Export growth strategies for Australian finance leaders

Garreth Haneley:
This is With Interest, a business, finance and accounting news podcast, brought to you by CPA Australia.

Gavan Ord:
Welcome to With Interest. I'm Gavan Ord, Business Investment and International Lead at CPA Australia. And in today's show we're joined by Sonia Kammel FCPA, CFO of Export Finance Australia. Export Finance Australia is the Australian government's export credit agency.

EFA's purpose is to support Australian export trade and overseas infrastructure development. Today's episode offers listeners strategic insights to help navigate the financial landscape of international trade, from the importance of cash flow planning to risk management.

Sonia has extensive experience in both private and public sector, and is an expert in setting strategic direction, and managing and resolving complex organisational challenges, from delivering transformational outcomes to innovation and change. Welcome to With Interest, Sonia.

Sonia Kammel:
Thanks, Gavin. It's great to be here. As you mentioned, Export Finance Australia is the Australian Government's Export Credit agency. We're a commercial financier that operate like a bank, and provide loans to businesses to support their export growth, from small businesses to large corporates.

We recognise the challenges the export sector has faced over the last few years, and we believe it's important for Export Finance Australia to play a leadership role in helping finance Australian businesses as they establish themselves on the global stage.

Accountants as key advisors are crucial partners for both the customers and Export Finance Australia in achieving successful finance outcomes.

Gavan Ord:
From your experience, what are the most common financial hurdles businesses face when preparing to export?

Sonia Kammel:
I think Gavan, one of the biggest hurdles businesses face is working capital. Exporting often requires upfront investment, whether it's manufacturing additional inventory, adapting products for new markets such as regulatory compliance or labelling, or covering longer payment cycles.

Many businesses underestimate how much cash they'll need before revenue starts flowing in, and it's not unusual for exporters to experience a 90 to 100 day cash conversion cycle. Another challenge is foreign exchange volatility. If you are invoicing in a different currency, sudden shifts can erode margins.

Then there's a complexity of navigating different tax regimes, compliance costs and logistics, all of which can strain financial resources if you've not planned for it. From a CFO's perspective, I think the most important thing for me is balancing your ambition with fiscal discipline.

Exporters want to grow and often have business changing orders, but you don't want to stretch your balance sheet to breaking point. Having the right finance and accounting partner is crucial.

Gavan Ord:
I like what you said about balancing the ambition with the financial discipline. I think that really does resonate with me as an accountant, and I'm sure that those members who are, or those listened who are accountants, that would resonate as well. We're not saying don't do it, but have a little bit of a prudent approach where necessary.

I just want to give a brief shout out that on Tuesday the 23rd of September, CPA Australia and the Institute of Charter Accountants of Australia and India are hosting a joint event on Australia and India in action, that will be happening in Sydney in Parramatta on the 23rd of September.

And if you are looking at the India market, that'd be a great opportunity to learn a little bit about that market. So how can businesses assess whether its financial health supports overseas expansion? This builds on that ambition versus financial discipline approach.

Sonia Kammel:
Yeah, I think the first thing is, you've go to start with financial health check, so look at your liquidity ratios, look at what your current debt levels are, cash flow forecasts. If your domestic operations are stable and they generate good cash, that's a great start. Then assess your ability to absorb risk. Exporting involves uncertainty, delayed payments, regulatory surprises and market fluctuations. So I think you need some financial buffers and contingency plans, if not in cash, then making sure you have access to cash.

This also helps businesses seize new opportunities in international markets. I also recommend scenario modelling. So run a best case, a worst case projection for your export strategy. If your business can survive the downside, you may be ready to take the leap. Each new market is different, so making sure you understand the costs of entering those different markets and knowing that they will be different. It's not about trade show attendance or trying to find an exporter.

There are other direct and indirect costs to consider. One of the key market development costs we see across a range of sectors, is the cost of holding stock for samples and small initial orders. The holding cost of this inventory needs to be considered. Interestingly enough, we've actually seen a growing number of exporters across different industries hold their sample stock in key markets, so that they can move things quickly when there's interest from a new buyer.

I think that helps with the lag of being able to ship the product from Australia to your international destination. I think it's also a really smart way for exporters to respond in an agile way to new opportunities. It's also an area that Export Finance Australia can support with loan funding.

Gavan Ord:
I really like that last tip you had around sample stock, and keeping it into your key market so you can move around and be a bit more agile. I think that's a really interesting suggestion, and I think it's something that people should consider doing.

