Put down the scissors: 5 ways to address cash flow – and grow – without cutting expenses

When economic uncertainty looms, what’s your first instinct as a business owner? If it’s to slash expenses, you’re not alone. In fact, it’s a common reaction – and on the surface, a sensible one. Controlling costs is a fundamental part of running a successful business. But the scissors are not the only tool in the box. In fact, cuts can sometimes end up costing more than they save. As a recent article – ‘When Cost Cutting Leads to New Challenges’- in The Wall Street Journal¹ points out, cuts can hinder future value creation. In my observation, it is not uncommon for businesses who have cut expenses to lose their competitive edge when the market rebounds, for example.

So, what can be done? As BNZ’s head of Business Development and a member of the BNZ Growth Sectors Team, I’m fortunate to have spent the best part of my career coming up with smart funding solutions for businesses in the fastest growing sectors of our economy. In my experience, there are many ways to optimise cash flow and growth trajectory – whatever the economic weather. Here are five different ways to address cash flow and grow:

1. Borrow on a longer repayment term and leverage the gains

Banks traditionally require debt not secured by property assets to be repaid over a 5-year term. But at BNZ, we can offer up to 10-years on a repayment term. The impacts of a longer-term repayment are twofold:

Firstly, the lower repayments create a cash difference. That may equate to the hire of a sales superstar, or the purchase of equipment that will deliver operational benefits – paying for itself many times over. The best part is that the decision is in the hands of the owner.

Access to capital is often one of the largest barriers to achieving growth aspirations and therefore the second impact is key, you will likely be able to access more funding with a longer repayment term. The business can borrow more if the annual loan repayments are lower (because of a longer repayment term). Of course, paying loans back over a more extended period will likely increase the total overall interest expense, but if the alternative uses for the cash outweigh the additional interest costs, then this could be a smart solution.

2. Review & optimise your current debt structure regularly

As cash flow fluctuates, so too should your approach to how funding is structured.

I often see businesses sitting on large cash balances in their transactional accounts, while still paying interest on term loans. In many cases, it would be more effective to restructure part of that debt with flexible features – such as the ability to repay and redraw – giving you both cost efficiency and control.

Another smart strategy is to align your flexible loan limit with the peak of your annual cash holdings. This allows you to reduce interest costs while still maintaining immediate access to funds, if needed.

If asset finance is required, it is possible to make payments on an interest-only basis until such time as repayments align with the cash flow profile of the asset (machinery for example). Similarly, using a loan rather than dipping into your cash reserves ensures liquidity is preserved for when it’s really needed. Regularly reviewing your debt structure isn’t just good practice, it’s a powerful way to keep your capital working hard and your business financially agile.

3. Future forecast debt servicing to unlock lending for growth

Looking back on business performance is the traditional debt servicing model, but if a business is borrowing to create future profitability, looking at historical accounts may not paint the full picture. BNZ has a unique forward-looking Debt Servicing Calculator. I was recently asked by a client and their accountant if they could borrow an additional $5 million and how the Bank might feel about that. We showed that with the right mix of facilities and repayment terms, the business could borrow up to $19 million. While this amount wasn’t required, it certainly helped the directors shift their mindset to growth opportunities.

4. Leverage invoice value to stabilise cash flow

Certain industries are hamstrung by payment terms, often waiting 30, 60 or 90 days. With BNZ’s CashFlow Plus, eligible businesses can borrow up to 80% of the value of an approved invoice as soon as the product is delivered. The invoices are the security, so there’s no longer the reliance on traditional forms, such as a property. With a solution like CashFlow Plus, suddenly, there’s instant cash flow agility, offering room for both operational mobility and growth in the business.

5. Acquire and synergise

While an acquisition might seem out of reach when cash flow is tight, the consolidated position of two businesses may actually offer greater stability, profitability and future growth potential. With an acquisition strategy, businesses often find they can synergise for greater operational efficiencies, and in turn increase profitability. This may be more within reach than many business owners think. I have worked with several who have been pleasantly surprised by the amount of funding support available. This is because we look at the consolidated position of both the existing business and the acquisition to calculate the total available funding.

If optimising cash flow is important to your business, we can help, and we can do that quickly. Our team of BNZ Business Partners are empowered bankers with significant personal approval levels. This often means a business owner is talking to the decision maker, resulting in faster approvals and the confidence that requests won’t get lost in translation. I warmly welcome you to get in touch with me or any member of the BNZ team.

[1] https://deloitte.wsj.com/cfo/when-cost-cutting-leads-to-new-challenges-617f29f1

Disclaimer:

Any views expressed in this article are the personal views of Matt Carnell and do not necessarily represent the views of BNZ, or its related entities. This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.

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