With 2025 on our doorstep, it’s vital that business owners commit to better understanding their company cash flow in the New Year, amid an increase in SME borrowing.

The Reserve Bank noted recently that overall lending to SMEs has picked up over the past year, growing by 12% and around 25% since the start of 2022.

It’s an increase I’ve seen firsthand in the past 12 months.

We’re seeing businesses who’ve never borrowed money in the 20–30-year history of their company suddenly needing a line of credit because cash flow has become a real problem.

There’s a combination of factors behind it, including increased costs, subdued consumer demand and a record number of B2B payment defaults. But it highlights the need to have a strong handle on cash flow, knowing what your worst-case scenario is and being prepared for it.

With the Christmas-New Year shut down fast approaching, determining your cash flow needs now can make all the difference between starting 2025 strong or struggling into January.

Business owners should be looking closely at what cash you have in the bank, do you have a line of credit available or do you need to organise one, or will you perhaps need to sell an asset before Christmas? “

Will you need to engage a lawyer for due diligence or lodge something in court? Do you need to engage an auditor or accountant to satisfy lending requirements?

These are matters than can take weeks to organise, and when you throw in the Christmas break, suddenly it’s mid to late January and you have no cash flow to speak of.

However, understanding cash flow doesn’t need to be difficult;

• Optimise Your Cash Flow: Cash flow forecasting software can assist in running analysis looking at normal projections compared with a worst-case scenario. What if sales drop 5%? 10%? What if payment terms blow out from 30 days to 90 days? By running the analysis you can plan for the worst-case scenario, and if it doesn’t come to fruition, the business could find itself with a financial buffer.

• Don’t Wait: Putting off difficult conversations or decisions doesn’t just prolong the pain; it also leaves you with less choice. If you find yourself needing a line of credit at a time of the year when the majority of lenders are on a break, you might find yourself with limited options and end up with a deal that doesn’t quite meet your specific needs.

• Learn from the Past: Reviewing results from the same time last year and looking for trends in your business data can help inform your cash flow projections and expectations, and allow for better contingency planning.

• Communication is Key: As with most aspects of business, it’s important to maintain strong lines of communication with staff, clients, suppliers and other stakeholders to ensure important information isn’t missed.

Gus Gilkeson is the CEO of Grow Capital