Export-related finance

SME Information Series

SMEs spend a large amount of their time managing their cashflow and when it comes to exporting, there are a whole new range of financial considerations. We know that SMEs often have specific financing needs and may require funding support to compete in international markets or to fund export-related supply chain contracts.

The information contained in this edition of our SME Information Series should help you answer the following questions:

9 What do I need to consider around finance when it comes to exporting?

9 Where can I access finance to fulfil an export or export-related contract?

9 How should I choose between debt finance and equity funding?

9 How do I make sure I get paid in overseas markets?

Export-related finance

SME Information Series

Keep your financial health in checkAs your business grows, you need to make sure you work with an accountant that understands the fundamentals of your business and where you are looking to go. Your accountant will help you stay on the right track with your financials as you expand into new markets or enter into an export supply chain.

Understand your cashflow requirementsOne of the most common problems encountered by growing businesses is when their growth rate outstrips their capacity, which can create pressure on working capital. By developing detailed cashflow projections into the future, you can ensure you are able to plan and manage your cashflow accordingly to avoid problems.

There are a number of differences between exporting and operating in Australia which will have an impact on your finances. Understanding all the costs associated with exporting will help you make an informed decision on whether your business is ready to start an export project. There are some crucial considerations to bear in mind:

What do I need to consider around finance when it comes to exporting?

“ Managing our cashflow through the growth of different team sizes is probably our biggest and still ongoing challenge.”

Daniel Visser, Wicked Witch

“ [Export] requires financing and commitment well ahead of receiving significant revenues.”

Bruce Rodgerson, Rubicon Water

Develop a financial planWhen you enter into exporting or start winning export-related contracts, you need to be prepared for all finance eventualities. For example, export can mean a longer cash flow cycle, a greater risk of non-payment and exposure to foreign exchange risk. Putting together a detailed financial plan, one that you can easily adjust as you collect more data and change your assumptions, can help you determine if your export plan is viable.

Build a strong relationship with your bankerYour banker is crucial in your growth journey. Successful SMEs will keep their banker informed on a regular basis, by keeping them updated on what their business plans are, what direction they are heading in and any financial issues they anticipate. If you involve your banker closely in your business, it will be much easier to get help the day that you do run into trouble or need more capital.

One of the most common problems for SMEs is funding growth. Once export comes into the equation, financing requirements become even more important and many businesses need support to enable them to fulfil their export and export-related contracts. Help is available from a number of sources:

Where can I access finance to fulfil an export or export-related contract?

Consider your optionsWhen a contract comes in, think carefully about how you could fund it without entering into risky debt or putting a strain on cashflow – even your own client or suppliers might be able to help you.

“ The way we approach it is the first place we will look... is to your client for finance. If that is going to cost you margin or some conditions, we look to our subcontractors and suppliers to see where they are at and what they can do. Once we have exhausted those avenues, we will look to the bank.”

Casey van Loo, Ellton Conveyors

Speak to your bankSpeak to your business banker who can assess your situation and advise you on your best course of action. Your bank may be able to offer you a secure loan or commercial bill facility to help you with financing your exports.

“ I remember hearing a banker tell me once, ‘speak to your banker early and often.’” Tim Cornish, Forgings, Flanges & Fittings

Think about alternative sources of fundingIf your bank is 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 export-related supply chain, in the form of loans, guarantees and bonds to support specific export contracts.

“ The hardest part [of exporting] was when we did get a real game changer of a deal for a multimillion dollar project... but they required a performance bond. Fortunately for us [Efic] were able to put together that bond.”

Tim Rolfe, The Creature Technology Company

For businesses growing quickly, there are often important decisions to be made around how to fund that growth. Many businesses will be faced with a decision around whether they look at debt or equity finance to take their business growth to the next level.

The panellists at our recent SME briefings, all Australian SMEs who export or are involved in export-related contracts, discussed some of the considerations they took into account when choosing debt finance versus equity funding, and explained why they chose the route they did:

How should I choose between debt finance and equity funding?

“ We could never find [private equity funding] to be honest... I am just not sure where it exists and how you access it.”

Daniel Visser, Wicked Witch

Understand where to look

“ You lose a bit of control as you bring in external equity... it is not necessarily compatible with growing a business. We’ve avoided private equity and it’s made us a lot more sustainable as a business.”

Bruce Rodgerson, Rubicon Water

Consider your business goals

“ I think private equity funding or venture capital is a good thing. [But] you have to recognise it’s expensive in terms of what they ask for and controls and in terms of their involvement in the business.”

James Douglas, Carbon Revolution

Balance the trade-offs

“ What I have learnt a little too late in life is that debt is a lot cheaper than equity.”

George Buschman, Boost Media

Weigh up the costs

“ The single biggest thing is timeframes. A lot of these funds have got a three to five year timeframe... that makes it difficult to work with unless you have that expectation.”

James Douglas, Carbon Revolution

Be aware of timeframes

“ It is all about as much debt funding as possible... as little equity given away as possible.”

JoelMontgomery,Affinity

Assess what is right for your business

Operating in international markets can throw up a range of payment challenges. The payment terms that you offer an overseas buyer can make a real difference to securing a contract, however you also need to make sure you protect yourself to ensure you get paid.

There are some common payment options to consider:

How do I make sure I get paid in overseas markets?

PrepaymentYou receive some or all of the payment amount upfront.

Documentary collectionWhich involves you shipping your goods or services but retaining control of them until you receive payment or a legal undertaking of future payment from your overseas buyer.

Open account(Or open credit) which gives your buyer certain credit terms by delivering your goods or services with an invoice requesting payment on a specific date after delivery.

There are some risks to be aware of:▪ Many overseas buyers will expect to pay you only after they’ve received delivery of your goods, which

increases the risk of non-payment. Be cautious of entering into such an arrangement.

▪ Until you have an established relationship with your overseas buyers or have a proven track record in exporting, you may not be able to negotiate your preferred payment methods. Your accountant or banker can help you weigh up the risks.

▪ The risk of adverse movements in exchange rates is something that is faced by everyone doing business in international markets. Not managed correctly, foreign exchange risk can have a real impact on the bottom line of an export business.There are a range of products that can help manage this risk – speak to your bank or your foreign exchange provider to understand your options.

“[We look] at every single customer to see if we can get payment up front, or we look at letters of credit. We don’t really give an option of an open account.”

Dirk Pretorius, Frosty Boy Australia

For more information, contact Efic on1800 093 724 orvisit www.efic.gov.au

There are lots of different things to consider when it comes to financing for growth. Winning an export or export-related contract is one thing – managing your finances to ensure you deliver and succeed is another. Working closely with your accountant and banker every step of the way will help set your business up for success, while there

are a number of options that can help you finance an export or export-related contract.

If you would like further information or to have a discussion about funding solutions for your export or export-related business growth, please call 1800 093 724 or send us an

enquiry via our website and we will come back to you soon.

In the next edition of this SME Information Series, we will provide information on building and managing networks in export and export supply chain markets.

The information in this document is published for general information only and does not comprise advice or a recommendation of any kind. A person or entity should seek their own independent legal and financial advice. While Efic endeavours to ensure this information

is accurate and current at the time of publication, Efic makes no representation or warranty as to its reliability, accuracy or completeness. To the maximum extent permitted by law, Efic will not be liable to you or any other person for any loss or damage suffered or incurred by

any person arising from any act, or failure to act, on the basis of any information or opinions contained in this document.