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Understanding cash flows

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Annie Kane 11 minute read

While asset and equipment finance is often the entry point to SME finance for brokers, becoming a trusted finance broker requires much more in-depth knowledge of a business’ financial position and its trajectory. We take a look at how brokers can cement themselves as the trusted finance adviser by getting to grips with a business’ cash flow.

If you ask anyone in the commercial and business finance space, they’ll tell you that the key to being successful in this area is by ensuring that the businesses you work with succeed. But how exactly do you do that? For SMEs, one of the biggest obstacles to growth (and in tandem, success) is accessing finance to fund their trade. But it’s not just accessing the finance that is the issue – sometimes, it’s understanding whether they need finance in the first place. This is where finance brokers come into their own.

Speaking to The Adviser for the Elite Broker podcast, Bayside Residential and Commercial Mortgages broker and managing director Kevin Wheatley explained: “If we can identify where they are struggling, we can put alternative solutions together to move their business forward. Because it is one of the biggest mistakes SMEs make; they are very good at doing business, but they are not very good business people – especially when it comes to their financial arrangements. So there are a number of opportunities there [for brokers].”

Likewise, SME specialist, mentor and speaker Stuart Donaldson from Banyan Co, said that one of the most important things a broker can do to help SMEs gain better traction from their business is “dissect an SME’s financials to understand what their pain points are”.


Speaking to The Adviser, Mr Donaldson elaborated: “To be able to add value to a client, to be able to walk in their office and say: ‘You’ve submitted to us your financial, here are three or four ratios that I have focused on and provide some real insight into what’s working and what is not working for you – and what the implications are if you could improve these ratios to levels that you have previously achieved’.

“That puts brokers in the position to show, in dollars, what that really means for their businesses. That is just a powerful punch, from my point of view. The client will look at the broker and think: ‘Wow, no one has ever come in here before and shown me this’. Financial statements are a historical record, but you can turn them into a way to plot a way forward.”

Mr Donaldson suggested that understanding a business’ cash flow is of crucial importance to see “how strong the business is and what needs to be done to improve it and whether there is an opportunity to assist in that regard”, as is understanding the profitability of the business and what sort of capacity it has.

“By talking to the business owners about what their great aspirations are, you can see whether their balance sheet lends itself to that. Have they got limits in place that allow them to grow to the level that they are seeking to grow to? Do they need a full review of their financial facilities and do they need to be restructured? Can you build in the capacity and, where possible, make some savings at the same time through a better interest rate and better terms?” he said.

Mr Donaldson suggested that the two areas finance brokers should focus on to help their SME clients and “draw an amazing response from business owners” is to look at the balance sheet and working capital cycles and “show them, through ratios, if they could collect their debts one day faster or turn over their stock one day faster and put a dollar figure against that through the ratios”.


He suggested that a business owner may have a $150,000 overdraft, but a finance broker could show them that if they collect their debtor payments five days earlier, or turn over the stock, then they could potentially eliminate the overdraft (and the interest rates and fees that come with it) and drive up their profitability and their cash.

“That is probably the number one thing that is keeping business owners awake – the cash flow. So if you can show them what it is and give them some good ideas of whether they can reduce their debts or interest rates, then you are going to make some serious progress,” he said.

Indeed cash flow finance can help SMEs with a range of issues, said Linden Toll, CEO of Apricity Finance, noting that business can utilise it for times of expansion (and take on bigger contracts/diversify their offerings while ensuring that they can pay their workforce) or, given the time of year, pay their ATO debts.

Mr Toll said: “An invoice finance facility can be of use if a business has an ATO debt. Many funders will not provide financing if there is an outstanding tax bill. However, provided their payment schedule is being honoured, invoice finance may still be an option.

“For example, we had a client who couldn’t access equipment finance due to their ATO arrangement. The finance was needed to take advantage of a significant new contract. By utilising our facility, they cleared the ATO debt, accessed the financing they needed to buy the equipment and made sure they could get on with the job.

“Other clients have been able to negotiate discounts on running costs and equipment because of their reputation as good payers. If their suppliers know they will be paid faster, they will often offer discounts, which can offset the cost of the facility.”

Mr Donaldson suggested that brokers need to ensure that they are not only well versed in their SME clients’ financials, but also up to date with the offerings and changes in the cash flow finance space.

“I think brokers need to play catch up. There is a lot of good stuff happening in the SME market, and my concern is that even the savviest brokers are still in that transactional mode and not necessarily thinking about how they can alert their clients to what some of these changes in the market,” he said.

“The one corner in the market that is abreast of all this and has the capacity to get across everything is the finance broker. They are independent, they see all these initiatives, they see all these developments in the finance space and they are really well positioned to have some really constructive conversations with SMEs. And, the end of the financial year is the perfect time to have them.”

Mr Donaldson suggested that brokers look to set up meetings with their SME clients and their accountant at the end of the financial year to review the finance and tax opportunities available to them.

“The last thing you want is for an SME to find out that they could have changed facility and saved money, or written off an asset, before the 1 July. You want to find out before the 30 June. And at the very least, if a broker initiates the three-way meeting, they are seriously adding value to the client relationship, just by arranging that alone.”

Top tips from a leading commercial broker

Kevin Wheatley, managing director at Bayside Residential and Commercial Mortgages, says:

  • Don’t let it frighten you off: Try to learn as much about business functionality as you can because every business is different. Do a lot of research because the commercial side of broking is complex. It can be very daunting and it tends to frighten a lot of people off. But don’t allow it to frighten you off. Just focus and understand as much as you can.
  • Get a mentor: I suggest you spend at least two years being mentored by a commercial specialist because you will pick up and hear a lot. There are a lot of things that you wouldn’t have even thought about, but you’re going to need to know it.
  • Peer-to-peer learning: With the networks of really solid commercial brokers, we can manage to come up with a solution amongst us. It’s quite gratifying when you work with these guys and you reach the outcomes you’re looking for, and you’ve only reached those outcomes because some of the advice you’ve been provided with has assisted you in completing the project.
  • Research: Funders have varying appetites for the particular assets they will invest in or lend money towards, so the real secret is to understand the appetite of the funder, and just make sure when you go to them with a lending scenario, it’s going to be a business that they are keen to look at and then make a decision as to whether they will lend to the business or individuals and take them forward.

Top tips from a leading cash flow lender

Linden Toll, CEO at Apricity Finance, says:

  • Time value of money: A dollar today is worth more than the dollar you get tomorrow. By getting funds into a business faster, your clients can reinvest those funds back into their business at their gross profit margin. Compound this month-on-month and it’s easy to see that the funding cost of invoice finance can easily be offset by the value of faster payments.
  • Understand facility limits: Facility limits are usually set based on the value of the client’s ledger. It is common practice that when invoices are late or the ledger becomes skewed heavily to one client or industry, many lenders will change that limit. Therefore, the client may not be sure of how much they can actually realise from the value of their invoices.
  • Know the contract: Most importantly, read the fine print. Hefty account fees can really push the cost of the facility well beyond what the interest rate may tell you. Also, make sure the contract is flexible. Your clients should be able to choose which invoices to fund, when they will fund them and at what level.
Understanding cash flows
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Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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