Sourcing finance to fund business growth

It takes money to grow a business, but there are a number of creative ways to raise funds other than running off to the bank and loading up on your property mortgage.

This special feature looks at increasingly popular funding options such as debtor finance, a great way to get on top of cashflow while growing your business.

Setting aside provisional tax payments can be a hindrance to business growth as well, but a scheme that allows you to defer those payments, can also have a positive impact on cashflow management.

Which all goes to show that when it comes to working smarter with your money – where there’s a will there’s almost definitely a way. Read on!

Provisional tax: A source of finance

Vincent Papesch knows the importance of having working capital available to fuel business growth.

It’s why the owner of interior floorcovering specialists Newflor uses Tax Management NZ (TMNZ) to defer the business’s upcoming provisional tax payments to a date in the future, to free up money to purchase additional stock to sell.

“It’s all about expanding our range of suppliers and having more product. That’s put a lot of pressure on us cash-wise over the last four years,” says Papesch.

“With this facility, it’s so cost-effective – the interest cost to us is negligible compared to our margins. We can add more stock to our business without the horrendous costs coming with it.

“If this service did not exist and we had to pay tax when it was due, we would’ve paid it, but that would’ve slowed our growth.”

Growth is something the Takapuna-based business has undergone since Papesch purchased it in 2012. Papesch has gradually upgraded systems, modernised the website, refreshed marketing and hired new staff. As a result, turnover has doubled compared to what it was four years ago.

Newflor is among thousands of growing businesses TMNZ has assisted since 2003.

Company chief executive Chris Cunniffe says upcoming provisional tax payments can be deferred for up to 12 months. TMNZ pays IRD on a client’s behalf, so there is no IRD interest and late payment penalties, and the client pays TMNZ at the agreed upon future date.

The upfront finance fee is much cheaper in comparison to other traditional lending facilities, and the arrangement does not affect other credit lines. No credit checks or security are required.

“Money set aside for provisional tax can often be used far more productively if it can be kept in the business.

“We allow owners to do that so they can take advantage of economic conditions or other commercial opportunities that will deliver a greater return,” says Cunniffe.

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Debtor finance a popular means to grow a business

In a tighter business credit market, a debtor finance facility is becoming an increasingly popular funding option.

As a business grows, its receivables grow – therefore what better way to fund that growth than through a receivable based lending facility?

Managing cashflow is one of the most stressful aspects of managing a business. But with a well-structured cashflow facility, business owners don’t have that added pressure and stress of stretching out suppliers and placing undue pressure on debtors.

Craig Brown, GM Lending at Lock Finance, says flexibility is the key benefit of their debtor finance facility.

“We’ve had business owners come to us who do not have a large enough equity in their property to support an increase in their bank overdraft facility.

“We’ve been able to assist as we use the business receivables as security and not their personal assets. Our facility has provided the funding to allow them to grow regardless of what the owner’s asset background is.”

So what information does a business owner need to supply Lock Finance in order to set up a debtor finance facility?

“Like any prudent lender, we require similar information about the business as most other lenders,” says Brown. “We would require financial information about the company and some information about the owners.

“However, one point of difference is that we can turn our applications around very quickly. We don’t have to wait for a client’s final year-end accounts to be prepared by their external accountants. We can rely on a client’s current internal accounts, which can also speed up the process.”

Brown says there are three things a business owner should weigh up when considering funding options:

What security do they want to offer the lender? (Do you want to attach your personal house to your business borrowings if you don’t have to?).
Price is obviously a consideration. Get a couple of quotes or offers so that you know you are getting a good deal.
Suitability of the provider and their facility. Over recent years banks have been lending historically cheap rates to businesses by leveraging against the increased equity in the owner’s house. That’s great if all you are wanting is the cheapest funding available.

However, you are then linking your largest personal asset to your business, which is not the best option for asset protection.

Also, does the funder have a facility that is flexible enough? Is the funder flexible enough to support your business requirements? Not all businesses run smoothly all the time.

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Don’t fear trade dollars

Maximising cashflow, retaining customers and keeping stock moving are important elements of any business. What if we told you there’s a digital currency where you can buy and sell products and services using trade dollars rather than using cash? That’s where Bartercard can help grow your business.

Here we focus on five key areas to help business owners get the most from using Bartercard Trade Dollars, rather than fearing them.

Treat Trade Dollars as a supplement to cash-paying business
Operating as a supplement to cash business, the Bartercard membership provides complete control over which products and services are sold through the network. No member is obligated at any time to take on Trade Dollar business over cash-paying business.
Adding the flexibility of Bartercard to your business allows other members to utilise your goods and services with Trade Dollars, which can help create new business, customer loyalty and increase profits.
Use Trade Dollars to move inventory/fill occupancy as business fluctuates
Spare capacity and downtime can be converted into new revenue by utilising inventory, equipment and employees. Businesses can sell excess stock or slow moving inventory, without the need to discount heavily. Members receive Trade Dollars as payment, which they then spend on other goods and services within the Bartercard community which are beneficial to their own business.
Trade Dollars as a staff retention/reward system
Retaining good staff is important. However, many businesses struggle to find ways to reward exceptional staff without increasing wages or salaries. Trade Dollars offer an easy solution: use Trade Dollars as employee bonuses, incentive schemes or gifts. For example, utilising the Bartercard trade exchange, a business could gift a staff member a reward such as a dinner out, using Trade Dollars.
Take advantage of the vast member business network
Bartercard has a large referral network that allows members to extend their customer base and geographic reach. This can then translate into increased business profits. New customers generated by Trade Dollars are in addition to existing cash business, so they don’t interfere with existing business.
Through referrals and word-of-mouth marketing, members have an advantage over their competitors. Each time a member spends their Trade Dollars, that member receives new business from another member’s business.
Manage cashflow and make use of interest-free credit
Trade Dollars are an electronic currency and work in a similar way to a credit card or bank account, with the added advantage that you can continue to make purchases even when cashflow has slowed. Trade Dollars can be transacted via EFTPOS, online over the phone, using the Bartercard app, or by transaction vouchers.
Bartercard provides the opportunity to expose your business to new customer markets, improve cashflow, reduce business expenses and clear idle and excess stock without having to discount. It’s simple to use and acts no differently to a normal bank account or line of credit.