The summer holiday is usually a time when we get together to eat good food, enjoy special moments with Whānau, and have a classic Kiwi holiday involving a beach or lake, bach or boat and plenty of BBQ's.
It’s also a time when your business cash flow is mainly heading out of town too (especially after the year we have all had). To avoid the December to January squeeze, get organised for Christmas in advance by talking to your banker about holiday close-down lending for your business.
Even if your business doesn’t close down over the New Zealand summer holidays, it’s likely your customers are taking some time off, at least until after New Year. And of course, this is even more probable if your customers are other businesses. Depending on your invoicing and payment cycles, you could be looking at 6-8 weeks without money coming in.
A plan to get through the Christmas close-down period may be the last thing on your mind right now. But by acting early, you can avoid any shortfalls, get prepared and be less stressed.
Do your homework
Before you talk to your business banker about close-down lending, make sure your record-keeping is accurate and up to date.
Chaotic or incomplete financial records will not only leave you in the dark about how your business is doing, but they will also result in your banker being less willing to help tide you over.
To improve your chances of a successful application and a quick decision by your banker, plan ahead and be organised. RightWay's Chief of Business Development and ex-banker Shelley Dickson suggests you consider what she calls the ‘5 Ps’.
The '5 P's'
The '5 P's' refer to the questions a banker must answer to approve your business loan request.
Purpose
- Does your request for funding fit the current needs of the business?
For example, a short term loan is best to cover wages.
People
- Who is involved in the business, and what’s the bank’s perception of them? This could be you, you and a partner, or all directors of the company.
- What is their banking history?
- Who provides this business with professional and financial advice?
Position
- Is the business in an otherwise good financial position, or is it struggling? If so, why?
- What security/assets can back up the request to borrow for the holiday period?
- Is there any further security available?
Protection
- How are key people and their positions protected from outside events and influences?
- Is there enough cover in place if something were to happen to these key people?
- Are there outside sources that could come to their aid?
Payment
- What repayment sources and capacity are available to pay back this business loan?
- Would the repayment schedule really stretch the business if something unexpected happens?
When you meet with your banker, focus on explaining in a clear, compelling way, how you’ll use the money you want to borrow – so they have confidence in your management smarts and ability to pay back the business loan.
Summer holiday survival strategies
Surviving the summer slowdown is not just about being able to borrow. Get creative, and talk to a like-minded business adviser for some ideas. If your bank won’t provide funding, you still have time to put money aside between now and Christmas.
- Set your funds for holiday pay into a separate account.
- Make sure you’re on top of invoicing and call customers who owe your company money.
- Get work lined up for the New Year, so you can hit the ground running.
- Review your biggest expenses – and figure out if you can reduce any, even if only temporarily.
- Don’t have too much stock on hand (if you carry stock) and hold off making extra purchases.
