Most businesses, as well as the broader economy, have entered the ‘recovery’ stage from the pandemic. As restrictions are ‘slowly and irreversibly’ lifted, so business and cash can flow back around our economy again.
Cash flow conservation is nothing new; there are standard business practices such as chasing your receivables, negotiating your payables, cost cutting to your business overheads.
But making sure that the recovery in your business is ‘irreversible’, and that you are on solid foundations for the long term, you should preserve a level of cash within the business as a buffer against the speed of the recovery – and it not being in a straight line!
So what help is there to conserve cash in your business while you still have overheads to pay, outstanding customer receivables and business expenses in relation to re-opening and/or increasing your activity as demand is restored or increases?
For many businesses it will be a case of finding out what is available to them in terms of finance products and providers – gone are the days of your choices just being Loan – Overdraft – Mortgage, and the only place to get them being your bank.
We’re conscious that many businesses have always managed without the need for finance and this might be viewed as a last resort for them; but we look to offer options where they can envisage their cash flow not being strained, or worse.
Cash flow is the lifeblood of a business, and having a sufficient level so that you can restore your activities, meet demand and grow again is worth sacrificing a small amount of margin to cover the cost of funding your business.
As you forecast your cash flow, factor in the tools that can conserve cash flow; these tools will protect you from onerous and large cash calls on the business, and regulate the flow of cash to manage the balance between receivables and costs.
Invoice Finance – Use current business to fund the cost of doing it.
Invoice Finance pays you for most of the work that you have completed just a few days after you have completed it, when your customers won’t be settling anything with you for another 60 to 90 days.
You have the costs of wages, contractors, overheads and suppliers to meet – and with the immediate cash flow that Invoice Finance offers you can meet these costs, as well as be in a position to accept and carry out further work and opportunities that are available to you.
Think of it another way – the ends justify the cost of the means. Fit this scenario to your business and without the funding help how long until your cash flow will be strained?
Supply Chain and Trade Finance
Your company may buy raw materials that you manufacture or assemble to create finished and saleable goods, or purchase ‘finished goods’ from a manufacturer or supplier.
Supply Chain and Trade Finance can be within the UK as well as overseas – having a facility can improve prices and terms, and allow you to trade with manufacturers or suppliers that ask for pro-forma payment (up front) without a large cash call on the business well in advance of any payment you will receive from your customer.
Multiple clients report delays in being able to source materials and goods currently – extending the timeframe that their cash flow is strained where they do not fund their supply chain.
This ultimately leaves your cash flow, and company, exposed and vulnerable to further cash calls on the business. Sorry to repeat myself, but the ends do justify the cost of the means in so many cases.
Short Term VAT Loans
One quarter’s VAT bill from March – June 2020 was deferred to March 2021 under the pandemic HMRC scheme, and instead of paying one lump sum in March 2021, you could spread the cost of that deferred tax bill over the 2021/22 tax year.
HMRC acknowledged the importance of cash flow conservation in your business in relation to that one quarter’s bill, but what about every subsequent quarterly VAT bill that you face?
We work with funders offering 12-week loans to help to settle some or all of your VAT bill that can be repaid weekly or monthly.
If you face a tax bill that would drain the liquidity that you have available, this could leave you exposed in the event of any further cash calls. This option maintains cash flow in your business while meeting the HMRC demands in a timely fashion.
Assets can drive growth – Asset Finance over Cash Purchases?
Investing in assets for your business is very topical at the moment, beyond the potential for growth that they provide to your business is the government’s Super Deduction scheme – a Corporation Tax Relief scheme running until March 2023, and offering you 130% relief again qualifying asset purchases.
The subject of tax relief and suitability of different types of asset finance for your business are best confirmed with your accountant – but we can identify a clear benefit in not using cash currently to make asset investments if that could potentially leave your cash flow strained. And using asset finance still qualifies you for the tax relief scheme that I mentioned.
Asset finance allows you to budget the cost of investing in an asset against the growth that it can help to facilitate – with funding commonly available from 3 to 7 years (or longer). You will pay for the asset over time, out of income that is being generated from use of the asset, so avoiding a large initial cash outlay and your cash flow being strained until further receivables help you to recoup the situation.
Leverage your existing assets – Asset Refinance
‘Leverage’ far from the sense of some risky financial product gamble that we hear the investment banker ‘casino’ traders taking!
In your business you could have property, hard assets or stock that is unencumbered or with significant equity that you can leverage to generate cash flow for your business.
Depending on the asset, we work with a range of lenders in commercial mortgages, hard asset refinance, stock finance and secured lending that help clients access cash flow currently locked up in the existing assets of the business.
Our lending partners have innovated and adapted products to better suit clients’ requirements and you can, for example, access ‘business credit facilities’ (like a business overdraft) with the backing of property assets. The borrower only pays for what they borrow, for the time that they are borrowing it.
Every business is different – the degree that it needs to recover and the position from which it starts to do that. We understand that to make your recovery ‘irreversible’ you need to conserve cash flow.
We are sourcing suitable solutions for clients to help them recover, meet demand and grow – why not see what options are available to you?
Mark Grant, May 2021.
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