Q. I run an engineering business which makes mechanical parts. We’re cashflow positive, but were recently taken by surprise when we received a large order. The offer was lucrative, but too large as it would have meant an outlay of more than £400,000 before any return. We tried to get finance, but were unable to in that timeframe, and lost the deal. How can we best prepare the business to cope with large orders that come out of the blue, so we don’t miss out in the future?
Colin Mills of the FD Centre writes:
This question raises three key issues that we see a lot. All are reasonably easy to deal with once your have the right skill sets on board:
Keep in touch with your bank
Regularly sharing financial information with your bank, and meeting up for a coffee to discuss how the business is going, builds confidence in you and your business, and puts you in a strong position if the ‘out of the blue’ scenarios occur. Also, if it’s clear your bank is not interested in supporting you with these types of transactions, you’ve got time to search around for other financing options that will fit the need, and believe me, they do exist.
Unlock the cash in your business
Your business will have locked up hidden cash. To find it, critically review stockholding, debtors and creditors. Question hard your current performance. Why do you need all the stock you’ve got? Why aren’t you collecting cash in line with your terms of trade.Why can’t you extend payments to suppliers? You may be surprised to find that taking this kind of action can provide the cash you may need in an emergency. Don’t forget to look for old fixed assets you’ve got lying around that have value. Realise their value and take the cash where you can.
External funders
Apart from the bank, there are other capital-raising options. These include factoring, invoice discounting and trade finance (which will provide finance from order through to cash receipt from the customer). Raising money by re-financing existing fixed assets is also possible. The strength of your balance sheet, management team and knowing where to look are the key factors. Make sure you have this access to the funding marketplace.
