As the holiday season looms, many small and medium-sized enterprises (SMEs) are bracing themselves for one of the biggest financial challenges of the year, managing cash flow. With increased operational costs, heightened demand, and pressure to meet payroll, the holiday season often leads to a cash flow squeeze that can derail even the most successful businesses.
Recent trends shown in the latest Business Barometer report, released by SME financier, Banjo Loans, suggest that SMEs are proactively seeking ways to handle this financial pressure. With a staggering 45% rise in loan applications in the first quarter of FY2025, many businesses are turning to external financing as a solution. However, while loans might offer temporary relief, long-term financial health requires more than just borrowed funds, it demands smart cash flow management strategies.
At KMT Partners, we understand the strain SMEs face during seasonal peaks. We work closely with your business to not only secure necessary financing but to also implement effective strategies that ensure sustainable cash flow and long-term success.
What’s driving the surge in loan applications?
The Business Barometer found that extended repayment terms, from 36 to 60 months, have the opportunity to support many businesses in managing their cash flow. This longer tenure allows SMEs to spread their repayments over a longer period, making it easier to manage cash flow during financially demanding times. According to our advisor, Michael Fox, “SME cash flow is under pressure from lower margins and customers becoming slow payers. Therefore, businesses are refinancing loan sums with repayment amounts extended over long periods to provide better cash flow control.”
This surge is not limited to one sector. SMEs with turnovers of $10 million to $20 million have experienced a 73% increase in loan applications, while businesses with turnovers exceeding $20 million saw a 50% increase. Some sectors, particularly financial and insurance services, are borrowing more aggressively than others. However, it’s clear that while loans offer a temporary solution, long-term cash flow management remains critical.
The real issue: managing cash flow
At KMT Partners, we see it time and time again, businesses that are profitable still struggle with cash flow. This is particularly true during the holiday season, where the strain on resources becomes more apparent. Many businesses, focused on growth, overlook the importance of effective cash flow management, leaving themselves vulnerable when the pressure mounts.
Is your business prepared for the holiday cash flow crunch?
Before rushing to take out a loan, consider whether your financial management practices are helping or hindering your business. At KMT Partners, we encourage our clients to take a comprehensive approach, starting with the following ten practical cash flow strategies.
10 practical cash flow strategies for SMEs
- Invoice promptly
Don’t delay invoicing after completing a job or delivering a product. Prompt invoices mean quicker payments, helping to keep cash flowing smoothly. - Tighten credit terms
Shorten your customer payment terms while negotiating longer payment windows with your suppliers. This improves your cash flow cycle and gives you more control over incoming and outgoing funds. - Monitor expenses
Keep a close eye on business expenses. Look for opportunities to reduce costs by renegotiating contracts, switching suppliers, or cutting non-essential spending. - Improve inventory management
Avoid tying up cash in excess inventory. Improve your demand forecasting and adjust your ordering to prevent overstocking, freeing up cash for other needs. - Negotiate supplier discounts
Take advantage of early payment discounts from your suppliers where possible. This can reduce your purchasing costs and improve cash flow in the long run. - Offer discounts for early payment
Encourage customers to pay early by offering small discounts. This can help you get paid faster, improving liquidity. - Monitor cash flow regularly
Use cash flow forecasts to track your financial position regularly. This allows you to spot potential issues before they become critical and take proactive measures. - Enhance debt collection processes
Implement efficient processes to minimise overdue invoices. Consider automated reminders to ensure customers settle their accounts on time. - Explore alternative financing options
In addition to loans, consider options like lines of credit or invoice financing to manage temporary cash flow gaps. - Focus on profitable sales
Concentrate on selling your most profitable products or services. This allows you to maximise revenue and improve your overall financial health.
Preparing for the holiday season: what’s next?
The holiday season is fast approaching, and with it comes a unique set of cash flow challenges. At KMT Partners, we understand that effective financial management is about more than just securing a loan, it’s about creating a sustainable strategy that helps you manage cash flow, meet seasonal demands, and set the stage for future growth.
As Banjo Loans’ Business Barometer found, the surge in applications demonstrates that many SMEs are preparing for the holiday squeeze. But remember, securing financing is just the first step. Whether you’re looking to improve cash flow, streamline debt collection, or invest in growth opportunities, taking a proactive approach is key to success.
KMT Partners specialises in helping SMEs navigate financial complexity. From tightening up your balance sheet to developing long-term strategies, we are here to support your business during the busy season and beyond.
Prepare your business for the cash flow challenges ahead by contacting our accounting business advisors KMT Partners.
Contact KMT accountants now for advice or assistance
About our adviser: Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over four decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with governance planning.
