How to size your funding gap before you borrow

The most common funding mistake isn’t choosing the wrong lender. It’s borrowing the wrong amount. Owners ask for the price of the goal — the machine, the fit-out, the stock order — when the real need is usually smaller, sometimes larger, and almost always shaped differently. Sizing the gap properly is the step that makes every other piece of the stack work.

Why isn’t the price of the goal the right number?

Three reasons:

1. Some of it is already covered. Supplier terms, customer deposits, a trade-in and your own cash all carry part of the cost before any finance arrives.
2. Money comes back in during the project. A stock order starts selling; a contract pays progress claims; a new hire starts producing. The need peaks and then falls.
3. There are costs that aren’t on the quote. GST, freight, consents, wages during the ramp-up, a slow first month.

The real gap is where all of those meet: the lowest point your bank balance would reach if you went ahead with no finance at all.

How do you build the forecast?

business.govt.nz describes a cash flow forecast as an estimate of how much money is coming in and going out of your business for any given period in the future, and recommends daily or weekly forecasting to stay on top of day-to-day cash. For sizing a funding gap:

1. Pick the timeframe. Weekly for goals that play out over a few months (a contract, a stock build); monthly for longer goals (a second site, an acquisition). Run it until the goal is paying for itself — usually at least 12 months.
2. Start with today’s bank balance.
3. List money in: normal sales, plus extra sales from the goal, timed by when customers actually pay.
4. List money out: normal costs, plus every cost of the goal, timed by when you actually pay.
5. Add the tax dates: GST returns due on the 28th of the month after each period (with the 7 May and 15 January exceptions), provisional tax instalments, PAYE and employer deductions.
6. Calculate the running balance each week or month.

Where does the gap show up?

Illustrative only — a business funding a $120,000 project over six months:

Month	Opening balance	Money in	Money out	Closing balance
1	$30,000	$85,000	$140,000	–$25,000
2	–$25,000	$90,000	$125,000	–$60,000
3	–$60,000	$105,000	$110,000	–$65,000
4	–$65,000	$120,000	$100,000	–$45,000
5	–$45,000	$125,000	$98,000	–$18,000
6	–$18,000	$128,000	$97,000	$13,000

The project costs $120,000, but the lowest point is –$65,000 in month three. Add a buffer — say $15,000 — and the funding gap is about $80,000, recovering within six months. That’s a very different request from “$120,000 over five years”.

How do the pieces you control change the gap?

Now layer in the non-loan pieces and re-run the forecast:

• Supplier terms move payments out to later months.
• Customer deposits move receipts earlier.
• Selling idle assets adds a one-off receipt.
• Owner cash raises the opening balance.

Each one lifts the low point. The funding remixer gives a quick percentage version of this; the forecast gives the precise answer.

How do you handle uncertainty?

business.govt.nz recommends three scenarios — pessimistic, realistic and optimistic — and warns against over-optimism. For sizing a gap:

• Fund the pessimistic case, or at least make sure you could survive it with a buffer facility.
• Delay receipts, not costs. In the pessimistic case, customers pay later and sales arrive slower; costs arrive on time.
• Check the shape. If the pessimistic gap never recovers, the goal may not be viable as planned.

If you’d like a real person to look over your gap once you’ve sized it, start a short enquiry.

What should the gap be funded with?

Once you know the size and shape:

• A short, recovering gap (like the example above) suits a line of credit or short facility.
• A gap tied to an asset suits equipment or asset finance.
• A gap tied to invoices suits invoice funding.
• A deep, slow-recovering gap suits a term loan, property-secured funding or equity.

See ordering your funding sources for the sequence, and test the repayments with the repayment load test.

What do owners usually leave out?

• GST on purchases (paid up front, claimed back later) and GST on deposits (due when received).
• Provisional tax in a growth year.
• Holiday pay, KiwiSaver employer contributions and ACC levies for new staff — see the hiring remix.
• Existing loan repayments.
• The owner’s own drawings.
• A realistic delay between finishing work and getting paid.

Why does a sized gap make lenders more comfortable?

A forecast showing exactly how much is needed, when, and how it’s repaid answers most of a lender’s questions before they’re asked. business.govt.nz lists a cash flow forecast among the documents lenders expect. Pair it with a one-page funding plan and the conversation starts in a much better place.

Ready to fund the gap you’ve measured?

When you know the size and shape of the gap, tell us about it — the goal, the low point and when it recovers. There’s no credit check to start, your enquiry stays with a real person rather than going to a crowd of lenders, and we’ll talk through the right piece. Please share your forecast figures as accurately as you can; it’s the fastest route to the right answer.