(41,250 (0.25 x $165,000). 

Claiming deductions under the scheme, the tax saving would be $18,750 ($60,000 less $41,250). 

With the savings included, the real cost to the company of purchasing the assets is $56,250 ($75,000 less the $18,750 tax saving). 

 

Assets Must Be Installed or in Use by the Deadline

Assets eligible for the instant asset write-off scheme must be in use or installed and ready for use before the deadline of June 30, 2023.

For example, if an asset is purchased before the June 30, 2023 deadline but won’t be operational until August 2023, it doesn’t qualify for the instant asset write-off scheme. 

 

Exclusions From the Scheme

The scheme covers all new assets that qualify under the existing depreciable asset criteria. Some types of assets do not qualify and are excluded from the scheme, including:

• Capital works
• Horticultural plants
• Intangible assets

For more information on excluded assets, visit the Australian Taxation Office website or consult your tax advisor. 

 

Can Assets Purchased Under the Scheme Be Sold at a Later Date?

If you sell an asset purchased using the instant asset write-off scheme, you must include the amount you received in your net taxable income for the financial year. 

Any insurance payment or other reimbursement must be included in your net taxable income for assets purchased under the scheme that are later stolen or destroyed. 

 

Business and Personal Use Assets

You will only be able to claim the write-off for the percentage of the asset that is business use. For example, if you purchase new equipment for your business and use the asset for personal tasks 20% of the time, you can only write-off 80% of the asset cost under the scheme.

New Asset: $20,000

Business Use: 80% = $16,000

Personal Use: 20% = $4,000

Total Amount Eligible Under the Instant Asset Write-Off = $16,000

For an asset to qualify for the scheme, the total cost of the asset (including the personal use percentage) needs to remain less than the $150,000 threshold.

 

Assets That Exceed the Threshold

The $150,000 threshold works on a per asset basis. As long as the cost of each asset is less than the threshold, there is no limit to the number of assets that can be deducted under the scheme. It’s important to note that the entire cost of the asset must be less than the threshold to be eligible, excluding any trade-in value from existing business assets. 

If the cost of the asset exceeds the threshold, you will need to use general depreciation rules. 

For businesses using the simplified depreciation rules, any asset purchased with a total cost above the threshold must be placed into the small business pool for the financial year. Certain asset types may qualify for accelerated depreciation.

For businesses that don’t use the simplified depreciation rules, you may be able to use backing business investment to accelerate depreciation for some qualifying assets.

 

Which Assets Should I Consider Purchasing?

Before making any significant purchases, it’s important to determine how the asset will impact your business. Your decision to take advantage of the scheme should be based on your current needs and the planned growth of your business. 

For example, you may have a plan to expand your manufacturing capabilities with new equipment as part of your long -term business plan. In that case, the instant asset write-off scheme provides an opportunity to reduce the cost involved in the expansion. 

You should purchase assets that will help you achieve your business goals, not just to get a tax deduction. The instant asset write-off scheme is an incentive to invest in your business and reduce your taxable income, but the impact on your short term finances and cash flow should not be overlooked. 

 

ScotPac Business Finance

Cash flow gaps are one of the most common causes of business failure. When you purchase a new asset for your business, it’s important to maintain working capital. 

We offer a number of Business Finance solutions to help you take advantage of the instant asset write-off scheme without restricting your cash flow. You can use Asset Finance to access a line of credit to purchase new equipment and machinery or use Invoice Finance to unlock the cash tied up in your debtors ledger. 

While traditional lenders have become more and more risk-averse, we find a way to say yes. We specialise in helping businesses grow and take advantage of new opportunities with flexible, tailored finance solutions.

By Sophia Auld

Accountants are way more than glorified bean counters. In fact, yours probably has plenty of ideas for helping your business do better.

However, national research shows few businesses seek strategic or risk management advice, despite the unprecedented challenges many have faced over the past year. According to Scotpac CEO Jon Sutton, the SME Growth Index shows only 18 per cent of small businesses seek strategic planning assistance. Furthermore, only 14 per cent get M&A advice and just one in 10 seek expert help with risk management.

There’s no reason to go it alone when expert advice is readily available. These questions will help extract crucial information from your accountant’s brain, so you can build a better business.

 

1. How can I pay less tax?

Lets’ face it, everyone wants to limit lining the tax department’s pockets. Talk to your accountant about how to keep more of your hard-earned cash. For example, ask whether spending to get a tax deduction (to immediately claim depreciation on capex items, for example) is going to cost more than you save on tax.

