funding Archives - The CFO Centre Australia

External Funding Options for Your Growing Business

August 11, 2023 by lauramills

Your Guide to Business Financing and External Funding

Getting external financing to fund your company’s growth will depend on your plans, how willing you are to give away a stake, and, therefore, control in the business, your eligibility, and the short-term or long-term funding you need.

How to finance your business growth

Bank finance

Banks can offer you:

Unsecured business loans. These will have fixed repayments (including interest) over a set time frame. The amount and the interest rates will depend on the bank and your circumstances.
Secured business loans. To obtain a business equity loan, you’ll need to offer your company collateral or assets as security (for example, property, inventory, or equipment). The amount you can borrow will depend on the value of the assets.
Buy-to-let loans and commercial mortgages. These are suitable if you’re looking to buy or remortgage business premises.
These are more suitable for short-term financial support when your company has a cash shortfall.
Business credit cards. Again, these are probably best for short-term support.
Invoice finance. It will mean you can access cash that is otherwise tied up in outstanding invoices. It’s ideal if your company offers long payment terms to customers or if you need to grab growth opportunities.
Asset finance. This allows you to make small regular payments for an asset rather than a large, one-off payment. It is ideal If you want to preserve your working capital and generate income from an asset as you pay for it.

Angel investors and venture capitalists

If you’re willing to offer a share of your company or equity, you could approach third party investors such as angel investors or venture capitalists (VCs).

You might not have to repay their investment, but the share they will want in return is likely to be high.

Alternative investment markets

You could also consider alternative finance options. These include crowdfunding and peer-to-peer funding.

Crowdfunding. In return for early access to your products/services, discounts, or an equity stake in your company, you can raise the money you need from a crowd of small investors.
Peer-to-peer lending. You can borrow from individual small investors. If your application is successful, you’ll probably be able to borrow more than you would through a bank and access the funds quicker.

The criteria for the loan might not be as stringent as a bank, but the costs might be similar.

Is your company eligible for funding?

Banks and investors often use what’s known as the CAMPARI method to decide if your company is eligible for funding. That is:

C This incorporates everything from your professionalism and brand reputation to your company’s record in repaying loans.
A This is about you and your team’s knowledge and expertise and how successful you’re likely to be to generate growth from the financing that investors are being asked to provide.
M This is about how well your business is equipped to meet your growth plans. Investors will want to see your Return on Equity (ROE), growth projections, your competitive advantage, detailed financial reports, performance record, and a comprehensive expenditure report.
P Investors will want to know how you will use the funds and how they will help to boost the company’s financial situation or generate a profit.

For example, if you have no liquidity in the business but need it to fulfil an order or if you need a type of machinery to be able to increase your product or service range.

A This is about showing investors how you came to decide on the level of funding you’re applying for.
R Investors need to be convinced you can afford any repayments. They’ll look in particular at your cash flow and profit margins.
I This is all about showing investors you have a fallback position if things go wrong. They’ll need to be convinced you have another source of repayment should you need it.

Get expert help

To make it more likely your company is considered eligible for funding, it is advisable to get expert help.

For example, The CFO Centre has part-time CFOs who have trusted partners within banks and major financial institutions. In addition, they can look at angel investors, VCs, and alternative lending markets for funding on behalf of their clients.

We can help and guide you through every step of the funding preparation and application process.

How To Resolve Your Cash Flow Problems

June 29, 2023 by lauramills

Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes.

Cash flow problems can beset even profitable companies, particularly those experiencing rapid growth.

So, how do you protect your company from future cash flow issues?

Cut Costs

Cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts. You could for instance place a freeze on bonuses and overtime payments, reduce the number of employees through attrition or redundancy. You could also approach creditors to ask for better terms.

Carry out credit checks

Before taking on new clients, carry out credit checks. Companies that regularly make late payments or default on payments should be red-flagged. You should also get new clients to sign contracts that include your payment terms.

Offer early payment discounts

Encourage your clients to pay earlier than normal by offering early payment discounts. The early payment discount should only be used when the company is in urgent need of cash. Do it too often, and you will make a serious dent in your profit margins.