I think you spoke about the role of EFA. My next question is, how do government grants and export assistance programmes influence a business's ability to export? And in that, what solutions do EFA offer?

Sonia Kammel:
I think these can be a game changer. In Australia, for example, we have the Export Market Development grant, which is managed by our sister agency, Austrade. This helps business recoup costs related to expanding overseas. At Export Finance Australia, we have a Export Market Development loan, which is accessible to new and existing exporters to help fund growth where the business may not yet have purchase orders or invoices.

Obtaining this support signals credibility and reduces risks for a business. It's also worth investing time to understand what's available, because these funds can offset costs and accelerate your global growth.

Gavan Ord:
The old EMDG as they call it, so the Export Market Development Grant, that's been around for quite a long time and the Export Market Development Loan. That's something I haven't heard too much about, but so I encourage people to have a look at that. And that's more information on the EFA website about that loan?

Sonia Kammel:
That's correct. So on the loan you'll be able to see on the website, you'll be able to navigate the different range of loans that we have. Everything from small business up to large corporates.

Gavan Ord:
So obviously that loan can help with some cash flow. So how important is cash flow planning in an export strategy? And what tools or techniques do you recommend given your experience?

Sonia Kammel:
Yeah, look, I don't think you'll find it surprising From a CFO's point of view, it's absolutely critical. Exporting often means longer payment terms, higher upfront costs and unpredictable delays. Without robust cash flow planning, even profitable ventures can run into trouble. Tools like rolling cash flow forecasts, scenario analysis, invoice financing can help. Trade finance products like letters of credits, or export working capital can also smooth out cash flow gaps.

But I think the key is, keep the forecast realistic. I think that's essential. We often see businesses at pivotal moments, and while ambition is terrific and they need to keep the forecast realistic. This is why a good accounting partner is also important in helping the business get finance ready. The focus on cash is no surprise. We have seen businesses change their focus towards cash rather than overall profitability.

This has included reducing excess stock levels to free up cash, and much tighter controls on costs and on debt. This is clearly the right strategy. As businesses look to get into markets or experience uncertainty, we are seeing a shift towards higher margin opportunities.

Gavan Ord:
Keeping those forecasts realistic when you're entering a new market, often there's a lot of enthusiasm going into a new market, and maybe the sales staff are giving some numbers which may sound really great, but the ability to actually meet those may be questioned. So I think that CFO coming in, the accountant coming in saying, "Let's take that number, or what's actually achievable, versus what's we'd like to achieve."

And I really think that's an important point. And I've heard that many times as well, and obviously the cash and the cash flow, and just the normal things you can do to improve cash flow. Because as we know, a profitable sales doesn't actually necessarily improve your cash position, so obviously focus on both.

Sonia Kammel:
That's correct. And also taking into consideration the costs of doing business, so making sure you don't just focus on the revenue side, you're also focusing on the expenses as well, of doing business in different jurisdictions.

Gavan Ord:
So just expanding on that point. What strategies can help businesses effectively manage the financial and operational risks when working with international clients?

Sonia Kammel:
We see exporters chasing new market opportunities without fully understanding the risks and the costs associated with some of these new markets. Your sales team should be excited by the new opportunities, as we said earlier. However, what works well is when these teams understand the risks and the costs associated with these new markets. From a CFO and a banker's perspective, something we pay close attention to is the risk of not being paid.

What's the strength of the buyer you're negotiating with? What intel can you find on the buyer and their ability to pay you? What are the payment terms? And do they reflect the risk of the transaction? These are things that you need to consider when entering into markets. Extended payment terms to Canada, for example, might be okay if the buyer is perhaps a government buyer, but is it appropriate for a small importer in the US or in Europe with no financial standing?

We've seen lots of examples where the end buyer might be a large retailer, but the importer themselves is a small business, and has used those funds to cover other parts of their business. If the large retailer is not paying you directly, then there is a risk of payment delays along the way or even worse, non-payment. Ultimately, this comes down to structuring the new opportunity in line with the risks of the transaction.

Are the payment terms in line with the risk of the buyer? Due diligence is key here, Gavan. Understand who you're doing business with. Credit checks, trade references and local market insights go a long way. Use secure payment terms like letters of credit or advanced payments where possible. Diversification has been a trending topic over the last couple of years. From my perspective, adding diversification to your customer base helps reduce risk.

Having a broad spread of buyers generally is positive. It helps reduce your reliance on major buyers. Diversification though can add additional costs, and can have differing impacts on cash depending on the payment terms of the different markets. Diversification, as I said, is important, but it's also important that the management team understands the impact that diversification brings. Lastly, make sure you build your strong relationships with your financier, so you have the right contacts in times of need and when you need to move quickly on finance.

