Inflation is hitting the wallets of all New Zealanders and its presence is becoming increasingly hard to ignore. Rising costs are directly impacting our food, transport, interest, and virtually everything on a day-to-day basis. To keep up with rising costs it is important that businesses monitor their cash outflows carefully to ensure that they are using their cash as effectively as possible and are getting bang for their buck. So that your business can weather the storm and come out ahead of the curve, there are a few simple things to keep in mind that can help.
Negotiating Supplier Terms
There is a delicate balance to be struck when it comes to relationships with suppliers. While you may want to hold on to your hard-earned cash as long as possible; especially when there are lots of bills to pay! It is important to maintain good relationships with suppliers as it is ultimately them who provide the materials which drive your business. It can pay to check to see if there is a possibility of extending the length of time for payments that are written into the contract. If cash is tight and payments are being made earlier than necessary and it would be a good idea to prolong the payment as much as is stipulated in your agreement. If there is not a lot of breathing room written into the contracts with your suppliers, it can benefit you to be straightforward with them and have a discussion around your repayment terms if you are worried you will not be able to make your payments on time. They may offer you some respite, as after all cash is king to them too and it is likely that they would want to work out an option that works for all parties.
Getting bang for your buck
Shopping around can be a useful way to keep the cost pressures of inflation at bay. Just like looking for the best deal on groceries from your local supermarkets, it might pay to compare your business’s current suppliers to other vendors in the market to see if a better deal can be found elsewhere. Although pricing is an important consideration, it is also important to ensure that any suppliers you engage with have a good reputation for quality and service as a lack of those two factors will likely end up costing more money in the long run.
Staying in touch with your bank
Over the past few years, a lot of businesses have taken on debt to help keep their business afloat. Now that interest rates are rising again, it is being felt where it hurts most – the bottom line. Having a strong relationship with your bank manager can really help to open up discussions regarding possible options such as securing more funding, more favourable rates or a principal holiday.
Risk versus Reward
Do you have some cash that is sitting in the bank but are unsure what to do with it? Are there some projects or assets that might help your business, but you have been putting off pressing go on them because of uncertainty? It can be tricky to decide how to spend your money, especially during times when the outlook is unclear. To help make decisions on how to best spend your money, there are some key factors that must be considered.
Firstly, it is important to make sure that you obtain reliable information about what the cost benefits of a new project or asset would be – i.e. How much is the initial investment? What are the ongoing or hidden costs? How would it provide value to your business? Secondly, it is valuable to consider your risk tolerance. Successful business owners tend to be more open to taking on an element of risk, and those who are more risk averse and too cautious are more likely to stay still or go backward in terms of their business progression.
Although risk-taking might not be for everyone, it is always important to keep an open mind and monitor your business and the external environment. By doing this it is easier to take advantage of opportunities that might arise, as you will be better equipped to know what is best for your business and make those hard decisions. As the saying goes, with great risk comes great reward.
“Cash is King”. The common adage is repeated tirelessly but in times of rising costs and uncertainty it is more relevant than ever. With lots of extra cash being swallowed up by rising costs, business owners need to be aware that a healthy cash flow is crucial to survival, as well as being aware of how the market is moving and knowing what path might be best for your business.
Author – Josh Worth
