Raising finance to start up, funds to cash flow costs and overheads or funding for growth to expand? Money is the life blood of any business or organisation without it they are dead!
Obtaining finance, understanding cash flow forecasts and managing the accounts are all vital skills in any organisation. Then of course there are other even less enjoyable activities, chasing debts, paying bills, and dealing with Tax, PAYE, VAT. Last of all the obligatory requirements of Companies House.
On a daily basis I am advising and helping businesses and organisations with all of these issues. Contact us today for help and advice and to find out more about our business support programmes including our Launch Pad Start Up Programme, the Evolve Business Development Programme and the Excite High Growth Business Programme.
The starting point should be using savings or borrowing from family & friends, (but make sure that there is an agreement drawn up to protect all parties). Loans, Factoring, outside investors, Business Angels and Venture Capital are all valid means of financing a business but you should use the most appropriate method.
The most common source of funding is the bank, however businesses often utilise the bank products and services in the wrong way.
For instance if a business has an agreed overdraft limit of £5,000 but the business constantly operates their account with the overdraft fluctuating from £3,500 to £5,000 but it never drops below £3,500. The business should consider changing the £3,500 debt into a commercial loan and then change the overdraft to cover the fluctuating debt of £1,500. This could save a lot of money in interest charges.
Other Ways to Fund Cash flow
Firstly can the terms of trade with your suppliers be extended? Often businesses are paying on Pro-forma. Once some trading history has been built up it is usually possible to agree improved terms ie 30 days or longer.
Just simply taking longer to pay your supplier can damage your relationship or even affect your credit history and rating when you try to get other products or services on account.
This is also often known as ‘factoring.’ The finance company inspect your books and agree to pay a percentage of the value of invoices that you send to your regular clients at the time you issue them and pay the rest of the value when they get paid after their charges are taken.
They can either run your debtor book for you chasing the payments or you can chase payments. Obviously in the first case it relives you from that time consuming and some times uncomfortable chore but the cost are higher and you may feel that your clients might not like someone with whom they do not have a business relationship chasing them form money.
Asset Based Lending
This is a similar form of financing and the finance company agree to provide you with a percentage of the value of your sales even before you invoice, this is especially helpful to businesses who do not invoice until the end of the project. This allows manufacturing businesses or other industries like builders to fund the cost of materials and labour or other processes which extend the time before the business gets paid. The finance company inspect your books and agree to pay you a percentage of the value of the sales. Debts can be secured against stock, machinery, premises, invoices and even brands
Other options include outside obtaining investment from other sources such as Business Angels or Venture Capital information on all sources is contained in the DBS Guide to Business Finance and an overview to the options is shown in the free DBS Finance Options Guide