Is cashflow a hassle?
Do your clients take ages to get you your money? Are your supplies unnervingly quick to call whenever cash is tight? (Are they psychic, or what!?) Are you irrationally rationing out sheets of paper to try to curb expenses? Have you set up metal detectors to stop staff slipping out the door with staples and paperclips? This is NOT what running a business is supposed to like, right?
Unfortunately, every business will wrestle with cashflow challenges at one time or another.
But cutting back is not always the best way to move forward. Quick fixes only help in the short term. And succumbing to nervous paranoia is not going to help either.
That’s why Anthill is proud to present, Seven simple ways to improve cashflow, and give business owners, just like you, a set of options to not only help in the short-term but strengthen the fundamentals of your operation beyond the here and now.
Cash will always be king. But that’s no reason to let it lord over your business.
To register for the full series, click here.
Seven simple ways to improve cashflow [PART ONE]
In this first installment, we look to two of the simplest options to reduce cash-strain; borrowing and debt factoring, starting with a loan from the bank. The first, and perhaps most obvious, way you can boost your cash flow is by seeking a bank loan. This will usually come in the form of a flat sum, a company credit card or overdraft. While this option seems simple and is fairly non-threatening for most (it’s certainly something that businesses do all the time), there are best practices to bear in mind. Banks want to help you. But, more often than not, the first obstacle is you. Here are some pointers:
1. Know how much cash you will need
You can generally receive a business loan from a bank to match a percentage of the value of your inventory, if you make or sell products (depending on the terms of the bank). You have to ask yourself “is it enough?” If not, you’ll have to look at adding other ways to raise capital on top of the loan. Having not quite enough is still not having enough. Don’t let the pain compound. Work out what you need and seek 25 per cent more than that. It’s better to have access to capital that you won’t spend than find yourself forced to go through the loan process again.
2. What if you don’t have inventory?
If you’re a consultant or service professional, you might not have inventory. In that case, it’s likely that you’ll be asked to provide some form of collateral to borrow against. If you don’t have obvious collateral (like property as security), you can offer collateral another way: debt factoring. (More on that below.) If you have an existing relationship with your bank and three years of financial reports available, you might be able to secure a loan against the business. That’s why it’s important to find a financial institution that is able to provide you with a business banker. Banks are made up of people too. (Believe it or not.) And, if you have a good relationship with your business banker, he or she will logically be more familiar with your business and, therefore, will more likely be able to devise a solution for your particular circumstances.
3. Create a cash flow budget
The bank will want to review the cashflow budget of your company. This requires you, firstly to have a cash flow budget. A cashflow budget is basically a projection of all the cash funneling into your business and out of it again. The cashflow budget explains the projected income for a set amount of time, and where the money comes from (i.e. sales, collections, etc.).
You can find out more details on creating a cash flow budget, right over here.
4. Evaluate how and when you will pay back the money
What is the money intended for? Is it needed to cover the gap between expenses and accounts payable? How long will it take for you to collect what’s owing to you? Do you plan to purchase equipment using the money you receive from your loan? Will that equipment generate enough money to pay back the loan in six months? Eighteen months? Ultimately, you’re establishing a goal for when you will be able to pay off the debt. The bank will be keen to know your plan.
5. What if you trade on credit?
Trading on credit simply means that you issue invoices rather than being paid upfront. If that’s how you do business, debt factoring might offer a viable solution. Debt factoring means that you “sell” all or part of the accounts payable (invoices) to a third party for a percentage of the full amount owed to you. You will get the cash upfront, while the debt factoring company will take on the debt and, therefore, the risk of getting paid in full. The percentage of your incoming revenue that you will be required to sacrifice will depend on your circumstances and your risk profile, according to the debt factoring company. In any case, you’ll want to know what the cost debt-factoring is likely to have on your business over the longer term. It will help you get more cash into your business quickly. But you won’t be getting the same amount as you would if you hadn’t sold the debt.
6. Will a bank loan secure your cashflow?
A loan or debt factoring could be just the thing your business needs to manage short-term pain. These options can also be used strategically, as part of the long-term management of a business. For example, for some companies in industries with long payment terms, debt factoring is standard practice. And most organisations are likely to have some form of overdraft or line of credit, to help weather the ups and downs. But to truly take control of your organsiation’s cashflow, a loan should be treated as just part of the overall equation. In the next installment, we look at ways to speed up incoming payments.
Next… How to get paid faster, without alienating valuable clients and customers
It was the best of times. It was the worst of times. Your P&L statement says you’re rich while your bank account says you’re poor. What’s going on? You’re clearly mismanaging your collections. This second installment addresses one of the most common and emotionally charged dilemmas of many business owners; how to get paid on time.
To register for the full series, click here.
Disclaimers: Any advice does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you. ANZ recommends you read the Terms and Conditions and the Financial Services Guide (PDF 104kB) before acquiring the product.