 

2. How can my business be more efficient?

Typically, efficiency revolves around good processes and technologies. Your accountant can advise you about accounting software to automate record-keeping and tax processes, saving you time, money and energy.

 

3. What changes could I make to help my business do better?

Your accountant is an expert in taxes and finance, and after working with you for a while, an expert in your business. They can steer you towards opportunities for growth and away from potential problems. Your accountant can analyse your financial position, see if anything is holding your business back, and help you plan for future opportunities.

Your accountant also stays up to date with constantly changing financial regulations, and most likely has an ear out for emerging trends. It’s worth checking in regularly for their advice.

 

4. What is my break-even point?

This is the point where your total sales equal your total expenses. Knowing this is essential for pricing your products and/or services, setting budgets and controlling costs.

Your accountant can calculate your break-even point, so you know whether your business is making a profit, just breaking even, or losing money.

 

5. What drives my revenue?

If you want to increase your profitability, knowing what drives your revenue is a good place to start. Depending on your business, your accountant might suggest approaches such as reviewing your pricing strategy, generating more leads, converting more leads into customers, or finding ways to sell more with every transaction.

 

6. How can I manage cash flow better?

Cash flow is key to running a profitable, sustainable business. To ensure you maintain a positive fiscal position, ask your accountant whether you can do anything to better manage the movement of money through your business.

They can help you analyse your cash flow, pinpoint problem areas, and create a plan for solving them. They can ensure your business is future-ready by creating a cashflow forecast. You could also ask whether cashflow or invoice finance could help keep your financial situation in balance.

 

7. How do my results compare to those of your best clients?

Your accountant probably works with many business clients, some of whom are doing better than others. Why not draw on the knowledge of what their most successful clients are doing? You might be able to implement some of their strategies to bolster your own bottom line.

We offer a range of flexible finance solutions to help businesses access the capital they need to grow. Speak to us today to explore your funding options.

For any business, having steady and predictable access to cash is vital. Every successful business has its own unique features, yet effective cash flow management is a common thread.

9 out of 10 SMEs report that problems with cash flow have prevented them from generating more revenue and top reasons include suppliers reducing payment times, bad debts and customers paying late. The main impacts this causes are the inability to take on new work, difficulty making payments and unsold inventory.

Our top tips for overcoming common hurdles and surviving cash flow challenges are below;

 

1. Ensure you know your customers

Complete credit checks on new customers so you can research the business and make informed decisions about whether you’re prepared to extend credit and how much.  A trade reference can provide you with valuable insights about how the business works, whether they pay on time or if there have been previous disputes or challenges.

 

2. Ensure you have a strong paper trail in place

Some of the most common reasons customers give for non-payment is not having received the goods or work was not in line with what was ordered.  Protect yourself in the event of disputes by obtaining written purchase orders or providing written confirmation of orders received.  Obtain signed proof of delivery or confirmation work is complete and ensure any requests to vary an order are in writing.

 

3. Invoice on time and ensure you have clear payment terms

Being punctual with your invoices is essential. Invoice as soon as possible after work has been completed or goods delivered so your payment terms kick in straight away.

Make sure your invoice is set out clearly and is easy to understand with full details of the order and charges as well as payment terms and ways to pay. Also ensure you’re sending the invoice to the person/department who will be paying it, so it doesn’t go astray.

 

4. Proactively deal with late payers

If a customer fails to pay you on time it can have a major impact. You’re not only missing out on anticipated revenue, but you’ve already worn the cost of the time, wages and other expenses invested in the work you’ve completed.

Send month end statements and ensure you follow up late payers immediately. Those who shout loudest get paid first, and those who don’t follow up are often left to last. Have an action plan for late payers and review if you’re prepared to continue to supply when you are not getting paid. You could also consider adding a penalty fee for late payment of invoices.

 

5. Review your credit terms

Whilst you can’t always negotiate credit terms with larger customers, it’s worthwhile negotiating shorter credit terms where you are able. The difference between being paid in 14 days, 30 days, 45 or 60 days has a big impact on cash flow. Work out your weekly costs or prepare a cash flow forecast and calculate the impact shorter payment terms would have on your cash flow.

 

6. Maintain strong relationships with customers and suppliers

If you’re struggling to make payments, you should let your supplier know as soon as possible. Having that open communication is fantastic for supporting business relationships. Call rather than email – it gives the opportunity to discuss your service and business and get valuable feedback.

