Business cash flow planning becomes increasingly important as a business grows. Strong turnover does not always mean strong cash flow.
An established business can have solid revenue, a healthy pipeline and plenty of work underway, yet still find that available cash is becoming tighter.
Customers may be taking longer to pay. Supplier and operating costs can increase. Wages continue regardless of when invoices are paid. At the same time, the business may be considering new equipment, additional vehicles, property, recruitment or expansion.
These are some of the pressures Matrix Finance has been hearing about in conversations with business owners, including slower customer payments, increasing costs and businesses delaying equipment purchases or expansion because of cash flow constraints.
For an established business, the question is not simply whether there is enough cash available today.
It is:
Will your current cash flow and finance structure support what the business needs to do over the next 12 months?
Why can a profitable business still experience cash flow pressure?
Profit and cash flow are not the same thing.
A business may be profitable on paper while substantial amounts of cash are tied up in unpaid invoices, stock, equipment, property or other assets.
The timing of money entering and leaving the business matters.
A growing business may need to pay employees, suppliers and operating expenses well before customers settle their accounts. A new project may require significant expenditure before the first payment is received. Increased turnover can also mean holding more stock, employing more people or investing in additional equipment.
In other words, growth can create cash flow pressure just as easily as a downturn can.
That is why businesses should look beyond current revenue and consider the working capital required to support the next stage of operations.
How should you assess cash flow over the next 12 months?
For an established business, cash flow planning should go beyond reviewing the current bank balance.
Consider what is likely to change over the coming year.
This may include:
- larger contracts or an increase in sales
- changes in customer payment timeframes
- increased wages and employment costs
- higher supplier, stock or material costs
- tax and other financial obligations
- planned equipment or vehicle purchases
- property acquisitions or fit-outs
- recruitment or expansion
- existing commercial loan repayments
- upcoming refinancing requirements
- new opportunities that may require capital quickly
The purpose is not to predict every dollar.
It is to identify where the business may need additional liquidity before that need becomes urgent.
How can growth affect working capital?
Winning more work is usually a positive sign, but increased revenue does not necessarily result in an immediate increase in available cash.
Consider a business that secures a significant new contract.
Before receiving its first payment, it may need to purchase materials, employ additional people, acquire machinery or increase its operating capacity.
That creates a funding gap.
For an established business already operating at scale, those gaps can become substantial.
This is why working capital should be considered alongside growth plans. The question is not only whether the business can afford to grow, but whether it can fund the period between making the investment and receiving the resulting revenue.
Should you use business cash to purchase equipment?
An equipment purchase is not simply a question of whether the business has enough money in the bank to pay for it.
It is also a capital allocation decision.
If a business uses a substantial amount of available cash to purchase vehicles, machinery or other equipment outright, that money is no longer available for wages, suppliers, stock, tax obligations or the next opportunity that arises.
For some businesses, paying cash may still make sense.
For others, equipment finance may allow the business to acquire the assets it needs while retaining more working capital within the business.
The important question is not necessarily:
Can we afford to buy it?
It is:
What is the most appropriate way to fund it without unnecessarily restricting the rest of the business?
When should you review your existing business finance?
Businesses often review finance when they are about to purchase something or when cash flow has already become tight.
A better time can be before either occurs.
Existing finance facilities may have been established when the business had a very different turnover, cost base, asset position or growth strategy.
A facility that suited the business several years ago may not necessarily be the right structure for where the business is now heading.
Reviewing existing commercial loans, equipment finance, repayment structures and working capital facilities can help determine whether the current structure is still appropriate.
That does not mean finance needs to change.
It means understanding what you have, what it is costing the business and whether it provides the flexibility required for the next stage.
This reflects the central question in Matrix’s original cash flow discussion: does the current finance structure support where the business is heading, or simply where it has been?
How do you fund growth without tying up too much cash?
There is no single finance structure that suits every business.
The right approach depends on what is being funded, how quickly that investment is expected to generate revenue and the broader financial position of the business.
Depending on the requirement, this could involve equipment finance, working capital, commercial lending, property finance or a review of existing facilities.
The objective should not simply be to obtain more funding.
It should be to structure finance in a way that supports the business while preserving sufficient liquidity for everyday operations and future opportunities.
What happens if conditions change?
Cash flow planning becomes particularly valuable when assumptions do not go to plan.
Consider what would happen if customers took another two weeks to pay.
What if supplier prices increased?
Could the business comfortably replace a major piece of equipment unexpectedly?
If a significant new contract became available tomorrow, would the business have the working capital required to take it on?
Could you move quickly on an acquisition, property or investment opportunity?
These questions help identify potential constraints while there is still time to address them.
The best time to review finance is before you need it
Finance decisions become more difficult when they need to be made urgently.
If you already know the business is likely to purchase equipment, invest in property, expand its operations or require additional working capital over the next 12 months, reviewing the finance position earlier provides more time to consider how it should be structured.
That is particularly important in an environment where business owners are already experiencing cost pressures and slower customer payments.
Is your finance structure ready for the next 12 months?
The business may look very different a year from now.
Turnover may have increased. There may be more employees, larger contracts, additional equipment, new premises or opportunities that are not currently on the radar.
The finance supporting the business needs to be considered in the same way.
At Matrix Finance Group, we work with established business owners to understand what is coming next, review existing finance structures and consider funding options that support the broader needs of the business.
If you are planning significant purchases, growth or investment over the next 12 months, now is a good time to review how your finance is structured.