Reduce your payment terms

Cut your payment terms from 60 or 90 days down to 30. Think of it this way: when you allow customers to pay in arrears for your products or services, you’re essentially giving them short-term unsecured loans.

Lease rather than buy

Consider leasing rather than purchasing cars, property, office furniture, machinery, and IT and telecommunications equipment. The benefit of renting rather than buying is that you will only have to make small monthly payments. This should help your cash flow.

Raise your prices

Companies are often reluctant to raise their prices for fear they’ll lose valued customers to competitors. But even a small rise in costs can chip away at your profit margins. You can overcome customers’ resistance to a price rise by offering bundled products or services.

Issue invoices promptly

Many companies don’t issue invoices quickly enough or chase late payments. Consider this: every sale has already cost the company in some way, whether that’s the purchase of raw materials, warehousing, labour, sales and marketing, and distribution. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.

Use invoice financing

Hire a company that provides invoice financing (either invoice discounting or factoring) to receive an immediate cash injection. Such companies provide funding against your unpaid invoices for a fee.

Usually, you will receive up to 85% of the value of the outstanding invoice within 24 hours. You’ll then receive the remaining 15% minus the broker’s fee once your customer has paid the outstanding invoice.

Get external funding

You could approach banks or lending institutions for a short-term loan or use other funding sources such as self-finance, partners, investors and alternative finance like peer– to–peer lending.

Hire a part-time Chief Financial Officer

A part-time CFO from the CFO Centre will look for all the things that pose a threat to the company and work with you to resolve them. Your CFO will look for ways you can meet your most pressing financial requirements and review all incomings and outgoings to find where improvements and savings can be made.

You’ll be encouraged to use regular cash flow forecasts. Such forecasts will alert you to possible cash shortfalls in the near future. You can then make arrangements for additional borrowing, for example. It will also help decision-making around whether to hire new staff, raise your prices, move premises, find new suppliers or tender for a large contract.

We love numbers, we understand how to interpret them and use them to help get your business where you want it to be.

For more information, you can visit How It Works or get in Contact with us to speak with one of our dedicated team.

What does a CFO Actually Do?

June 2, 2023 by lauramills

Often, we get asked by friends, family and peers: What does a Chief Financial Officer (CFO) actually do? These are frequently people that have known us for years, that we dine with regularly, share holidays with, stand at the side of the footy pitch with! Yet, they don’t fully understand exactly how we have helped business owners to transform and scale their businesses. So, if the term “part-time CFO” is as alien to you as “UFO”, here’s what we do, in a nutshell:

Whilst a CFO is a qualified accountant, they also have decades of high-level commercial experience, quite often across many industries.

A CFO works alongside you as the business owner/CEO – giving you more time to work on the business instead of in it. The part-time CFO concept is tremendously cost effective as most CFOs pay for themselves with the cost savings they identify in your business.

In a nutshell, a CFO will typically:

Help you strategize, plan and operate your business to maximise on cash, profitability and company value
Gain access to funding
Ensure you have a solid banking relationship
Become the custodian of your internal Finance function.
Work with your bookkeeper or Finance Officer and/or external Accountant.
Analyse results in the context of the company’s objectives and strategies.
Establish clear KPIs (measures that really matter)
Ensure you (the owner or CEO) understand the financials, the trends and the issues they identify
Assist in growth, expansion (including overseas) and exit strategies
Become a trusted sounding board and devil’s advocate

The need for a part-time CFO may appear earlier on your journey than you may expect. For instance, you may have turnover of over $1million and are experiencing growing pains. Perhaps you would like to grow in a sustainable way, or improve the financial performance of your business. Either way, I would say it’s worth exploring how a CFO can help you in your business.

Our unique 12 box model gives a deep dive into each of the areas that a CFO will assist you with.

The CFO Centre

The CFO Centre provides part-time CFOs to SMEs, so you get the experience of a high calibre CFO for a fraction of the cost of a full-time resource. We have years of experience as a Senior Finance Executive or CFO for large corporations. They have extensive knowledge and experience to bring to your business. In addition, with no lock in contracts, we can work with the needs of your business, providing our services 1-2 days a week to as little as one day a month.

As a global company, we have over 850 CFOs in 18 countries, so we really have seen it all! Therefore, the benefit for you is that no matter what your needs, however complicated, you can tap into that global wealth of knowledge at no extra cost. It’s pretty powerful stuff.

