Build a cash buffer before taking on more debt.
The next loan looks like a safety net
A plant operator has recently caught up with creditors. A finance offer arrives for another machine, with repayments that appear affordable on the current workload. The bank account has little spare cash and the busiest customer sometimes pays late. Before taking on another fixed commitment, the owner needs to know whether the business can absorb a delay without returning to overdue bills.
Identify the risk the extra debt is meant to solve
Write down whether the borrowing would fund a productive asset, a temporary payment gap or recurring losses. Those are different problems. A machine that reduces proven hire costs needs a different assessment from a loan used to meet ordinary bills each month.
Do not call unused borrowing capacity a cash reserve without considering its conditions. A lender can place limits on access, and repayments still have to be funded. Keep available cash, approved facilities and hoped-for finance separate in the forecast.
Choose a buffer from the actual payment cycle
List the commitments that continue if the main customer pays late: wages, rent, finance, insurance and essential operating costs. Estimate how long a realistic delay could last and the cash needed to bridge it. Use the business’s own history as a starting point.
Business.gov.au’s cash-flow guidance focuses on timing and planning. A reserve target should reflect that timing rather than an arbitrary percentage of sales. Large upfront purchases or seasonal work can change the amount needed even when annual revenue stays similar.
Build surplus before adding another fixed payment
Find out whether current work leaves money after all obligations and necessary owner income. If it does, agree a measured contribution to the buffer. If it does not, review pricing, costs and collections before assuming another loan will help.
Do not create a reserve by withholding amounts already due. Where the business cannot meet obligations, seek qualified advice about the overall position. An internal savings target cannot take priority over the legal and contractual responsibilities attached to current debts.
Test the combined downside
Add the proposed loan and the asset’s running costs to the forecast. Then delay the main receipt and reduce machine utilisation. Include maintenance and any final lump-sum repayment. Ask what commitment would be missed first if the forecast worsened.
Compare waiting, hiring or purchasing a smaller asset where those options are practical. A buffer may not remove the need for finance, but it gives the borrowing decision a clearer basis. Keep the comparison in writing before accepting the offer.
Calculate the cushion and the new commitment
Estimate the cost of one realistic customer delay using current obligations.
Compare the business with and without the proposed loan, then choose a buffer contribution only from genuine surplus.
Call CRP today about cash-flow planning before your business takes on more debt.