When to raise finance?
It is important to not just think of the short-term requirements but the longer term outlook for your sector and the economy as a whole.
It may be better to not buy that ‘seemingly’ imperative new equipment but to carry on sub-contracting or to wait for a price reduction.
Do factor in the new repayments into your cash-flow, and see how it performs even at stressed times.
When presenting a request we like to calculate the benefit of what the finance is being used for to enhance the case with lender. In cases of growth finance eg acquisition finance or asset purchases it is to demonstrate the exponential growth and benefit to the company or group as a whole.
Whilst business growth and expansion seems the best course of action it comes with increased holding costs so it is always advisable to discuss the rational with your advisor or indeed one on the team here at the Business Board to run through the justification and the tangible benefit of the purchase.
It is also good practise to ensure there are no alternatives, these are some we use in our financial strategy reviews:
1. A sale and leaseback of a property
2. Reduce the space you use
3. Disposal of surplus assets
4. Stock analysis – value / requirements / any just in time ordering / any sale/return options
5. Implement key indicators within the business –the top targets / priority within each department
6. Analysing departmental capacity against revenue/cost
7. Outsourcing any under utilised area’s
8. Break down all the tasks and workflow
9. Communicating these to your team – implementing improved ways of working
10. Market potential within your sector
11. What is the optimum size – big isn’t always beautiful, how flexible can you be with sales fluctuations
12. Scrutinise / reduce every overhead line
In the financial strategy vein it is good practise to continually review.