When is the right time to get cashflow finance for your business?
If you start a small business, you need working capital to fund setting it up and getting it into a position to trade. Often the set-up costs include legal costs, accounting costs, developing a business plan, a fitout of the premises, a vehicle and equipment for the business such as computers and printers. Beyond this point, external funding will often be required to fund further growth of the business.
So, you have set up your business and already finance is required to begin trading. This finance is typically either equity finance from shareholders or debt finance from shareholders, related entities or third parties.
Third party funding will most likely come from a friend, relative or investor. At the start-up phase of the business, bank and finance company funding can be limited, as the owners will probably not have credit record and cannot meet the credit criteria.
So, at this point, your business is up and trading and business is okay, but you really need more money, funding or cashflow to achieve your growth targets.
Multiple Options for Cashflow Finance
There are multiple funding options for your business, depending on the length of time the business has been trading, its profitability and the size of business but first let’s consider when to seek the funding.
So, what is the best time to seek working capital funding for your growing business? Do you wait:
- For a customer to place an order?
- Until you have a problem and cannot pay your suppliers or creditors?
- Until you have bigger problems like an ability to pay staff wages or superannuation?
- Or yet a bigger problem like one of your creditors taking legal action against your business?
The time to finance is before you grow, so the money is available when you need to pay a creditor, wages or upfront expenses to get the goods or service supplied to the customer.
The old cliché, ‘prevention is better than cure’, holds true in this instance.
So, before you have an issue, talk to your trusted business adviser who has expertise in cash flow management and finance solutions.
Importantly, if you are taking on lease or chattel mortgage commitments during a growth phase, cashflow is vital to supporting the growth, but also to finance payments. If your customers pay you slowly on terms and you need to pay your wages, suppliers, finance companies and taxes, you need to have positive cashflow to trade effectively.
The correct amount of finance will be related to the consistent issues confronting the business. If the problem is a cashflow issue and you cannot pay wages, suppliers and taxes on time it can be really stressful. Your business needs a working capital solution. Ideally, this solution would be an invoice finance or factoring solution. Invoice finance does not involve property security and the qualifying criteria is simple:
- Do you sell goods or services on a B2B basis? Yes
- Do you currently offer credit terms or plan to offer credit terms to your customers. e.g. 30 days payment? Yes
- Have you delivered the good or service at the time of invoice? Yes
If you fit these simple criteria and need cash flow, then invoice finance or factoring may be for you. So talk to one of Australian Invoice Finance’s cashflow finance specialists to arrange a suitable funding solution.