Our video on How it Works sums all of this up, or if you’d like more info you can get in touch with us here.

Ways To Find The Cash You Need

January 17, 2023 by lauramills

A lack of cash can not only stall your company’s growth but also place its very existence under threat.

You might think you’re immune from danger because your business is experiencing a high level of growth. Unfortunately, you’re wrong: expansion can exacerbate the problems caused by poor cash flow management. You almost always have to make investments and bring certain expenses on ahead of achieving the higher revenue and cash flow that comes with successful growth.

It is the oxygen every business needs to survive. The stark truth is, without cash your business will be unable to meet its payroll obligations, default on payments to suppliers and creditors (payables), and ultimately cease trading.

Fortunately, there are ways to find cash both from within your business and from traditional and alternative external funding sources.

Look within your company first

While many business owners automatically look to external funding sources, it pays to look closer to home first.

Most entrepreneurs don’t realise there is often considerable funding to support growth from within their own business. That’s because the collection of customer receivables can often be improved through strong credit control and the level of stock holding reduced through improved systems and processes. In some instances, poor negotiation of supplier payment terms means fewer funds are available within the business to support scaling up.

So before you pick up the phone (or click your mouse) to apply for external funding, consider the following methods for freeing up cash within your business.

Declutter

If the business has the machinery, equipment or large amounts of stock that is idle, consider selling it or renting it to other businesses.

Remove unnecessary overheads

Look at all your overheads to see if they can be lowered. For example, consider reducing staff numbers, or not replacing employees when they leave or moving premises to get a more favourable lease. Review the effectiveness of your marketing and advertising spend as well as your insurance premiums, power arrangements and telecommunications.

Negotiate better terms with vendors

Ask for more favourable payment terms from your suppliers. This doesn’t necessarily mean asking for reduced prices but could be as simple as requesting an extra seven days for your payment window, or seeking free freight on minimum purchase volumes.

If your suppliers refuse your request, look for other suppliers who can offer lower prices or better payment terms for the same quality of the product.

Resolve late payment issues

Make your payment terms clear to minimise the possibility of late payment issues. Try to keep to the same terms for all your customers (for example, a 30-day window for payment of the invoice). The exception may be historically poor payers that are placed on COD terms. Get agreement to your payment terms from all your customers or clients. Carry out credit checks on all new customers or clients. Ensure that invoices are issued promptly. Ideally, you should issue invoices by email on the day of completion of the job or project and ensure that overdue payments are pursued.

Get deposits for large projects or orders. Build a deposit (of anywhere up to 50% of the total cost) into your contract for large projects or orders. This is especially important if the projects or orders are likely to involve a lot of resources and time.

That way if the customer decides to cancel the project or fails to pay the balance on the project or order, you have at least recovered some of the cost of the resources and time you’ve already invested in it.

Look for external funding

You should also consider external funding sources to help ease your cash flow challenges. There are a dizzying number of sources to consider, both traditional and alternative.

Apply for a bank overdraft

A bank overdraft has been the traditional form of funding for many businesses. But these days, banks are more likely to try to steer their clients to other forms of debt.

Request a bank loan

The advantage of bank loans is that they are for a set term with regular repayments. Banks also can’t call the money back on demand. The downside is that banks will demand strong security for the loan. For example, a personal guarantee secured on the assets of the business or even the owner’s personal assets.

Use asset financing

Using your assets as collateral for the loan is one of the easiest ways your growing business can get access to quick cash. However, there is a drawback: not all assets are considered equal.

Typically, lenders will only consider assets that they can sell quickly if you default on the loan. Therefore, they usually want high-value assets with a low depreciation rate or high appreciation rate, and which are easy to convert into cash.

Get alternative financing

The alternative finance market includes a wide variety of financing models. These include peer-to-peer lending, crowdfunding and specialist finance providers. Products such as selective invoice finance and invoice trading platforms are offered.

The benefit is that since they have greater flexibility than traditional funding sources they can often offer a faster turnaround on the right deals.

