Cash poor but asset rich?….observations from a Business Asset Finance Company
Many companies are faced with this dilemma and have to think about the reasons why they have zero cash in their businesses while at the same time they have no or very relatively low debt compared to the worth the assets they own.
Repaying debts quickly has been a fundamental an integral part in Kiwi the business world, however the majority of businesses are now facing more competition than they have ever have experienced, which means lower margins and higher cost of compliance, the requirement for more efficient information systems, and higher wages to attract and retain employees. All of these can have a major impact on cash flow.
Although the world has changed, our perceptions and expectations about the way we approach debt, it hasn’t changed our approaches to debt. should you find yourself in an “cash poor but asset rich” situation, then it could be time to think about your financial situation financial and consider whether the old-fashioned approach to company’s asset finance is beneficial for you.
Based on your particular situation, the options for business asset finance that will help you to hold more money in your business might be:
- For acquisitions that are new If possible think about putting down lower deposits and align the terms of your corporate credit to the economic duration and purpose of your asset. when it’s a longer-lived asset, then you should fund it for as long as you’re physically able to.
- for existing asset finance If equity exists, extend the term to coincide with the remaining duration of the economic life of your asset(s) and the exit strategy for each.
- To acquire freehold property you should consider finance these assets in order to let equity attached to them in order to bring working capital into the business.
The expense for Capital Equipment replacement is also frequently undervalued.
Business asset financing is an instrument you can utilize to improve your financial position, however this depends on implementing financing structures that are appropriate for your particular circumstances and the type of funding the current funder(s) will permit. It is essential to keep a strong relation with your funder(s) and cooperate with financial institutions that have that they can enhance the value of your company by providing guidance on how to structure your debt to match the kind of assets you have.
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