Welcome
To the blog for small and medium sized business (SME) owners.
What is Factoring and Invoice Discounting?
Factoring and invoice discounting enables the business owner to raise finance for the business. This is done through the borrowing of monies against the sales invoices raised that will be settled by the customer after an agreed period of credit.
A significant advantage is that the amount 'borrowed' at any time is in direct relation to the growth of the business. The higher the turnover the greater the sum available through factoring.
The sum 'borrowed' will be repaid to the factoring company out of the monies received when the customer settles the account.
This arrangement may be advantageous to business because it may eliminate the need to seek overdraft extentions to support ongoing business growth.
Learn more on factoring and other forms of funding.
What are the issues affecting many small business owners?
Some common questions and topics relating to cash are shown below:
- What is cash management?
- What does the cash flow terminology mean?
- Invoice queries
- Factors causing cash flow problem to SMEs
- Asset finance terminology
- Credit control process flow
- Finance for equipment
- What are important factors in choosing a bank?
- The benefits of having a bank account
- Sales invoice and cash invoicing
- The impact of lacking loan finance for small business
- How do you manage receivables and credit functions?
- How long does it take to secure funding venture capital?
- Factors to consider when choosing type of finance
- How to control debtors for SMEs?
- How to manage cash shortage?
- What are the ways of securing funding for business?
Do you have any to add?
After you have prepared your business plan, what do you do with it?
Some business owners may file the business plan away, others correctly use it in the management of the business.
The purpose of the business plan is for it not only to be a 'live' document that is updated to reflect changes in the business, but also to be a target against which actual results (financial and non financial) are measured. If the business is well controlled any changes to the business plan should be minor and reflect on going operational changes in the business. Should a complete re-write of the plan be necessary, it may be indicative that controls within the business are inadequate.
Tips: Take control of your business, review your business plan regularly and update as necessary.
Some members of the UK business community have been upset during recent years over the decision by the European Commission to impose metric measurements throughout the community.
That decision has now been reversed and small businesses can now legally sell in imperial units (pounds, ounces, pints etc) and well as in the metric equivalents if desired. The 2010 deadline for full conversation has now been abandoned.
The importance of controlling working capital becomes evident to many business owners only when cash flow is negative and little or no cash is freely available to sustain day to day operations.
To address this situation the reaction may include the robust chasing of all receivable overdues and the delaying of payment to creditors for as long as possible. Work to perhaps reduce inventory levels may be undertaken, but this may not immediately reflect in improving the cash position.
The SME business owner should take steps to safe guard the business position. Plan to avoid cash flow shortages and implement those plans. If the work is outside the skill set of the small business owner - seek professional help and protect your business.
Related Topics
The Benefits of Using a part time FD
Manage your Cash
The DAW Consulting Forum is now live. It is F-R-E-E to join. Seek help or offer business advice to others, advertise your business, and more....
Register Here
For the SME (small business) owner what are the benefits of having a mentor?
How does the SME business owner choose a mentor and how why can a mentor be so important to your business?
If you are a business owner you may from time to time yearn for some guidance to help overcome an immediate or long term issue. A business mentor should offer the experience, independence and committment to provide help in overcoming such concerns through an ability to analyse, evaluate, communicate and motivate the business owner.
Read more on business mentoring.
If the call goes out to 'cut costs' for the next financial planning period , consider the impact that across the board cost reductions may have to achieving the strategic goals for the business.
Tip: Avoid cost reduction in strategically important resources. Consider long term as well as short term goals.
There are many aspects impacting on your business cash flow. However always remember CASH is the lifeblood of your business and every effort should be made to protect your business cash flow.
The 7 golden rules to adopt in control of your cash are:
1 Know your Cash Balance at all times
Sounds obvious but not always actioned by business owners
2 Forecast your Future Cash Flows
Maintain a rolling forecast of your future business cash flow and measure actual results against the forecast and understand reasons for any variance from plan.
3 Take action
Corrective actions should be taken, if possible, to eliminate any variation from forecast.
4. Arrange finance
Do not overstretch your cash position through non financing of capital items
5. Rent not Buy
Do not buy if a renting option is available
6. Manage Your Overheads
Do not waste your cash resource through overspending on overheads. Use immediately what you buy, do not tolerate slow moving materials.
7. Manage your Receivables
Be proactive and avoid slow payers and bad debts.
The communication channels between the business owner and the accountant may not adequately satisfy the concerns and frustrations experienced by both parties.
The business owner may feel inferior arising out of a poor understanding of accounting terminology, accounting systems or legal responsibilities; whilst the accountant may forever be awaiting responses to queries and consequently reacting to situations and forced to complete work immediately prior to the deadline.
In this environment the business bookkeeper may be able to resolve some issues but if deep seated concerns exist that distract from the growth of the business, then professional advice should be sought.
A simple exercise is to check if you are REALLY in control of your business.
Do you know understand all the numbers in your Balance Sheet? Are reasons for lower profits or poor cash flow known?
Take the free Business Health Check today.
There is nothing to lose but much to gain.
If you require further help in this matter please contact DAW Consulting.
The National Business 2 Business Centre recently featured the work undertaken with DAW Consulting Limited. Read the press release here.