Invoice Discounting

The advantage of invoice discounting, in which banks and invoice discounting companies lend money secured against your debtors/receivables, is that you can borrow up to 80-90% of the invoice amount within 24 hours. So you get the cash flow benefit and the rest when the money is collected.

The disadvantage is that it can cost more than overdraft or loan charges. Therefore, a bigger impact on your profit margins.

Peer-to-peer (P2P) lending

P2P platforms match lenders directly with borrowers so that you can borrow money from individuals. The huge benefit of this is that the rates are favourable and often much better than any other type of lending method. The disadvantage is that you will still have to undergo a credit check and possibly pay an application fee.

Equity-based crowdfunding

People come together on crowdfunding websites to pool money towards a particular venture or idea. In return, they receive an equity share in your business. The issue with crowdfunding is that it’s not as easy as some people make it out to be. It requires months of planning and lots of marketing in order to get people excited enough to contribute money towards it. There’s also the risk that you don’t receive the amount you’re seeking. In which case, any finance that has been pledged will usually be returned to your investors, and you will receive nothing. If you’re successful, there’s the risk you give away too much control in your company. This could have an impact later when you decide to sell the company.

The easy way to raise cash

The finding or raising of cash can be a much easier process by engaging the services of a part-time CFO. For example, The CFO Centre offer the services of part-time CFOs with big business experience. Their knowledge helps you uncover or obtain the cash you need to help your company achieve rapid, yet sustainable growth. They will help remove the fear and confusion from the entire process.

To discover how the CFO Centre will help your company to get cash and scale-up, please contact us here

Photo by Braňo on Unsplash

Where Will Your Business Be in 1 Year From Now?

May 17, 2022 by lauramills

If you want your business to achieve high ambitious turnover growth of at least 20% year on year, you need a business scaling strategy that incorporates a strong vision and a solid business plan.

Helping your small business to grow, to achieve a sustained growth, will involve careful planning and most likely involve taking calculated risks.

You need to think about what you want to achieve. Where do you want to be 1 year from now? You won’t find that easy unless you know your target market and your customers thoroughly, have products and services they’re keen to buy and be aware of the expenses you’re likely to face.

Managing Growth

To manage your company’s growth, it’s critical that you refer often to your business plan and keep an eye on the business’ key metrics, benchmarks and timelines.

You need to make sure that people have actionable activities; things that they can do and which can be measured.

As well as having repeatable processes and measuring your progress on a day-to-day basis, it’s crucial to be able and willing to adapt and be flexible if things change.

Knowing all your Numbers

Besides monitoring KPIs for turnover, gross profit percentage and salaries, it’s also important to establish KPIs for your profit per product and customer profitability.

You need to know whether you’re doing more business with each of your customers than you were doing the previous year, for example. That’s more important than focusing on going out and winning new customers.

Equally important is being aware of your balance sheet.

Other important KPIs are those that relate to your customer conversion rates, your sales profitability, and your working capital

Funding Growth

You also need to have a clear understanding of what’s achievable both in the short and long-term.

At some point, you’re likely to need to invest in the company to achieve the revenue growth and scale your business the way you want.

That might be to cover the cost of hiring of more team members, the training of your existing employees and their retention, or the development of new product lines or services to boost sales.

Like some companies, you might need additional funding to be able to hire in external experts such as the CFO Centre’s part-time CFOs to fill the personnel gaps within the company as it scales up.

You will also have to decide how you will fund the additional resources you need to sustain your growth.

Companies that enjoy strong growth are prepared to employ the right people and to raise the money they need. Sometimes they have even personally guaranteed the loans they’ve taken out on the company’s behalf.

They’re taking well planned, well considered risks.

The more risk-averse often shy away from offering personal guarantees on loans or embarking on mergers and acquisitions that would help to fuel their rapid growth.

Invariably however you do need to borrow money to achieve growth.

Merger/Acquisition Growth

One of the fastest ways to scale your business is to merge with or acquire another business in your market. Or, in the case of retail or hotel/restaurant companies, open new branches in different locations. It could also involve forming a joint venture partnership.

You need to ensure there are alignment and support for the from all the company’s stakeholders. Including customers, senior management, non-executive directors, potential joint venture or merger partners. And your banks and other finance institutions, your accountants, and your immediate team.

