Inside-out - fund your business growth

To grow a business, you need cash, and to get cash, you need a loan, right? Wrong! This is a very common assumption but, with a few small adjustments to your operations, you can raise that extra cash without having to go the bank.

It is often said that getting approved for a business loan can involve a lot of jumping through hoops and taking on extra debt can be stress-inducing for some business owners. So, rather than putting your business growth in the hands of the banks, grow your business from the inside-out.

Using your business to fund an expansion is not as hard as you might think. The best place to start is to carefully scrutinise your profit and loss statement and your balance sheet to find ways to free up cash to fund your growth. These cost saving ideas will help get you started:

Profit and loss
- Sales
- Costs

Balance sheet
- Customer accounts
-Supplier accounts
- Stock

Profit and loss
Increasing sales and cutting costs are fundamental rules for boosting profits.

  • Sales - Review your products and services to clarify what is making your business money and what isn't. Use the 80/20 rule - 20 percent of your customers, products and services should provide 80 percent of your profits. Once you have identified your '20' look at cutting back your reliance on your non-profitable items and increasing sales of your money-makers.

    Next, consider which customers provide you with the better income. The idea of the 80/20 rule is to focus your energy on your most profitable '20' rather than trying to build on your non-profitable activities. That's not to say you should ignore your remaining '80', but generally speaking they should demand less of your attention. 

     Also consider alternative cost effective forms of marketing, like using the  internet. Having a good quality website is a lasting investment and there are many tools which can help attract qualified traffic to your site. For more information on revving your online marketing activities visit Online marketing tips >>

  • Costs - Investigate where you can save costs, particularly with your products and services. Do you think you could your current agreements? Starting with your suppliers, try to negotiate better deals - don't underestimate your value as a customer and don't be afraid to approach other suppliers if you can get a better agreement elsewhere. Also, consider streamlining your deliveries. Ask your customers if they would reduce their deliveries to fortnightly which will save your business delivery costs. The same goes for your suppliers - would they offer a discount for less deliveries?

    Additionally, you can save a lot of money by second guessing your overhead costs. Before you place orders, ask yourself why you are spending the money and how your business will benefit. Could your business survive without it?

Balance sheet
Improve your balance sheet by reviewing your accounts and stock levels.

  • Customer accounts - Good accounts receivable practices are invaluable assets to any business. Stay on top of your credit management activities by ensuring you have a policy in place and are proactive in implementing it. Incorporate these steps into your credit management policy to deal with overdue accounts:
  1. Send a friendly reminder letter advising your customer of the overdue amount and how they can make payment
  2. Communicate with your customer to assist with clearing the debt
  3. Send a final notice
  4. When all else fails, engage a collection agency, like Dun & Bradstreet, to collect the debt on your behalf.

    Once you get into the habit of quickly employing your collection policy, you will find the process easier. Also, if your customers know you are quick to chase any overdue invoices, they will be less inclined to pay late.

    To find out more about chasing overdue payments read Collecting overdue debt >>

    Another way to ensure you have money in the bank is to ask for a deposit before starting a job or to request progress payments as specific milestones are completed. This will inject cash into your business, covering costs while you wait for the final payment.
  • Supplier accounts - As a business owner, you should have tight control over where and when money is spent. Keep a close eye on supplier accounts to ensure they are never overdue - equally, make sure you don't pay too early.  While it may seem like a good idea to pay before the due date, paying your invoices too early can put a lot of strain on your cash flow. Perhaps create a bill paying system, using online banking and sit down at least once a week to address all the invoices that arrived that week. Enter the bill online (using Bpay or funds transfer) and simply change the payment date to a few days before the due date. This will ensure payment is made, even if you forget on the due date.

    Take control of your accounts payable - if you have a staff member that manages this part of your business make sure they keep you regularly informed. This will ensure you know exactly where your business' money is going and how much you have available for business growth.

  • Stock - Maintain good control of your stock levels and know your stock usage patterns. You don't want all your spare cash tied up so aim to you're your stock turning over regularly. The best way to do this is to estimate the amount of stock you will need between orders, using previous orders as a guide, and set a program for purchasing stock in line with this estimation. 
    For more way to improve your stock movements read Stock effects cash flow >>

These tips will help you avoid a visit to the bank and having to jump through hoops for a loan. Think of your satisfaction in knowing you funded the growth of you business from the inside-out. 

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