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how business finance and cashflow management go hand in hand in the digital era

April 6th, 2018 Posted by blog, guest 0 comments on “how business finance and cashflow management go hand in hand in the digital era”

guest written by conrad ford [blog]

A business’s capital is affected by many moving parts, so it’s hard to always keep track of your cashflow, especially if you’re a non finance person.

Luckily, forecasting and rich reporting tools such as the flinder app can help business owners oversee cash flowing in and out of their business and understand trends — technology like this enables firms to stay on the pulse, plan ahead, and lowers the risk of cashflow gaps that could put the business at risk.

click here for a live interactive demo of the flinder Xero cash management dashboard

But what if you see cashflow issues ahead of you and don’t have enough working capital available to prevent them? Whether it’s because you need to pay in advance for a new project, or you have to pay some unexpected bills, you need to manage cashflow, not just track it.

To solve these kinds of problems you’ll either have to increase your income or reduce expenses, but that’s not always as simple as it sounds. Staff need salaries, stock has to be ordered, and suppliers want to be paid. Here are some examples where business finance could come in handy to smooth out cashflow bumps.

use finance for new projects

Let’s say you land a new project that’s larger than usual. Essentially, this is good news for your business, and it’s a new challenge that could lead to increased revenue. However, you presumably have to spend some cash to get the work moving, which may lead to a tricky cashflow situation.

A short-term business loan could help you boost your capital, and means you can avoid spending money you don’t have. Short-term business loans are usually unsecured, which means you won’t need any collateral, but lenders will look at your business’s financial position to make a decision. Most lenders will also want you to give a personal guarantee in case your business defaults on payments.

You can also use business finance to unlock the cash tied up in your unpaid invoices. Invoice finance gives you an advance based on money that customers owe you, so you’ll get most of the money immediately, and the remainder minus the lender’s fees when your customers have settled their invoices. This way unpaid invoices don’t hold you back from taking on a new piece of work.

have a backup plan for cashflow gaps

Sometimes, running a business can be quite unpredictable. Even if you diligently track your expenses, unexpected bills or repair costs for equipment may take you by surprise.

For those cases it’s good to have a back-up plan like a revolving credit facility. They work similarly to a business overdraft, so you get a credit limit from which you can draw down funds whenever you need to boost cashflow.

With support from flinder you can also predict when your business might need some extra cash to pay a tax bill. Lots of business owners don’t realise that there are lenders in the market offering finance specifically to finance corporation tax and VAT bills and it can be a good way to spread the cost out over a few months instead of paying a lump sum in one go.

always look at the bigger picture

It’s easy to look at cashflow finance as a simple cause and effect but an injection of cash into the business may trigger a positive chain reaction.

For example, one of our customers used a revolving credit facility to purchase a new vehicle. In return, this enabled him to hire a new member of staff, so the business could serve more customers. This wouldn’t have been possible without external funding, or it would’ve put the business in a financially risky position.

Another customer used a peer-to-peer loan to expand the business, because existing funding wasn’t sufficient for how quickly the company was growing.

If you’re already working with flinder through budgeting and forecasting advice, they can help you work out what’s best for your business in different scenarios. You could even add a range of different loan amounts and repayment terms to see how it will affect your cash levels in the future.

final thoughts

As you can see, there are many different scenarios that can put your business in a tricky cashflow position. However, there are solutions, and if you need a cashflow boost you could:

  • Use a business loan for a cash injection
  • Consider a credit facility if you predict occasional cashflow bumps
  • Get project-specific funding like invoice finance and trade finance
  • Refinance or sell assets
  • Chase your debtors to make sure you’re paid on time

One of the most important things is to identify cashflow difficulties early on in order to tackle or prevent them. If you’re not sure what types of finance would be suitable for your situation, Funding Options can help you narrow it down.

Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. @FundingOptions