The benefits of choosing the right target company for your merger or acquisition can mean your market share and assets increase.

Your new staff may have more expertise and skills than your existing employees.

The merger or acquisition may make it easier to obtain capital if or when you need it.

But this kind of inorganic growth can be problematic. The purchase price for the acquisition can be prohibitive while restructuring charges can increase expenses. It takes time to benefit from the knowledge or technology your company has acquired through the merger or acquisition.

You may find you need to recruit more managers to cope with the increased workforce.

The business may move in a direction you never anticipated. Or the new company may grow too quickly which puts it at greater risk.

Often, the combination of organic and inorganic growth gives you the best outcome. Your company can diversify its revenue base without having to rely purely on current operations to grow your market share.

Three tips to scale your business

Be open minded about taking on investment. Scaling your business will be hard work and you need to find a way to do it without running out of cash.
Conduct market research to ensure people want to buy what you’re offering. It’s got to interest and excite them so much they’re willing to hand over cash for it.
Reward your employees and make sure they understand and are engaged with your vision for the business. You’ve got to bring them on the journey.

Contact us now if you want to learn how a part-time CFO (Chief Financial Officer) can help you to implement the best business growth strategy.

Why Your Fear Of Seeking Funding Might Be Your Biggest Impediment To Growth

September 20, 2016 by Matthew Booth

Are you so wary of debt that you won’t look for external funding to grow your company? Do you still consider the banks to be the only real source of funding?

A ‘yes’ answer to one or both of those questions is a sign that you could be hampering your company’s future growth prospects.

If you are hindering your company’s growth, you’re certainly not alone. Research conducted earlier this year revealed that 78% of the 500 UK businesses surveyed by specialist mutual financial services provider Wesleyan Bank were too wary of incurring debt to seek external funding.

About three-quarters of those surveyed said they had a better understanding of traditional funding options such as bank loans and overdrafts than they did of alternative funding options such as asset finance. A national SME alternative finance survey commissioned by Nesta and the University of Cambridge found that only 9% of respondents had approached an alternative finance provider.

The so-called alternative funding market is growing rapidly, and in the UK alone has more than doubled in size year on year from £267 million in 2012 to £666 million in 2013 to £1.74 billion in 2014, according to the ‘UK Alternative Finance Industry Report’.

Sean Read, Director of Sales & Marketing at Wesleyan Bank says, “Without external finance, many SMEs are stilting their chances of prospering and fulfilling their ultimate potential.”

That’s because funding—whether through debt or equity— is often the catalyst for taking your business to the next level. Without it, you’re likely to stay where you are now or worse, stagnate.

Nowadays, there are many options for both equity and debt financing to consider. There is also the option to combine both debt and equity in a funding mix to provide the capital base for long-term growth and the working capital to support working capital requirements in the business.

While there’s a vast array of options available—including some that can provide funds within days—figuring out how to access these funds can be a very time-consuming, frustrating experience, even for the most seasoned business owner.

Worryingly, the Wesleyan Bank research revealed that many SME owners turn to the internet for advice about funding options rather than speaking directly to banks or independent funding experts. While the internet does provide some accurate information, it is just as likely to offer information that at best is outdated and, at worst, wildly off-the-mark. Following such unqualified advice is likely to be disastrous for your company.

After all, raising funds is critical to your company’s future growth. As such, it should only be managed by those with substantial experience and knowledge of the strategic funding market.

Typically, that person will be an CFO. And there’s the rub, for as an SME, you probably don’t have a full-time CFO with the necessary experience in fundraising to manage the process for you. So what can you do?

You can hire a very experienced part-time CFO to manage the entire process for you. He or she will manage everything from determining your immediate and long-term objectives to finding the right kind of funding partner for the business. You can watch a 3-minute video here which explains the part-time CFO model.

At the CFO Centre, our CFOs have sourced more funding (over £5 billion) for our clients than just about any other company in the UK. We will provide you with a world-class CFO with ‘big business experience’ to manage your strategic funding process for you and we’ll do it at a fraction of the cost of a full-time CFO. It’s the business equivalent of having an Olympic coach to help your business thrive.

To find out more about your funding options, just book your free one-to-one call with one of our strategic funding specialists—just click here now.