Similarly, encourage your own customers to do the same.

Rather than speaking directly with the accounts department, get in touch with your representative at the customer or supplier organisation.

 

7. Stay on top of your tax position

Typically, tax obligations can be the first to be stretched when cash flow is tight. Be proactive, discuss with your trusted adviser or accountant how to best manage your statutory obligations. If you are proactive, you can sometimes negotiate payment arrangements with the ATO or Inland Revenue.

 

8. Regularly review your funding arrangements

You need to ensure you have sufficient working capital to meet your needs and that any arrangements are doing what they should to support your business.

Rapid sales growth can impact cash flow as businesses seek more staff to keep up with demand. This investment requires additional working capital. If you’re not undertaking regular reviews, you may find yourself with a cash flow shortage and unable to meet supplier payments or other obligations.

In addition, a static funding arrangement could mean your cash flow is restricted and you’re unable to take advantage of new opportunities.

Don’t go it alone, reach out to an experienced adviser to understand the breadth of solutions in market and get advice for your needs.

 

9. Produce regular cash flows and create a budget

Cash flow forecasting and budgeting is essential in allowing you to identify periods when spending is high and cash is likely to become scarce so you can address it and avoid it occurring. You should also regularly review that forecast because things change and you can make plans to counter future cash flow shortages. Use our cash flow forecasting tool to help you.

The holiday period is well and truly upon us, so our latest email has been designed to give you some strategies to navigate the key considerations as we head toward the New Year.

When it comes to managing finances, many small businesses find this period the hardest to navigate, so before we put a bow on 2021, here is your Christmas cash flow checklist:

• When possible, request deposits and invoice early and often: Get ahead of the holiday disruptions and company closures to ensure you will have cash flow during the summer period.

 

• Take the time to review credit reports and talk to potential late payers: If individuals or companies are delinquent during the year, there is the likelihood they may cause delays during the holidays as well. Identify them and action these invoices as a priority.

 

• Assess receivables management in quiet periods and find improvements: There is a lot of cash trapped on balance sheets that some businesses are unaware of. The benefits of freeing up that cash can go beyond improving operational efficiency. It provides companies with the additional liquidity they need to fund growth, lower debt levels, minimise costs, increase shareholder returns and outperform the competition.

 

• Put your business on a more solid footing for the New Year: You can achieve this by improving your relationships with customers and suppliers during the Christmas period.

 

• Make sure your sales forecasts are accurate now by clearing overstocks and inventories: According to Pareto’s Principle, 80 percent of the consequences result from just 20 percent of the causes. In other words, just 20 percent of your inventory items account for 80 per cent of your sales. The goal is to identify the 20 percent and keep more of them on hand while reducing the rest of your stock. This will enable you to free up money, offer products at reduced prices and lower inventory wastage.

 

• Focus on new projects: What investments can be held off until cash flow is more robust?

 

• Offer early payment discounts: This will assist in encouraging early payments.

 

• Review your expenses: It may be more cost-effective to shut down departments or even your entire business during slow periods.

 

• Consider working capital financing: This will help you meet your cash flow needs. In addition, we can help you discover precisely when cash usage will be high by using our Cash Flow Forecasts.

You can also learn more about managing working capital or call us to discuss what working capital finance solutions could be available for you.

Today, we will be exploring three critical questions every SME should be asking themselves, so they are prepared for some of the challenges that might lie just around the corner.

What does trading look like before Christmas? 

What should you be asking yourself about changes to your business trading in the lead-up to Christmas? We recommend you evaluate your operations by asking these simple questions:

• Do you stock enough inventory to handle your anticipated increase in demand?
• Do you have the working capital to order extra stock quickly?
• Is there a need for short-term staff?
• Will existing staff be paid for overtime?
• If you’ve ticked these boxes – Do you have the cash flow to meet these additional demands?

How much can you afford when it comes to a shutdown during the festive season?

Take advantage of the end of year closure to give yourself and your team some downtime. You will be back to the grindstone before you know it. So relax, unwind, and recharge while you can. Try to make the most of your free time by stepping away from the screens, enjoying nature or spending time with your family.

Now is a perfect time to begin planning your break so that everyone knows your schedule. This also means it’s critical to examine how much will need to be paid in wages and leave, then balancing this with invoices to be paid in the context of your business’s forecasted cash flow. If you haven’t already done this, by determining these figures today, you can get ahead of the game, plan accordingly and hopefully enjoying those days on the beach without the headaches during your downtime.

