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Organising your Finance in the Crunch
When George Sampson emerged as winner of “Britain’s Got Talent”, picking up a cheque for £100,000 in the process, he delighted the nation not only with his performance but in pledging to pay off his mum’s mortgage. It was a wonderful gesture, and no doubt many people allowed themselves a moment of bliss imagining a mortgage free existence.
Sadly few of us will ever be in the fortunate position of having a wealthy benefactor stepping in to pay off our debt, and fewer still when it comes to our businesses debt.
Cash is the life blood of business and having the right kind of financing in place is an essential part of managing cash flow. It is important to regularly review the finances of your business and plan well in advance for renewal of facilities or new projects and major expenditure.
Consider carefully the nature of the funding required. When purchasing a new asset such as a motor vehicle or piece of plant then HP or a finance lease are likely to be most appropriate, however, if it is a high value asset with a long life, such as a property then a mortgage or other long term borrowing will be required.
If funding is more short term and fluctuating with spikes, such as when quarterly VAT payments fall due, an overdraft may well be appropriate. However, if you are looking to fund growth something more flexible, such as invoice financing, could be a better option as the facility automatically grows with your turnover, unlike an overdraft, and provides more predictable and improved cash flow.
For a new venture or major expansion equity finance, the issuing of new shares to either yourself or outside investors, should also be considered. This does not saddle the business with debt and interest charges, giving it a solid, long term base to build growth. And it will also enhance your chances of success in raising finance from lenders who not only in see a firmer financial foundation for the business but also that you are making a long term commitment and incurring person financial risk.
The credit crunch is likely to continue for at least a year or two and so it will remain difficult to obtain and even renew financing. However, funding will still be available providing you have a sound business case; lenders will be looking more closely than ever in assessing proposals so it more important than ever to have a proper business plan prepared based on realistic assumptions and clear thinking.
A good business adviser will be able to help you prepare and present your business case and introduce to a number of suitable lenders; offerings and costs will vary so it makes sense to compare a number.
In summary, consider the nature of your financing requirement; is it long term or short; how flexible does it need to be (is it a one of large item of expenditure or an ongoing, fluctuating requirement); do you want a structured repayment term; what are the related set up and ongoing costs; is equity a viable and suitable option.
Topical Tip
Finance will remain more difficult and costly to obtain than in the recent past but it is there. Prepare well and prepare early, leave it too late and you risk being left with a costly and unsuitable source of finance, or even worse, none at all. Be like George, have a well choreographed proposition and you to can be dancing for joy with your finances sorted.
This article was provided by Tenon.