Managing your finances is crucial to a successful export venture. Andrew Watson, executive director of export credit agency Efic, provides four key tips.
Exporting presents an opportunity for many Australian Small and Medium Enterprises (SMEs), thanks to Australia’s strong reputation in food safety and quality, which gives local food and beverage products an edge in international markets.
There are many different considerations and challenges SMEs face when it comes to establishing an export operation, so winning an export, or export-related contract, is a great achievement.
However, SMEs often find that managing their finances to deliver on this contract is another challenge entirely.
Tip 1: Understand cash flow requirements
One of the most common problems encountered by growing SMEs is when their growth rate outstrips their capacity, creating pressure on working capital. This pressure is felt even more acutely by exporters, who often face a significant lag time between order placement, delivery and payment.
Working closely with an accountant who understands the business and can develop detailed cash flow projections can help overcome this. Also, ensure that financing is arranged ahead of time to counter any shortfalls in revenue caused by this lag.
Tip 2: Plan for success
Developing a financial plan that accounts for the complexities of exporting can also assist with overcoming these cash flow challenges. Another potential issue for consideration is that export contracts can have a greater risk of non-payment and will often involve foreign exchange risk.
A detailed financial plan will ensure that these risks are mitigated as best as possible, and can help determine if an export contract is viable.
Tip 3: Build strong relationships
SMEs often find that their banker is a crucial partner in their growth journey, especially when it comes to expanding into international markets or taking on contracts in the export supply chain.
Successful SMEs keep their banker informed on a regular basis, ensuring they are up-to-date with new business plans and any financial issues that could occur in the future.
These businesses will often find that this close relationship with their banker makes it much easier to navigate any unexpected financial issues, such as a shortfall in working capital.
Tip 4: Accessing finance to fund export
One of the most common problems for SMEs is funding growth, and once export enters the equation, financing requirements become even more important, as many businesses will need finance to enable them to fill their export contracts.
SMEs may find that clients, or even suppliers, could be able to provide more flexible payment terms or upfront payments to help overcome this potential barrier and help the business avoid having to rely on risky debt or other options which place additional strain on cash flow.
Bankers are also able to help assess an SME’s situation and advise on the best course of action. If banks are unable to help, Efic, Australia’s export finance agency, may be able to.
Efic can provide financial support to SME exporters, or SMEs involved in an exportrelated supply chain, in the form of loans, guarantees, and bonds to support specific export contracts.
SME Information Series
Exporting presents a growth opportunity for Australian SMEs and the recent free trade agreements signed with Korea, China and India are already increasing the flow of trade between our borders.
SMEs who are considering taking advantage of these growth opportunities may find it worthwhile to familiarise themselves with our SME Information Series eBooks.
These eBooks cover a range of topics from export-related finance to planning for export, and can be accessed here.