Finance
Cashflow is King.
Cash is the blood that powers every business, good blood is a good company. As you grow your business, ensuring the finances are under control is vital. It gives you the confidence to make good business decisions, because you know exactly where you stand.
Generally young entrepreneurs in the growth phase of these business are impacted by these FINANCE issues:
> Funding Options
> Cashflow
> Interpreting financial documents – eg: what is P&L, Balance Sheet etc
> Preparing for selling
> Keeping up with financial obligations
> Finding a good financial controller..
Finance Options available for young entrepreneurs
You can choose between short term and long term financing options; depending on your needs.
What is Working capital?
1. Current assets minus current liabilities.
2. Working capital measures how much in liquid assets a company has available to build its business. The number can be positive or negative, depending on how much debt the company is carrying.
3. In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations. Companies with negative working capital may lack the funds necessary for growth.
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Financing Options
Here are a few options for entrepreneurs needing cash:
Bank overdrafts
These are useful when you need small amounts of cash to get by operationally. You arrange with your bank to have an overdraft limit (or to into negative) – and you pay back the overdraft at any time. You generally will have to pay a fee and interest for an overdraft facility.
If your cash flow is getting a bit scary – overdrafts may help you out temporarily.
Credit Cards
A Credit card is useful esp if you can get an interest free payment period -and if you need some cash to get you by and make immediate payments. Do not get too reliant on it though as the interest rates are pretty high.
Trade Credit
Trade credit gives you a bit of time to make payment when you buy goods or services. You can use trade credit to bridge the time gap beween cash payables and cash recievables. If you can opt for the 30 or more payment terms – so as to give yourself more time to pay dues.
Commercial Bills
Commercial bills enable you to get large amounts of cash pretty quickly. With commercial bills you pay the amount of the loan at the end of a specific term plus interest. So what you get is….the cash you need with some time pay it off.
Bank Loans
Most frequently used source of funding for young entrepreneurs.
But make sure that you know what banks require before they give you a loan. Banks will want to take some security over a loan – possibly your house or another asset.
Banks are also going to see that you can service the loan – and your bookkeeping and recording is going to be upto scratch to prove this. Banks may also want Director’s guarantees, for the loan which makes the Director liable for the loan and its repayment.
So be prepared and make intelligent decisions.
These are some of the things that Banks will want to see, before they give you a loan –
> cash flow statements and forecasts
>business plan
>bank and financial statements
> solid reasonf for the loan, and how you will use it
Equity
The amount of cash you or other investors put into the business. Think angel investors, venture capitalists – i.e. cash for shares/ownership of the business.
