Cashflow management strategies for SMEs in uncertain times

Cash-strapped? Rudi Bansal, Regional Manager at Kiwibank, shares key insights on cash flow management for SMEs navigating the current economic challenges.

In an insightful interview, Kiwibank’s Rudi Bansal discusses the pressing cash flow management challenges facing many SMEs amid economic uncertainty.

With rising operational costs and shifting consumer spending patterns, Rudi offers practical strategies for business owners to navigate the current landscape. He emphasises the importance of proactive planning, leveraging technology, and maintaining strong client relationships, while also shedding light on Kiwibank’s supportive financial solutions tailored for SMEs.

Rudi brings over a decade of experience in business and commercial banking, and is personally driven by helping New Zealand businesses make a greater impact for Aotearoa and Tamariki, whether that’s through capital, connections, or other means.

As businesses look to weather the storm and prepare for future growth, Rudi’s insights provide a roadmap for resilience and adaptability for the changing economic road that still lies ahead.

Several recent polls suggest one of the biggest worries for SME owners for the year ahead is customers not spending, impacting cashflow, is this what you are hearing from your customers?

Yes, we’re seeing revenue challenges across various industries as the economic cycle tightens and households focus on preserving cash flow. Sectors like manufacturing, some primary exports and construction are also affected by reduction in pipeline activities and decreased global spending.

Aside from a slowdown in consumer spend, what’s causing these cashflow concerns? 

Beyond consumer spending, rising operational costs and extended payment cycles from debtors are significant concerns. While staffing availability has improved in many sectors, top talent remains highly sought after and expensive.

Post-COVID, many businesses expanded to meet increased demand, only to face a sudden reversal. For instance, companies dealing in discretionary high-cost household items encountered supply chain disruptions, leading to excess inventory when market conditions shifted. This situation tied up profits from previous years in unsold goods, making them difficult to move in the changed market environment. Additionally, the high interest rate environment has strained cash flow for businesses with loans, as servicing costs have risen.

Kiwibank proactively works with businesses to structure lending in a manageable way relative to their income and other expenses. Following the recent OCR cut, we are seeing an improvement in business sentiment, and we expect to see further easing of these costs.

What advice do you have for business owners looking to navigate the next several months as liquidity remains low?

Planning ahead is crucial. This includes creating detailed monthly cash flow forecasts, renegotiating payment terms, when necessary (while avoiding over-reliance on extending creditor terms, which can strain relationships), and carefully managing expenses. Restructuring debt to align with current cash flow conditions can also provide relief. Exploring new revenue streams and improving productivity, particularly through digital tools and automation, can make a significant difference. Additionally, monitoring inventory levels and avoiding excess stock can prevent unnecessary cash flow strain.

Another key strategy is to assess customer concentration risk – identifying key clients who are still spending and focusing efforts on maintaining and leveraging these relationships can help sustain revenue. Leveraging insights from this data will help inform strategic decisions. Engaging early with advisors and banking partners is essential for addressing potential issues before they escalate, including contacting the IRD if any debt exists.

Is it a case of ‘survive ‘till 25’ or should businesses be taking active steps now to address cashflow concerns?

Active steps should be taken now. Sometimes a semi-forced pivot can lead to better long-term outcomes, such as improving productivity to achieve the same output with fewer inputs. However, it’s crucial to strike the right balance – cutting too much infrastructure, whether human capital, capex spend, etc., beyond what is necessary can harm the business. When the market rebounds, rebuilding intellectual property and infrastructure is not easy, so maintaining a solid foundation is key for future growth.

What is Fast Capital by Kiwibank, and who is it targeted at?

Fast Capital is Kiwibank’s fast and easy way for business owners to apply for lending from $5k – $1m. It’s an easy digital application that integrates seamlessly with accounting software. Businesses can apply online and get real time decisions on loan applications at any time of the day. We’re focused on building tools that are simple, time-efficient, and accessible at any hour of the day or night – understanding how demanding it is to run an SME. Our goal is to provide solutions that help businesses manage their operations smoothly, no matter how busy their schedule gets.

How are banks like Kiwibank placed to support SMEs looking to borrow money, compared to other small lenders?

We are committed to supporting businesses throughout the economic cycle – being there during tougher times as well as when the economy is more buoyant. We offer a comprehensive suite of financial services tailored to the unique needs of businesses, including products such as international trade, foreign exchange, term loans, and working capital management. Our relationship-driven approach ensures that we fully understand our clients’ challenges and opportunities, enabling us to offer flexible solutions that meet their evolving needs. This is particularly crucial in today’s economic environment, where adaptability is key to success.

Beyond lending, we provide proactive insights into various macro and micro trends, helping our clients stay ahead of market changes. Our roundtable events foster knowledge-sharing, with businesses learning from each other’s experiences and connecting. For example, after a recent AI-focused event, several clients adopted automation tools to streamline administrative tasks and improve productivity, allowing them to focus more on strategic growth.

When it comes to doing business in 2025, what’s your outlook for SMEs in the broader context of where the economy is headed?

Despite pressures on certain industries, we remain optimistic about New Zealand’s long-term resilience, with interest rates forecast to decrease. In the weeks following the RBNZ’s August OCR cut, we have already seen a thematic increase in business confidence and expected activity. Our SMEs, in general, are adaptable and innovative, and we seem them leveraging digital tools, global opportunities, and diversification to drive sustainable growth. Balancing short-term survival with long-term planning, such as investing in technology, diversification, and new markets, could be key to ensuring future success.

For more insight and advice on cashflow management strategies for Kiwi SMEs, read the September 2024 digital issue of NZBusiness magazine.

In this issue of NZBusiness, we delve deep into practical advice and expert insights on cashflow and investment tailored specifically for SMEs.

Discover how to refine your cashflow forecasting to avoid pitfalls and ensure liquidity, and learn about diverse funding options from venture capital to crowdfunding that could be the catalyst for your next big leap.