Funding your Business from the Inside Out?

The current lack of business lending means you can’t grow your business as quickly as you would like.  You can’t afford to do the marketing you would like, and you can’t employ more people to provide the goods and services your customers want to buy.

If you're looking to Sell your Business in the foreseeable future then you may have to look within to make the changes needed to make your business more attractive to potential buyers.

You’ve got to think a bit ‘outside the square’ to come up with ways to manage growth from business cashflow and find ways to create efficiencies in your business.  You need to free up cash from inefficiencies that may have become entrenched when cash wasn’t an issue.

There are two places (financially speaking) where you can improve cashflow and find efficiencies in your business:

1. Your Profit & Loss

2. Your Balance Sheet

Profit & Loss

Sales

The 80/20 Rule- Look at what you are selling i.e. products and services and determine which ones are making money and which aren’t. If you want to grow you need to grow the profitable lines.  It’s the old 80/20 rule – concentrate on the 20% of customers, products and services that provide 80% of your profits. You may need to sack some customers! If they are not profitable you shouldn’t be worried about them going to the competition.

Direct Costs

Look at what you are buying i.e. products and services and spend some time investigating and negotiating better deals and more efficient ways of delivering.  One example is a business that delivers goods to customers weekly.  They managed to agree with most of their customers to drop back to fortnightly deliveries – a 50% cut in one of their major costs!  Think laterally about better ways to achieve the outcome.

Don’t underestimate your value as a customer- don’t be afraid to shop around for other suppliers.  If you are a good customer they will be bending over backwards to supply you at the right price.

Overheads

This is an area where you can make massive savings.  Do a review of all overheads and ask yourself these questions

• Why am I spending this and what ‘value’ does it deliver onto the bottom line?  Should I cut it out?
• How could I do this differently to achieve a similar result?

• Who else could deliver this product or service and how much would they charge?

Purchase Orders

Introduce a Purchase Order system into your business i.e. no money gets spent unless you, the business owner, approves it.  It may sound tedious but the resulting savings will far outweigh any tedium.

Balance Sheet

Outstanding Customer Accounts - What you're Owed - Assets

This is an area where I often see much needed cash just sitting there waiting to be collected.  It will often cost much less to get the money in than the extra funds resulting from the effort.  Once you get into this habit you will need to borrow far fewer funds to run your business.

Supplier Accounts - What you Owe - Liabilities

This is an area where available money is often underutilised.  You as the business owner should have very tight control over payments to suppliers.  You need to ensure that you are not paying suppliers too quickly. I have seen this time and time again where an employee pays the bills and is way too quick at getting cheques signed.  This puts unnecessary stress on cashflow and the business owner who has to deal with the result.

Stock

Try to think of stock as hundred dollar bills sitting on your stock room floor. 

The aim here is to have stock sitting in stock for as little time as possible.  You need to know your stock usage patterns.  You can find this out by looking at previous times and setting a programme for purchasing stock i.e. not just when the sales rep calls in with an offer of a discount.  A discount could cost you precious cashflow.  Do the comparison and you may find the discount actually ends up costing you lost sales, because you weren’t able to sell other more profitable products or spend money on marketing.

Jobs in Progress - Work in Progress

The aim here is to get jobs finished as quickly as possible so that you can invoice customers and get paid.  If you can get a deposit to cover costs, this is a great place to begin injecting cash into the business.  Progress payments are also a great way to ease the cashflow burden.  The best way to speed up finishing jobs is to have good systems in place to ensure no hold ups occur and quality isn’t compromised.  A job management system may seem like an expense, but once installed into your business you have it forever, creating efficiencies and improved cashflow.

Remember the bottom line (profit) is ultimately where you want growth, not just the top line (sales). 

Business value is mostly calculated on profit, so this is what you want to concentrate on.

< back