Using your cash flow / working capital to build growth into your business

It is often believed that all owner managers want to grow their business, and there are many ways to do this. Using business financing and cash flow to power your growth, especially for the businesses that want to seize upcoming growth opportunities. Finance can be used to increase your turnover and lead to the characteristics of a thriving business described in this paragraph.

One of several measure of growth is your turnover, because a growing turnover implies many positive things about your business. As well as your market position improves, you have gained more contracts and purchase orders, and best of all, it shows to the outside world that your services or products are in demand and popular.

As a trading business, you already understand the key importance of working capital to pay for your operating costs, your bills, salaries, etc. You can also utilise your working capital finance to bid for larger contracts, purchase larger quantities of stock, and grow as a business. Here are some ways you can use your working capital reserves and cash flow to grow your business.

Flexible invoice finance

Giving your customers credit terms to pay you back is a normal part of doing business and all owners need to understand why it is a positive for all businesses. It allows you to build great relationships across the supply chain and your business can then manage larger payments much easier over time. Invoice finance is simply the process of freeing up cash from your invoices to customers. It uses the value of the service provided by your business – tied up in the invoice – to quickly release cash into your account. Rather than waiting for 30 to 60 days for your invoice to be paid, you simply sell it to the invoice financier who will advance up to 90% of the invoice immediately.  It keeps cash running through the business so you can pay for your own costs and bills, and make growth purchasing decisions.

Invoice finance can be thought of as simply utilising existing assets the business currently has. Some businesses are concerned that it will affect the profit margins, but if you have decide to take on larger contracts, you can view the option as a long term strategy for growth. Invoice finance can grow as your business grows, which is why most fast growing and large companies use it sensibly.

Purchase order finance for stock purchases

If your businesses purchases a lot of stock and sell to the trade, then using the proper finance option can help you grow by saving on costs and boosting your working capital reserves.

There are many finance companies who consider your purchase orders as tangible assets, depending on your business – it is important to match your business to the right lender. They can provide stock finance for you to purchase larger quantities of stock, provided they can track it the end-to-end transaction from who you buy from to who you sell to.

For other businesses, general supply chain finance can provide an increase in cash flow and working capital simply by using the credit rating of other businesses in your chain. The best example is if your customers are large corporates or blue chip businesses, as you can use their credit rating to get finance at competitive rates.

If your growth plans include acquiring new equipment or commercial property, there are again different ways to finance this solution.

Asset finance

Machinery and business equipment is key to most, so finding the money in cash flow to buy them can be difficult. Asset finance options allow you to obtain the equipment you need for growth using a variety of methods, such as leasing, hire purchase or sale and leaseback.

For example in the catering sector having equipment that is compliant with regulation is often a must. The ability to maintain your growth, when upgrading or purchasing new equipment, is to make the equipment pay for itself using finance options, so by the end of the finance agreement the business has realised its growth and you can better afford repayments.

Commercial property: purchase and re-mortgage

Many businesses move into new offices as their business need larger premises, or will purchase warehouses as their stock level rises. Others will simply want to improve cash flow on where they currently do business, operate, by either reducing costs in the long run or getting rid of the quarterly rent bill from the landlord.

One option is to refinance existing equipment and machinery to raise deposits for such a purchase. You should be able to borrow from 60-80% of the asset’s value depending on the condition of the equipment. You will be amazed at the type of tangible asset in your business that can be refinanced for commercial purposes.

Using your current business or private property to release equity by re-mortgaging it can allow you to make a down payment on new commercial premises.

Growth through acquisition

One of the fastest (and if the price is right) the safest way to grow is via an acquisition or merger with a similar type of business. To fund this one option is to refinance your existing assets to release the cash tied up, or use secured loans and alternative finance.

Secured commercial loans allow you to access business loans over long periods based on tangible assets that you own, such as properties, and even equity in other assets. They are often used for Management Buy-outs, takeovers and mergers and acquisitions. See more details about these in my previous blogs here and here.

If you’ve been declined by your bank, or your bank is taking too long to come up with the ‘right decision’, the use of alternative funding such as peer to peer or crowdsourcing may the best option to get the cash you need, see how here.

For more information or to arrange an informal meeting to explore how CMC can support you through your business journey, call 01844 319286 or contact us via this form.


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