Gavan Ord:
I have heard some really great and interesting points around how to expand into new markets. Can you share a success story of a company that navigated export finance effectively? And also what about an example of a business that didn't succeed?

Sonia Kammel:
Sure. We have many, Gavan. The export market is diverse. We see everything from solar panel manufacturers, service business, agribusiness, wineries and chemical products. We see a wide variety. The key trend with navigating export finance is to engage early with your lender, have your financials ready to go and think through your forecast. Is it realistic, optimistic or outrageous?

Lenders want to support exporters, but we need to ensure the financial level is suitable for the strength of the underlying cash flows. One of our success stories that we had at Export Finance Australia, was a construction chemical producer. He was a supplier of construction related chemicals to the Middle East, and faced cash flow challenges as they scaled up their operation.

With working capital quickly being consumed, they were concerned about fulfilling purchase orders on time. Fortunately, they had a proactive strategy. They engaged early and they positioned themselves to be finance ready. This meant having a proven product, reaching breakeven, and securing steadily increasing contracts rather than relying on a single high risk deal. Their approach actually allowed them for sustainable growth and reduced financial strain.

They also had a strong grasp of their bank's lending criteria, enabling them to use Export Finance Australia for the stretch component of their funding. With contracts in hand, even if not fully appointed ,and well-prepared financials and forecasts, we were able to respond quickly and provide ongoing support as their needs evolved. In export finance, one of the key things to success is creditworthiness. That matters, but so does understanding the end buyer, the customer's customer and the destination market.

Early engagement with EFA gives businesses breathing room. They're not under pressure to deliver goods before securing the finance needed to cover input and production costs. It also gives lenders like us time to assess destination risk and ask the right questions. In relation to some that aren't as successful, exporters who face challenges come in many forms, but some of the most common things that we see is it may be a really highly leveraged business who often needs an equity injection rather than more debt.

While they're eager to grow, over-leveraging combined with poor cost management can quickly lead to trouble, especially when spending is diverted away from revenue generating activities. We also see R&D heavy businesses, where they may struggle if they've spent extended periods of time developing their product but haven't yet demonstrated or generated cash flow, so they're seeking large orders without demonstrating delivery capability or scale, can be risky and also can be hard to finance.

The other one is really around the rapid scale up. Rapid scale up ambitions are possible, but rarely are they easy. Achieving fast growth while maintaining current ownership levels often requires creative funding solutions such as convertible debt or equity partners. Slim margin operations face uphill battles in building sustainable growth. Their vulnerability to currency fluctuations, duties, and rising input costs make it difficult to secure adequate financing.

I think the growth journey for businesses is exciting, but it demands strategic planning, financial discipline, and really a realistic view of what kind of capital is needed and when. The key, I think, to success is really the key for preparation. These businesses didn't rush. They built a financial strategy that supported their growth, and that made a lot of difference in being able to secure their financing.

Gavan Ord:
Thanks, Sonia. What I got out of that was some really good practical business tips that can be applied not just for those looking at exporting, but a lot of that can be applied just for businesses in their day-to-day operations. And I like what you said about early engagement when we speak to banks, it's much easier if you engage early because it gives the banks, as you said, more time, and the lenders more time to decide and to assist you.

Don't expect to turn up a day beforehand and say, "Can you help?" Because you're more than likely to have a negative answer, so engage early. Thank you, Sonia, for sharing such valuable insights into how we can strategically finance export growth. It has been really great having you on the show.

Sonia Kammel:
Thanks, Gavan. We know there are still many challenges for the export sector, but our experience is that Australian businesses are resilient. We can support them in expanding in existing markets and diversify into new ones.

Export Finance Australia will also be attending the upcoming CPA Australia event in Parramatta, discussing opportunities in the Indo-Pacific and Southeast Asia. If you're an accountant or CPA member dealing with exporting businesses, please feel free to contact us at Export Finance Australia to find out whether we can help.

Gavan Ord:
And for our listeners eager to learn more, please check out the show notes for links to additional resources from Export Finance Australia and CPA Australia. And don't forget to subscribe to With Interest, and share this episode with your colleagues and friends in the business community. Until next time, thanks for listening.

Garreth Haneley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business and accounting news.

To find out more about our other podcasts and CPA Australia, check the show notes for this episode. And we hope you can join us again for another episode of With Interest.