How To Use Your Cash Flow To Obtain Finance
As a small business owner and operator there may be times when you are required to obtain finance. This may be to purchase some additional equipment, undertake some renovations or to even cover short term or seasonal fluctuations in cash flow.
Whatever the reasons, having your financial records in order especially your cash flow forecasts, is critical when you are obtaining the finance from the bank or other lending organisation.
That’s why it’s important, when preparing your cash flow forecast, to make sure it includes the following points:
• You manage your debtors well. For example, your debtors should not be left outstanding too long. Nothing worse than having, for example, 7 or 14 day terms yet the majority of debtors are still outstanding 30 days or longer. Having a clear collection process that you adhere to is important.
• Allow for any seasonal fluctuation issues. If you have any down times or peak times during the year then this should be reflected in your cash flow forecast.
• Ensure you accurately reflect the timing of the transactions. For example, if you are a retailer you may have an increase in purchases of stock during October and November that are then sold in December or post Christmas sales in January.
• You manage your creditors well. As with your debtors, have a clear process that you follow and that your payments are not left outstanding for too long. Anyone who may consider providing you with finance wants to ensure you are a regular payer.
• If you have a clear business plan or strategy for the next period of time ensure the cash flow implications have been included. For example, if you are considering major renovations show when progress payments are planned to be made and how the finance you are trying to obtain will be used.
In addition to these points helping you with your own planning, it also shows the lending organisation that you know your business well and have good control and understanding over the finances. This can only result in the lending organisation having a higher level of confidence to provide the finance but may also assist you to obtain the finance at a better interest rate and improved terms and conditions.