Cash flow, the two four letter words
What are clients telling us?
Besides the usual complaints about the economy, (and according to the experts we may be turning the corner); the most common concern is the lack of cash flow.
There are many reasons why businesses run out cash, however two stand out from the rest: extended credit terms and inflexible funding arrangements with their banks.
What are the main consequences of lacking a healthy cash flow? Simply, it stops business from growing, from taking on new work and paying bills on time or updating equipment. Affecting the flow of the business and creating, as a result, anxiety and unnecessary stress.
Major financial institutions fear small business entrepreneurs, they are a risk that they are not willing to take unless they have bricks and mortar to secure overdrafts and other lines of credit.
Bank staff follow processes and rarely think outside the square; their business development knowledge is limited.
However, let us not blame the banks for stopping the development and growth of your business; financial advisors and accountants have some responsibility too.
Only this morning while signing on a new client, always a relaxed moment, he could not believe how simple the process was. He has taken over 12 months to make up his mind to move away from his bank. After researching for alternative funding he challenged his accountants’ advice against debtor finance; it was not an easy step to take.
As a result he was happily surprised to know how little it costs to service this facility and how easy it was to have it all in place. But what really put a smile on his wife face was freeing the family home.
‘I wish I had not listen to my accountant”, he said. “I have wasted the opportunity to take on new jobs, and in this climate of competetiveness, one has to be cautious but not fearful”.
His accountant had this preconceived idea that factoring was expensive, he told our client that the cost was around 20%. Obviously he was not up to date with current statistics that indicate that about 44% of businesses are using debtor or invoice finance.
Recommendation: Do some research before you offer your home as security, factoring relies mainly on the quality of your debtors and in the spread of risk, the more clients you have the more accessible the cost of financing will be.
Don’t be embarrassed cash is a good clean word.