Don’t let short-term cash flow problems be your long-term downfall

The importance of healthy cash flow for a business can never be under-stated. To help with this, IGF’s Richard Spielbichler laid out the best approach to avoiding cash flow problems.

A lot of small businesses spend many sleepless nights worrying about funding, but when we picture this we tend to think of dramatic investment – business owners going in for Dragons’ Den style pitches for a huge scale-up project.

The reality of funding for many SMEs is quite different – a lot of businesses are looking for funding to keep the day-to-day business operations ticking over so growth can be achieved steadily over time.

Managing cash flow effectively from day one is absolutely crucial for any business, especially those with ambition plans for the future. The problem is, when you’re starting out and hit by difficult clients, startup costs and even late payments, it’s easier said than done.

Many business owners turn to short-term funding options to get over this rocky patch, such as invoice finance or asset-based lending.

We caught up with Richard Spielbichler, ABL director at North West of England-based Independent Growth Finance (IGF) to find out more about these types of funding, and how they can help startups balance the books.

Is there a “typical” business or something they all have in common?

Whilst we have no typical customer profile, our primary customer base is made up of B2B firms across a variety of sectors. The most common reason for these firms coming to us is the need to fund growth and provide working capital to maintain the day-to-day running of the business.

Why is it so important for small businesses to manage cash flow effectively?

Growth and development need cash to succeed, and the old adage of “cash is king” still rings true. Even the most profitable business can fail if there is not enough cash available to pay the bills, staff and suppliers.

What types of finance are best for SMEs with short-term cash flow problems?

This really depends on how “short” short-term is. However, we look to support our customers for a minimum of 12 months to provide cash flow through a full year, and the most beneficial finance solution for this is invoice finance.

What kinds of finance are best for SMEs with ambitious long-term plans?

Both invoice finance and wider asset-based lending options are great for supporting long-term growth, dependent on the needs of a business. Invoice finance is structured to provide funding based on a percentage of a business’ debtor book. As such, the more a business grows, the larger their sales ledger becomes and in turn, the invoice finance facility grows too.

Alternatively, a business may also look at growth through M&A activity. Funding these sorts of transactions is highly suited to asset-based lending, which can provide finance against the assets within both organisations. This type of finance will also provide working capital for the new business once the deal has completed.

What sort of things are businesses looking for finance for?

In most cases, business look to third party finance to improve cash flow, with the aim of funding growth. However, asset-based lending can be used for a variety of scenarios, from helping a business to make an acquisition to support fir an MBO to funding a turnaround from a difficult trading period.

What tips can you give to businesses pitching for finance?

The main tip I would give is for a business to be realistic in its business plan and ensure that any potential risks are addressed. After that, I would say that carefully explaining how your business operates will allow the financier to provide a facility that really meets your needs going forward.

What help and advice is available to small businesses in need of finance and don’t know where to seek it?

Business owners will normally benefit from the support of a professional advisor who understands their sector, has a broad financial knowledge and has a wide network of mainstream and alternative financiers. Whilst there is a wealth of information on the internet, there are many organisations out there providing professional, independent advice to assist businesses in achieving both their short- and long-term plans.

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