It’s an often heard saying “cash is king “and it’s true now more than ever. A lack of cash can contribute to a company being liquidated
Unless they have some very understanding banks and investors, businesses live or die by the amount of liquid cash they have at their disposal and it’s one of the key tests of whether a business is insolvent or not.
In fact a business can be exceptionally profitable but find itself short of funds to pay suppliers and other creditors when due.
So if you are having problems with cashflow how can you change things around?
Here we present 10 ways to improve your liquidity and hopefully put your company on a sounder financial footing.
Tip 1 – credit control like there’s no tomorrow. It’s always surprising to see companies that are running an overdraft but at the same time have a large number of customers who owe more than their credit limit or are way over on their payment terms.
The quickest way to realise cash is to get on the phones and start collecting overdue debts. Remember -the money is better off in your bank account than the customers’ and you’re only asking for what is due.
Tip 2 – revise your terms. This tip is closely related to the first one. If you find that you are continually short of cash then it may be an idea to take a look at the terms of the credit you are allowing.
Do you let people take too long to pay? Change your standard terms to 30 days from 90 or 7 days from 30 and see the difference.
By the same token allowing clients to have huge amounts of credit, especially when they are new is a recipe for disaster. It is likely to result in more bad debt and people taking longer to pay.
Tip 3 – Realise your assets. Companies will often hang on to machinery and plant just in case it comes in handy later but that’s just having cash sitting on the factory floor.
Conduct a review and work out how often you use things and decide whether it’s worth keeping them or selling off unused assets and either renting or contracting out if the facility is needed later.
Tip 4 – lease lease lease. Buying assets for cash isn’t always the smart move, especially with interest rates at historical lows. Instead keep hold of your cash and lease assets for use in the business.
It’s surprising what a breadth of great products are out there and it’s not just cars and factory equipment that can be leased. You can lease almost everything even down to office furniture and shop fittings, releasing valuable cash for working capital.
Amazingly some finance houses will also allow you to take a lease on assets you already own giving you back cash that you thought had gone for ever!
Tip 5 – Negotiate better supplier terms. If you have been buying a large amount of goods over a long period of time then it makes sense to ask your suppliers to grant you longer payment terms.
Doing this gives you an instant boost to cashflow and a ready supply of interest free credit to draw on for your important purchases.
Tip 6 – Factor debts. If you have a large aged debt book and it’s tying up cash then it’s worth thinking about using the services of a factoring company.
These firms buy the debt from you and advance a percentage of the value of the invoices immediately giving you cash on day 1.
Tip 7 – Take advantage of your bank. Banks are there to lend money. Get an appointment with your business manager and see what they can do for you. A high street bank should be able to offer everything from overdrafts to long term loans that will help you over any cash flow shortage.
Tip 8 – Think about alternative finance. Crowdfunding is a great way to raise business finance at reasonable rates when your bank won’t play ball.
Some companies do simple short-medium term loans, others have more sophisticated products that will allow you to raise money against stock, assets or debts owed to you.
Tip 9 – Look for equity investors. If you have a business that is profitable but just short of working capital then it shouldn’t be a major hurdle to find suitable equity investors that will give you a cash injection to enable your business to move on to the next level.
Look also for business angels who will often have a great network of contacts and may be able to give help and advice to the growing business.
Tip 10 – Let out unused capacity. Lots of businesses have space they could let from the hairdresser that rents out a chair to the factory that allows tenants to use floorspace.
But thinking creatively can help here. An expensive and specialist machine can be rented out to other businesses at an hourly rate whilst office space could be given up to a local bookkeeper or outside yard space can be let as storage.
Most businesses find themselves short of cash at some time or other but using our tips can help alleviate the worst of this.
If you think that none of these will assist your company and you still find yourself with a cashflow crisis then it may be time to get help and advice from an insolvency professional.