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Tips, advice, and information for South African business owners

10 Feb

Unlocking Hidden Cash For Funding

Credit assessments for asset finance and growth capital cover a wide variety of factors, but the strength of an applicant’s balance sheet is nearly always critical to getting any deal done. Unfortunately, a lot of SMEs lack strong balance sheets due to their small size and limited trading history.

There are many different ways to motivate an asset finance application, but the easiest and most direct approach is to simply inject more equity into the deal with a sizeable deposit. While it may be possible to raise the capital for this as a separate transaction, we’ve found that many business owners overlook how much cash is hidden in their business.

Case in point: we recently helped a retail & wholesale client free up over R1 million from their inventory without compromising their sales fulfilment. In fact, by simply optimising their stock controls, we successfully halved their stockout rate while simultaneously slashing the amount of inventory that they needed to hold.

Not only is this client making more money (by minimising lost sales due to not having enough stock on hand), they’re also free from the headache of a ballooning inventory book. And that R1 million in free cash can go a long, long way towards raising additional growth capital.

Debtor and creditor accounts are another common cash constraint in many growing SMEs. Most business owners don’t do a very good job of managing their working capital and end up playing banker for their customers and suppliers. Renegotiating trade partner terms can take time, but the judicious use of specialist working capital facilities can generate substantial short-term cash gains.

It’s easy to scapegoat a perceived lack of access to finance. But if small business owners bothered to manage their invested capital better, then they would probably discover that:

  1. Raising capital becomes a whole lot easier; and
  2. They no longer need as much funding as they thought they did.

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