Business Cashflow: Raising, Retaining & Increasing Funds

21 July 2021 Gary Moorhouse View all News

This article is based on the results of the Sheffield City Region’s Quarterly Economic Survey from July 2021. This event provided expert advice and insights into the results of Q2 2021’s QES results, and practical ways to improve cashflow.

You can re-watch the full event below:

Raising Funds

Raising funds is a highly topical issue in the business community right now. The pandemic has given rise to a lot of government support, including the government backed loans. This has contributed to our region’s businesses becoming 38% more indebted over the last year.

Deferred payments becoming due

After the initial 12 months of deferred payment on the government backed loans, some businesses have then taken advantage of a further 6 months deferred payments. This means that most of the loans will now becoming due to start the repayments. So, it is time to take stock of where we are.

This money needs to be repaid, and you must ask yourself what this means for your business, and how it will impact cashflow.

Most important of all, you must understand whether your business has the funds available to make these repayments.

The importance of advanced planning

If a company does not have sufficient cashflow, it needs to look at raising funds. The most important factor in raising funds is advanced planning.

Most businesses start to look for finance just 7 days before the funds are required. Rushing this fundraising makes it much harder to assess options properly and, ultimately, makes it much harder to find the right option for your business.

Careful planning helps companies achieve the right amount of funding at the right time, for the right price.

Additional funding options

When it comes to funding options, there are plenty of choices beyond traditional bank loans. Companies should consider looking at revolving credit options, available grants and, government funds across the region. Selecting the right mix of available options will keep the costs reasonable.

Retaining Funds

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Retaining funds is just as important as raising funds, especially when it comes to cashflow planning.

Businesses tend to focus on increasing sales to increase cash rather than focus on internal controls. Once the sale has been made and delivered, the hard work seems to have been done, it can often take far too long to receive the cash in for this. In some circumstances, companies might not receive the cash at all resulting in a bad debt. This is because the credit control aspect of a finance team is often overlooked.

Take advantage of technology

It is extremely important to implement a robust credit control process that is easy to manage. There is plenty of technology available to automate these processes, so you don’t need to keep calling contacts and asking them to pay up!

This process starts at the very beginning. When taking a new customer on, they should be credit checked to ensure you are happy with the credit and terms you are offering them.

Getting invoices right

It is also highly recommended to submit invoices as close as possible to the completion of the work. For longer projects, businesses should consider raising multiple invoices as they go. This can be based on completion stage, for example.

The sooner you invoice, the sooner you get paid, and do not be afraid to send friendly reminders, which can also be automated using technology.

Utilise available terms

Companies can also utilise available terms from suppliers; this, of course, does not mean to pay anybody late (that is simply bad business, and will just annoy your suppliers!).

What it means is reviewing the options available to you. As an example, there may be an incentive to pay a particular supplier early, such as an early-payment discount. It may make sense to take advantage of these types of discounts.

Tracking debtors and creditors

You should also be tracking our debtor and creditor days. This helps to highlight any gaps that the business needs to finance. The bigger the gap, the bigger the financing requirement.

If you are a stockholding business, there is an extra layer of complexity here. You could be paying for stock today, not selling it for 30 days and then not receiving cash from customers for another 30 days thereafter. This can build up and become a real drain on cashflow for businesses.

Even if you cannot change payment terms, simply having a clear picture of when cash moves in and out of your business is extremely helpful.

Increase sales or improve efficiencies?

It can be easy to assume that the best way to generate more cash is to increase sales. This is not always the case. If your foundations are rocky, simply adding additional sales on top may not solve the problem.

By carefully reviewing your existing overheads, you may be able to reduce the amount of cash going out; this means you make more money from the same amount of sales.

Check your cash burn-rate

Another important job is to check your burn-rate for cash – how many months’ worth of overheads does your business have sat in cash?

This knowledge can serve as a comfort blanket or a stark warning, depending on how much cash is there. However the picture looks, this knowledge alone is invaluable when it comes to planning and making changes.

Regularly reviewing overheads may present opportunities that you did not know where even there – a discount or price freeze from a key supplier, for example, can go a huge way in retaining cash.

Increasing Cash

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Once your business has a solid foundation and cash is being successfully retained, you are ready to look at increasing cash for your business. Like with most things financial, increasing cashflow is predominantly a case of careful planning.

Strategic vision and objectives

Firstly, it is very important to document the strategic vision and objectives of your business. Understanding what your goals are, and what it is going to take to meet them, helps you understand where to focus your cash and efforts to achieve the best results.

It is also very useful to have these objectives documented, we highly recommend Lucidity Strategy Platform – this allows you to be clear on what the objectives are and simplifies communication across the business.

Forecasting

Forecasting is another crucial element for increasing cash. A powerful tool, especially when coupled with a strategy, forecasting allows you to visualise what your cash position is, and what it is likely to be. It allows you to anticipate the impact of strategic changes, both financially and operationally.

Improving operational efficiencies

Operational efficiencies should always be a point of focus. This does not mean completely overhauling processes or changing the way your business works fundamentally; it is about identifying small wins.

If you can increase utilisation rates of a department by 1%, this will generate a slightly higher income. Similarly, if you can reduce material wastage, even if only 1%, the compound effect of multiple small wins can have a huge impact on overall cashflow.

Summary

genus-team

Cashflow is the lifeblood of any business, from budding start-ups to global enterprises. Raising, retaining, and increasing cash should be at the core of your business strategy, and we hope this article has provided valuable advice to help you achieve your business goals.

Genus is a combination of well-developed technology, and smart human intervention, designed to give you and your investors a meaningful view of your business. If you want a clearer picture of your cashflow situation, our team can help. Get in touch today for a free consultation.

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