A little financial forward thinking can pay big dividends

For small and medium sized businesses supplying goods, the first quarter of the financial year is often one when many SMEs have already turned their attention to what can be a busier trading period of the festive season. This is particularly so for businesses engaged in importation which need to allow for lengthy transaction cycles from purchasing, landing, warehousing, distributing, invoicing then ultimately payment.

Add to this seasonality the element of fluctuating exchange rates, the uncertainty of demand, variable supplier terms, debt turn and the challenges of accessing or maintaining funding support and the potential for costly poor decisions can be high. It can be vitally important to think ahead and identify what may impact on performance as a few good decisions now can be the difference between realising excellent profits or feeling the pinch of a tax bill in the new year. A robust scenario analysis will help. We’ve prepared 10 questions to ask yourself.

10 financial questions to ask yourself 

  1. When was the last time the business had a constructive conversation with your funding partner about the businesses funding requirements and what was currently provided?
  2. Can I access the appropriate level of funding I need from my current funding partner? If not, what is the quantifiable gap between requirements and availability and how will this impact on results?
  3. How quickly can funds be accessed under current funding arrangements for the purpose of purchases?
  4. If suppliers offered special pricing, bulk discounts or early settlement discounts, would the business be in a position to take advantage of them with current buying power?
  5. How will exchange rates impact on purchase prices and what is the quantifiable benefit of locking in pricing now?
  6. Is the business positioned to lock in pricing now with current buying power?
  7. If your business received a large order of goods from a key customer, could it take advantage of it? What would be the cost of the foregone opportunity in monetary terms and also relationship terms?
  8. The months leading up to and immediately following the festive season can be extremely capital intensive and absorb available working capital. How can the business preserve cashflows through this period? Will the business’ current method of funding cashflow meet the projected requirements over the next 6-9 months?
  9. How quickly can the business draw available funding through our current partner or process? What impact does this have on supply timeframes?
  10. In many cases, the remaining months of the year are taken up with the challenges of ensuring efficient supply. Perhaps the time is right now to examine funding options?

This period of the year can be particularly challenging as businesses negotiate pricing from suppliers, review their supplier base, consider adding new lines or deleting them and forecast demand, all while managing the businesses usual elements. But when there is much to gain, a little forward thinking when it comes to finance can make all the difference.