So you are ready to start your business. The plan is written, the suppliers have been sourced and the customers are primed and ready to buy your wares. They are impressed by your offering and want to place an order. So far so good. The suppliers are ready to start work on producing the goods and want a payment up front of 50% of the order. You have planned for this and pay the supplier. When they are ready to deliver the goods they want their final payment, which is cash on delivery (COD). You were going to pay this with the revenue paid by the customer. But the customer has negotiated payment terms. You will not be receiving anything from the customer for 30 days. You cannot finalise your payment to the supplier who will not deliver until they are paid, and the customer will not pay for goods not received! What now?

This is a hypothetical example, which cannot happen because you have prepared your business plan that includes your cash flow statement. This takes into account the delay of payments from the customer based on your negotiation of terms.

Or have you?

The cash flow forecasting is a critical part of the planning process, as it will highlight where the financial holes are. Identifying where the business is cash flow negative allows time for a considered approach to assess how to overcome these financial holes. This usually results in organisations looking at capital raising. Early preparation gives time to review capital raising options rather than accepting anything at the last moment and then being beholden to something that in the longer term is unsustainable.

Your cash flow analysis will highlight what the shortfall is and when it will occur. It is likely that the extra funds will be required at times when the net outflow of cash is high such as end of month when bills fall due or when placing large orders on suppliers. So what are the possible sources of this extra cash?

  1. Delve into your savings and use the Business’ Cash flow

Use your savings. Also, by retaining your profits within the business, provided you are cash flow positive, these monies can be used to reinvest in the business. The upside is that this is low risk. You don’t dilute your equity or take on costly interest repayments. The downside is that business growth is slower and your competitors may use that time to grab market share and entrench their position.

But what if this is not enough? What if the financial hole is bigger than what you and the business can cover? The following options then become relevant

  1. Debt Funding (eg Bank Loans)

This is the most expensive option and will often involve mortgaging something eg the family home. You will want to have enormous confidence in your business model, as the consequences of failure are dire. Currently the actual cash rate is low, however, the rate for SME’s is high and if you haven’t got property for security or a guarantor, you’re effectively at credit card interest rates. And that’s if you can even get a loan.

  1. Angels

Start-ups often tap into the angel investment networks and find high net-worth individuals to invest seed funding. Perhaps you have a family member of high net worth who is interested in helping out. The key is to have a great business plan that tells a compelling story that means investment in your business is a “No Brainer.” That said, there will be a cost. Perhaps some ownership of the business needs to be shared. It can be the start of a beautiful relationship or the start of a nightmare. And remember if friends or family are involved and the venture goes pear shape, family & friends are more than your “9-5” business partners.

  1. Private Equity

Fundraising from private equity investors can be a good option if you can pull it off. In this day and age private equity investors are choosy because they are seeing many opportunities and can take their pick of the best investment options. Again to be successful here, you need to have a great business plan that tells a compelling story.

An added advantage of private equity is if you can get the deal, the equity team will supply more than just cash. You’re also likely to get an advisory board and a network of people who can add value to the business.

  1. Crowd Funding

This is where projects are listed on sites allowing the public to fund particular projects. The reason “The Crowd” have for contributing might be altruistic or to acquire rewards predetermined by the business owner. The challenge here is to manage the potentially large and diverse stakeholders

If your business is established and you are looking for funding to grow you business and the above options are not viable or cannot deliver the required funds then there a 3 other options:

  1. Merges & Partnerships

Some companies might get a better result from merges or partnerships. This is cash free and can lead to new markets for existing products. There is also opportunity to plug business gaps such as management competencies etc. through this activity. This type of fund raising is not easy and requires businesses of like-minded people to be successful. If it works out the synergies can be such that the sum of the whole is greater than the sum of the parts!

  1. Initial Public Offering (IPO)

This is the listing of the company on the stock exchange. An IPO can be an effective means of raising capital for corporate ventures. Positives are money available to grow the business as a result of cash derived from the sale of stock, opportunities to raise more cash through further offerings, potential to have access to debt equity at cheaper rates and better negotiating positions with stakeholders. The downsides are the process is expensive, complex and time consuming. In the time taken to list, market conditions can change causing a different outcome to that planned. Further the pressure to continue to perform once the IPO has been completed can cause many unplanned and unexpected outcomes for the business and the management team

  1. Sell the business

As stated in a previous blog, business owners may grow their business for a myriad of reasons. One of those might be to grow their business to a point where they can sell it profitably to fund their next venture. This is a low risk option but assumes that there are interested buyers. The key here is to have a business that appeals to cashed up buyers. The added advantage of this option can be that usually the business owner will be asked to stay on to help bed down the acquisition, meaning an income for the owner.

None of these options are possible without a good business plan, strong financials and a competitive advantage that is sustainable. But then if you have been following my posts, this will be self-evident.

Please contact Robert Carter on This email address is being protected from spambots. You need JavaScript enabled to view it.  if you would like to discuss any of this, would like some further insight into Business Plans or would like to undertake a review of any part of your business using my 16 Point Checklist.