Cash flow finance

Small businesses have been under pressure this past year, as high inflation has meant that their money doesn’t quite go as far as it used to. Improving cash flow is the greatest obstacle for family businesses, according to recent data from accounting firm Grant Thornton.

Nearly all 2,000 family-run businesses surveyed for its 2023 Family Business Survey (91 per cent) stated that improving cash flow was their business’s greatest challenge, followed by recruitment (86 per cent) and succession planning (72 per cent).

The accounting firm attributed the result to the challenging economy, as high inflation, increasing costs, and raised interest rates have impacted businesses’ cash flow.

Kirsten Taylor-Martin, partner and national head of family business consulting at Grant Thornton, stated: “The top two challenges are interesting as they can be linked to the current economic climate where the majority of Australian family businesses are looking to improve cash flow, while also attracting and retaining the best staff.”

Earlier this year, the Australian government put forward a range of initiatives to support small businesses to grow and prosper. As well as the $20,000 instant asset write-off (see page 12 for more), the government also introduced a new Small Business Energy Incentive to support investments in power-saving assets and a $650 electricity bill relief and is moving on overhauling the payment times system to ensure large businesses are paying SMEs quickly.

But while these grants and support schemes can go a long way, brokers are in the perfect position to help small businesses with their cash flow needs – from understanding what it looks like to lending opportunities that might work for them.

Speaking on The Adviser’s Elite Broker podcast, finance broker Chris Slack (the recent winner of the Finance Broker of the Year award at the Australian Broking Awards 2023 (see page 6 for more) said that writing working capital finance was important as it is “what allows those businesses to tick over”.

However, he highlighted that any residential brokers looking to diversify into writing SME finance should be mindful that interest rates on cash flow finance are not the be-all and end-all of the product.

He explained: “There are some amazing transactions that have happened for many of my clients that have amazingly high rates. [But] I sleep very well at night knowing that the opportunity that they would have missed had they not had that money would [cost them] so much more…

“So the concept of opportunity cost is a massive one for anyone who is doing commercial broking, [whether it’s] property or working capital.”

Moreover, broker and Accendo Financial partner Trent Carter recently highlighted that while SME lending has traditionally been viewed as the domain of traditional banks, the emergence of niche lenders, technologies, and dynamic lending policies has meant that broker clients are spoilt for choice when it comes to sourcing funding or capital for their business.

“Your role as a broker has been assured into the future as the average business owner will need a good SME-focused broker to help them navigate this expanding world of options,” he said.

You can find out more about the products and offerings from these challenger lenders in this Broker’s Guide to Commercial Finance.