Every business you talk to seems to want/need more cash. Whether it is to fund new investment, provide additional working capital, undertake research and development or acquire another business. There is always a need.
When seeking this cash, two main sources are usually highlighted first – borrow from a bank (overdraft, loan, invoice discounting etc) or bring in a new investor.
However, as we all know from hard-bitten experience, both banks and investors can bring their own onerous costs and demands. And the cost to the business can be too high. Interest, loan covenants, improved reporting requirements, legal compliance issues, shareholder agreements, investor relations demands and more. Some business owners have lost control of their companies or have their decisions vetoed by new investor directors. Working within these companies can become very challenging (and unpleasant) indeed. Of course, there is one source of cash that does not introduce such onerous burdens. Internal funding. A review of the current business cashflow and the balance sheet of most enterprises can unlock a wealth of cash for the business and may even make the need for external funding unnecessary. There may could be a treasure chest sitting right under the business owner’s nose!
Debtors – Actively chasing up all outstanding debts, review and improve credit terms (eg reduce them from 30 to 14 days net). By managing debtors better good finance teams can bring thousands into the business.
Creditors and Suppliers – Reviewing creditor terms. Will the suppliers give extended terms? Can the inventory be purchased on consignment?
Costs – Continuously reviewing where the cash is being spent. Can these costs be trimmed? Make you contractors more accountable by telling them how much has been allowed for a job, and request a quote that does not allow your costs to blow out.
Banking – What interest rates are earned on the working capital? Is the bank paying 6.5% interest or less than 1% on the account? And what about those bank charges! Can they be reduced? Sometimes it’s just a matter of asking.
And of course Accounting & bookkeeping – can you do more to reduce these costs. Is there a cost benefit for these services?