What Is Cash Flow
Before we delve into the fine art of cash flow and how this can grow your business, we need to understand what cash-flow is. Commonly within a business, your accountant, consultant, or support network may commonly mention cash-flow to you and how important this is. The reason being is that it’s the lifeblood of any business. So, cash-flow is the transferring of capital in and out of a business. Think of it as water running through the pipes and out a tap. Without cash-flow, you may have all the infrastructure but no capital available to you. A business can be loss-making but have healthy cash-flow. Therefore, not feel the impact of this. Now of course the aim of any business owner is to be profitable, have readily available funds, and have the ability to scale the business to achieve the desired outcome.
How to Assess Cash Flow?
When looking for investment into a business the financier or lender will analyse the business’s cash flow position. The way in which most financiers will do this is by looking at the debt servicing ratio. This is a simple equation as follows. Debt Service Coverage Ratio = Net Operating Income / Short-Term Debt Obligations. This is to make sure that the business can repay the short term borrowing or liabilities to creditors etc. Your business can be profitable but if it doesn’t have positive cash-flow then it won’t survive. The reason why this can happen is you have large amounts of capital tied up in outstanding invoices. If credit terms to customers are less than favorable, then how will you support have readily available funds? How will you pay staff, buy further stock or have free capital to grow your business?
How Do My Credit Terms Effect My Cash Flow?
When starting a business or scaling an SME business up, how do you maintain a positive cash flow position within your business? One of the many tools in your armory is to get your customers to pay within the credit terms. On the flip side, ask your suppliers to offer credit terms to you. As a consequence of this, you will not only have the ability to pay your suppliers in 30 or even 60 days’ time after the goods or serviced have been supplied. You will have your customers paying you in a timely fashion. This will leave you free money to operate your business. Maintaining a healthy cash flow position and be able to grow or acquire business’s as you go.
Finance Solutions Available
Now as a business owner, financial director, or business advisor you are thinking I want to grow my business. How do I improve my cash-flow; in partnership with the points already raised? One finance solution to support cash-flow is invoice finance. This is accessible to all sizes of business not just corporate finance. As a start-up or SME business, it can be difficult to access funding. Invoice finance is there for a business who invoices B2B (Business to Business) once the goods or service has been delivered. Often smaller companies are put under greater strain when working for larger businesses.
This is because the credit terms for paying invoices can be 60, 90, or even 120 days after the work was completed. Leaving you the business owner with outstanding invoices on your sales ledger. Now invoice finance can release the outstanding money on your sales ledger and give you the ability to not only free trade with the larger businesses. But grow your business and have a positive position. The amount you have tied up in outstanding invoices plus future invoices you raise will be advanced against.
How To Access Finance?
The answer is simple. Go to either ourselves Pinnacle Business Finance as we have a wealth of experience within this industry. Alternatively, you can go to your accountant or business consultant who will refer you to a commercial finance broker such as ourselves to source finance for you. This will not only save you time, money and give you the ability to gain the financial backing you require.
