Finding cash, fast
This post is by Giles Ellis, an experienced business coach and Director at GECA Chartered Accountants. GECA offer Business Planning and other Business Advisory Services.
How to solve cash-flow problems
No matter how well your business is doing, cash-flow problems can bring everything to a screeching halt. Without adequate cash flow, your business can’t pay staff, suppliers, or creditors – which could eventually shut you down.
The good news is, there are ways to find cash both inside and outside your business. Whether you choose to cut costs or improve processes, seek funding from an outside source, or even look at crowdsourcing, there are options when it comes to boosting your cash flow.
Here’s how to get started:
Start inside the business
Before you apply for loans or seek funding, look for ways to improve cash flow within your business. If you’re able to free up some cash without going to a lender or investor, you’ll avoid adding to your overall debt.
Cut your overheads
Take a hard look at your expenses and find ways to cut overheads. This might mean reducing staff numbers, moving to a smaller office or less popular area, or cutting back on extras like company cars.
Clean up and cash out
If you have excess stock, unused technology or equipment available, think about selling or renting it out to gain some ready cash.
Talk to your vendors
If you’re struggling to pay suppliers, it’s worth trying to renegotiate your payment terms. This might mean asking for an extra week to pay your bill or a reduced rate on certain products. If your suppliers won’t budge, it’s time to look at other options – you may be able to get better payment terms or lower prices if you switch to a new vendor.
Chase your invoices
Late payment can be a huge problem for businesses. Although you’ll always have some clients who are slow to pay, you can minimise issues by making your terms clear. Get all customers and clients to agree to a fixed payment period, issue invoices promptly, and chase late payments every time. Consider offering an incentive for early payment.
Finally, always get a deposit before you start a large project or take on a large order. That way, you’re not left out of pocket if clients cancel or fail to pay their balances.
Finding outside funding
If changes inside the business don’t boost your cash flow sufficiently, it’s time to look elsewhere. There’s a huge number of options out there, from traditional lenders to crowdfunding, so it’s a good idea to seek expert advice before you make a decision.
Get an overdraft
Applying for a bank overdraft is a quick, relatively simple way to access some cash. However, banks can call in the debt on demand, which makes them a risky proposition for some business owners.
Take out a loan
A loan from a traditional bank gives you a set lending-term, so the bank can’t call back the debt before you’re ready. On the other hand, you will usually need to provide security in the form of business or personal assets, which means you’re taking on risk.
If your business has high-value assets, you may be able to apply for a loan using these assets as collateral.
Invoice discounting means borrowing from a bank or specialist lender based on your upcoming receivables. This type of loan tends to have a very quick turnaround, and you’ll usually be able to borrow up to 80% of the invoice amount.
On the downside, invoice discounting can be more expensive than other forms of loan.
Peer-to-peer lending platforms match individual lenders with borrowers and let them set the terms for their loans. Although you will have to go through a credit check and often pay a fee, interest rates for P2P loans are often much lower than for traditional lenders.
Crowdfunding isn’t just for charity – it can be a way to boost your business as well. With equity-based crowdfunding, you offer an equity share in your business in return for funds. Several online platforms let you find people to invest in this way.
However, unless you have a particularly interesting or unique business, it can be difficult to get enough people to invest. If you don’t get the numbers, many crowdfunding sites will require you to return the money to investors, leaving you with nothing. If you do find investors, you run the risk of ceding too much control.
Finding the best solution for your cash-flow problems
There’s no one magic bullet when it comes to cash flow. Some businesses will be able to find the cash they need by making changes. Some will need to take on loans, and others may do both. It’s about finding ways to bring in cash and achieve sustainable business growth.
If you’re not sure where to start, seek help from an expert. The team at GECA knows the ins and outs, the risks and the benefits of every cash-flow opportunity, and we can help you find the best option for your business.