Friday 23 March 2018

How a healthy cashflow can help keep the wheels turning

Andrew Ribbins, managing director of asset finance at Ultimate Finance, says external funding can help provide day-to-day financial security for fleet operators

One of the challenges of operating in the transport industry is that the assets you rely on – whether HGVs or LCVs – can come with a heavy price tag. In a business with tight margins and significant competitive pressure, managing the outlays against incoming revenues can be a tough ask.

That’s why it’s important for any business to look carefully at the options available to them when major investments are needed. Some businesses are apprehensive about seeking external funding; for example, our research earlier this year found almost a third (27 per cent) of SMEs are holding back the growth of their own business, due to a ‘fear of funding’.

But dipping directly into reserves can just be making a rod for your own back and limit your ability to grow. The old adage I always use is “the secret to a good business is cashflow, not profit”. Of course being profitable is the aim, but maintaining a health cashflow on a daily basis – with a clear view and understanding of the money flowing in and out – is also crucial.

Investing in your business

For transport businesses, particularly those with HGV and LCVs, asset finance can be ideally suited to the purchases they need to make and is a popular route for many. The asset needed is of high value and so naturally acts as security against the loan.

Figures from the Finance & Leasing Association (FLA) show that the asset finance industry financed more than 35 per cent of UK investment in machinery, equipment and purchased software in the twelve months to June 2017 – an eight year high.

In the twelve months to September 2017, meanwhile, asset finance for commercial vehicles was up two per cent on the previous year, standing at some £7.5 billion.

Not having to pay all the costs of buying the asset upfront frees up cash to help you get on with running your business. It provides certainty about how much money will be going out over the period of the agreement.

Easing pressure on cashflow

This can be a welcome relief to many businesses. For example, one client we helped with asset finance recently was a family-run breakdown and recovery company in Greater Manchester. They had been in business successfully for over 20 years – but winning a major new contract meant they needed to invest in a number of expensive new recovery vehicles as well as take on new drivers.

In the past, they had always bought new vehicles themselves out of their own cash reserves – but realised that this time that would be too much of a stretch. Arranging asset finance with us enabled them to get the vehicles they needed without putting an unnecessary strain on the business.

Financing vehicle and machinery purchases in this way also means that there is more money available to meet staff costs and cope with periods of peak demand. This time of year is often a crunch time for many transport operators as manufacturing and retail customers go into overdrive for the Christmas period.

Looking ahead

My advice would be – don’t plough on regardless. Take a look around at what’s available. You might be surprised how many options there are and how good finance can ease the pressure on your operations.

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