How can I increase the cash in the business to grow? (Finance Part 4/5)
by Peter Searle Aug 28 2018
In the previous blog we covered getting paid on time, but payments are only one source of cash to fuel the growth of a business. There are many ways that a business should explore, to maximise the cash it has available to use, before it starts looking for external funding.
So, what should a business look at internally before seeking external help?
- Pricing to maximise income, which I will cover in the next blog
- Getting paid as quickly as possible and delaying payments as long as possible, a simple example is, if you are paid at 28 days and pay your labour weekly, you are subsidising the other businesses by 3 weeks’ worth of money. If you can turn that around, say get paid in 14 days but pay the labour monthly, you have 2 weeks cash to use.
- Minimising transaction costs. Have account for stationary etc, you then get one invoice instead of having to reimburse people as purchases are made ad hoc.
- Having accounts and eliminating petty cash makes claiming back VAT easier.
- Optimise the businesses tax arrangements, have you claimed R&D tax allowances, Capital allowances for various items and used any other allowances you can?
- Maximise output, efficient delivery saves money
- Minimising stock movement delays
- Ensure supply chain is best value
- Look at your overheads. Regularly review salaries, printing, IT licence subscriptions, maintenance, rent, rates and utilities etc. It’s surprising what you can be spending without noticing. Do a line by line review.
Having looked inwards, you may see that there could be improvements made. The cost of making those improvements may be eligible for government funding or advice. Enter your sector, business age and what you are looking for and all the support throughout the country will be shown. Look for your area to find what is available. https://www.gov.uk/business-finance-support?keywords=
Having got your house in order, there will be times when you need funding until a payment is received. Typically, mechanisms used for this are:
- Business credit card
- Invoice financing
But when an investment is required for growth other types of longer term finance is required. Obtaining this will depend upon your creditworthiness and the risks associated with why the money is required. Funding breaks down into two types:
- Equity – where someone takes a share of the business and shares the risks with you. They might lose their investment in the worst case.
- Debt funding – where a loan must be repaid.
Debt funding breaks down further into:
- Secured loans, which are secured against an asset which can be sold if you default on the loan, and are therefore safer for the lender or
- Unsecured where the lender charges a higher rate to cover the risk of the defaults they invariably have.
The financial affairs of a business are complex. A business owner needs to appreciate the different facets and the implications for the business, as they could inadvertently seek an inappropriate solution, or one that gives the business an issue in the future.
In the meanwhile, if you need to reset your thoughts on raising cash, get in touch with me, for a no obligation discussion on funding. http://ow.ly/SyPn30j0MUY