What brokers should be telling clients
Funding options for business
A lack of funds can limit the performance of your client’s business. That’s why we’ve put together some approaches to help discussions with your client when they are considering funding for their business.
Why does your client’s business need more cash?
Will more cash solve a problem, give them time to survive a difficult period, or create a growth opportunity? Before they start seeking extra funds, they need to be really clear on what their business needs and why. First step is to figure out why their business needs the extra money.
Non-finance sources
Additional lending isn’t the right solution for all businesses. Instead, some of the following options might be worth considering for their business.
Release tied-up cash
Can they find the money they need inside their business? For example, could they hold a sale of slow-moving stock, sell equipment and lease it when needed, or resolve unpaid invoices more efficiently?
Establish strategic alliances
Collaborating with other businesses can create a support network while making it easier to engage with the larger community.
Could they consider promotional opportunities? For example, sports equipment retailers and gyms offering discounts on each other’s products and services; or package deals, for example, hairdressers, beauty therapists, florists and cake shops offering joint packages to people getting married?
Longer credit terms with suppliers
Are their suppliers willing to provide products or materials on credit for a longer period?
If they can come to an agreement with better terms, they may have more opportunities to sell their products and make more profit, potentially improving performance for their suppliers as well as their own business.
Increase market access
Will increasing sales provide the cash they need? If so, they could consider how they might be able to sell more products or services by changing their operations or refreshing their marketing.
Doing business online effectively means being open for business 24/7. Selling to people who’ve already bought from them once is easier than selling to new customers.
Does their target market know about their business and what makes it better than the competition? It could be time for them to re-evaluate their marketing.
Read more: Big opportunities for brokers in SME lending
Implications of borrowing
Once your client decides to raise capital through external funding, they need to think carefully about how much finance to apply for. Borrowing either too much or not enough can hinder the growth of their business.
A few things to consider:
- Additional loan applications can be problematic if they borrow too little, while borrowing more initially may be the answer if they’re confident their business can make a greater return. Either way, you don’t want your client to borrow more than their business can afford to repay.
- Completing a break-even calculation and cash flow forecast would be a great exercise for your client to undertake so they know how much extra they’ll need to sell to cover the repayments.
- And it’s always a good idea for them to check their figures with their accountants or advisers, as well as obtaining legal and tax advice about business funding and operations.
What will the consequences be if they borrow more cash?
Here are some links to tools and resources to help your client manage their business:
- Download our cash flow forecast template
- Manage and forecast your cash flow easily with our template
- Download the break-even calculation template
- Complete the break-even calculation template to plan for your business
This article is brought to you by ANZ
This is general information and ANZ is not providing advice or recommendations. Carefully consider what’s right for your business and your clients.