Are January payments on schedule to cover outgoings?

Do you have customers that are regularly slow to pay their invoices? If so, you’ll need to put systems in place before January in anticipation of this cohort being overdue again in the new year.  January is a notoriously slow period for many industries as staff trickle back and systems slowly get rolling again.

To help predict your expenses and cash flow so that you don’t have a shortfall over the holiday season, try this handy working capital calculator.  It’s quick and easy to use, but if you feel your numbers just aren’t stacking up, why not drop us a line?

While late payments can be an issue for SMEs at the best of times, they can be especially relevant over the holidays. Let’s look at how you can manage your cash flow and navigate tardy invoices that have the potential to set any good money manager off-track.

An Australian Small Business and Family Enterprise Ombudsman report shows that it takes Australian businesses an average of 26.4 days to settle invoices. According to a Xero study, the lack of timely payment by bigger companies costs small and medium businesses $7 billion annually.

Understandably, this is having an impact on SMEs and their cash flow. A 2020 report released by MYOB Business Monitor found that 38 per cent of SMEs are stressed about late payments, while 42 per cent are worried about cash flow.

This is only likely to become more of a problem over the holiday season when payroll departments and approving managers take breaks and invoices are often put on the backburner.

Expedite payments by charging interest

When companies know non-payment will hurt their bottom line, it might motivate them to settle the account. Ensure your invoices state the payment due date clearly (30 days is the standard period). If you have an overdue interest provision in your invoice, it should be included in the payment terms.

Finally, it is generally recommended that invoice late fees are capped at around 10 per cent.

Greater transparency means you can choose companies that pay faster

The Federal Government’s Payment Times Reporting Scheme mandates that large companies with annual revenues exceeding $100 million must report publicly how and when they make payments to small businesses. This means SMEs and startups now can avoid companies with a record for late payments.

Use our Working Capital Calculator

Your business may require extra cash flow to mitigate late payments over the holidays, but you don’t want to borrow too much. To determine the cash flow you’ll need to stay afloat, it is critical to know exactly how much working capital you require.

Working capital that is positive suggests a healthy business. If the company has a positive balance after subtracting all its liabilities, it is profitable. However, negative working capital may indicate sluggish sales or mounting debt from customers.

Try our Working Capital Calculator, it’s a great tool to help determine the health of your small business. Once you have a better picture of your overall position, feel free to connect and we can discuss the best plan to set you up for success in 2022.

Don’t forget to look out for more insights in the weeks ahead as we dive deeper into the pitfalls and solutions facing many Australian businesses ahead of a much needed holiday period for most!

How are you looking this festive season?

We understand that the last 18 months have been tough. Thankfully, there have been encouraging signs in recent months. The latest ABS business Indicators for the June quarter revealed company gross operating profits rose 7.1 per cent.

We highlight several challenges still ahead for businesses over the upcoming holiday season, which can all be navigated with careful planning.

Here’s our top five traps to look out for before the festive season arrives.

1. Slow debt turnover

The NAB’s Supporting Economic Recovery report revealed that large companies owe small businesses a total of $115 billion in late payments each year. This tardiness becomes more pronounced over the holidays.

2. Overtrading risks  

The temptation to increase stock levels is high if you sell goods over the holiday period. If you end up with excess stock it could end up being out of season and leaving your cash flow crippled.

3. Lending restrictions  

The Australian Banking Association has released new statistics showing more than 57,000 customers have received financial assistance, including over 30,000 home and business loan repayment deferrals. Any lending restrictions that come as a result during the holiday period will significantly impact SMEs.

4. Inventory Management

Inventory management can become difficult for everyone involved during the holiday season, including manufacturers, suppliers, retailers, and even employees. This is because the holidays are a busy time, and consumer demand fluctuates constantly.

5. Christmas sale culture 

It is essential to know your profit margins before discounting stock for sales (or if the market forces you to do so). For example, when a company offers a discount of 25 per cent, its gross profit margin is 30 per cent, and it requires a 5000 per cent increase in sales volume to maintain that margin.

The chances are that most small businesses will be impacted by at least one of these Christmas period challenges. Make sure you give yourself the best chance of ending 2021 on a high note by utilising our cash flow forecast tool to help predict expenses and manage your finances with ease.

We can’t wait to keep you up to date with the latest tips and trends, so look out for more insights delivered posts in the weeks ahead.

August 19, 2021

SMEs urged to consider using existing assets to buy a business

As small business M&A activity continues to rise, SME owners need to know they can access the funds needed to purchase a business by leveraging the assets of their own business or even the acquisition target.

This tip comes from ScotPac, Australia and New Zealand’s leading non-bank specialist in asset-based lending.

ScotPac senior executive Craig Michie says businesses are increasingly understanding that they can use this funding style rather than having to apply for a traditional bank loan.

He urged business owners to talk to their accountants and get legal advice about using the strategy.
Now is the time to do so, as small business merger and acquisition activity is so high.

“If you want to buy a business that owns significant assets, it’s possible to secure the required finance by borrowing against the value of the target’s assets. This can be achieved, working within the laws that govern how a target’s assets can be used,” Mr Michie said.

Asset-based finance at a glance

If you already own a business, you can use your existing unencumbered assets to access capital to fund the purchase of a new business. Mr Michie said these assets can include outstanding invoices, equipment and machinery.

“Invoice finance can be used to access the cash tied up in a debtors ledger, and equipment finance can be utilised to access up to 100% of the value of the business’s unencumbered equipment and machinery assets,” he said.

“This is incredibly useful for buying a whole business, but it is also invaluable if your business just needs to fund new equipment, other purchases or new hires.”

Two diverse businesses – a Sydney-based advisory firm diversifying into labour hire, and an Adelaide transport business – share how this strategy worked well for them.

How Ian Steel used asset finance to buy transport business

Director Ian Steel is an Australian of the Year nominee and founder of South Australian children’s charity Kickstart for Kids.
When Mr Steel wanted to buy ScotPac client Eades Transport he used equity – equipment within the Eades business – to generate the additional cash needed for the acquisition.

“No other option would have been available for us. Others were not prepared to lend to us for this purchase, but ScotPac were willing to fund us using asset finance,” Mr Steel said.

“I had not been aware that we could use that style of funding, and I think many business owners would not know they had that funding option available to them.”

His expanded business has grown, and off the back of this success he is eyeing future acquisitions. This business success is replicated in the statewide charity Mr Steel founded: Kickstart for Kids offers breakfast programs for disadvantaged children and serves around 50,000 breakfasts and 10,000 lunches each week in 360 schools across South Australia.

Corporate finance advisor Chris White knows the value of receivables

Chris White, executive director of corporate finance and restructuring consultancy 888x, often advises his clients about using asset-based finance to buy businesses.

When he was looking to buy a labour hire business, he took his own advice and talked to ScotPac about using the receivables ledger of his acquisition target to fund the purchase.

“We know the finance product market well, and quickly discounted approaching a traditional bank. The first thing a bank would ask is how many assets can you provide, and how much equity do you have in those assets,” Mr White said.
“We did not want to sign away our existing assets to make a bank feel comfortable to provide adequate credit. So we looked beyond the banks for a solution.

“We have a strong relationship with ScotPac, having seen how their funding has worked for many of our clients, particularly those in the labour hire industry.

“ScotPac has a strong background in understanding receivables as an asset and how this can work in growing a business. They were able to provide 100% of the funds we needed.”

This facilitated the successful purchase in late 2020 of a national blue collar light manufacturing and logistics labour hire business with 500 clients and a $30 million turnover.

Mr White said he did not have to provide personal assets as security (such as the family home) and there was the added benefit of only having to deal with one funder.

“We advise clients to look at what receivables they have available to fund their acquisitions, but this was the first time our own business had used this style of funding. We had confidence about this, because as an adviser we know it works.”
Mr White said it’s important for businesses on the acquisition trail to work out the appropriate level of post-transaction gearing – and if the acquisition target has little leverage, then funders such as ScotPac can provide finance by utilising the debtor book and unencumbered plant and equipment.

“We always advise people to make sure their business is capable of not just completing the transaction but handling that crucial post-transaction period. You don’t want to have unsustainable debt levels.”

ScotPac is Australia and New Zealand’s largest non-bank business lender, providing funding to small, medium and large businesses from start-ups to enterprises exceeding $1 billion revenues. For more than 30 years ScotPac has helped thousands of business owners succeed, by unlocking the value from their business assets. Whether it is purchasing stock, investing in vehicles and equipment, improving cash flow or accessing additional working capital, ScotPac can help.

For more information contact:
Kathryn Britt
Director, Cicero Communications
[email protected]
0414 661 616