Four ways to get a cashed up start-up

Cash is the life blood of every business. You need it to pay your expenses, invest in growth, fund development and keep things going while you wait for the cash you’re owed to flow back into the business.

Unfortunately cash isn’t available on tap for SMEs. If it were, many of our worries would be removed.

However, there are multiple sources of cash available and most SMEs could do more to take maximum advantage of them.

Given that it is vital to all business activities, it’s important that every business has a funding plan.

A funding plan should achieve a couple of key things:

1. Reinforce and support the vision and strategy of the business.
2. Articulate specific funding goals for the short-, medium- and long-term and specify your expectations of what you will achieve when you have spent your funds.
3. Set out the dollar values needed, when and where they will be directed.
4. Identify and assess your funding options and match them to your goals.
5. Consider the key strengths and threats that would impact your ability to obtain the funds.
6. Set out an action plan with priorities and responsibilities.
7. Incorporate tracking mechanisms like a cashflow forecast and budget.

With your funding plan in place, you can start working on finding those additional funds which may come from the following four sources:

1. Grants and tax concessions

There are over 600 grants offering more than $50 billion for business, though most business owners are unsure about how to access them or are concerned applying for a grant will be onerous.

This perception isn’t typically accurate when you consider that you don’t have to give up a share of the business to access grants and you generally don’t have to provide a specific return on the investment, repay the grant or pay interest on it.

In our experience, most businesses are eligible for three to four grants, making research worthwhile to indentify the ones you can use to supplement the cash your business needs.

Grants are usually geared to be directed to a specific type of activity such as starting a business, development or commercialisation, improved productivity and competiveness, innovation, meeting the staffing costs of attracting and retaining the skills or management talent a start up might need, pursuing export markets, introducing new products and services, or can be based on industry or geographic location.

Some grants are prospective and awarded for a future investment such as to assist researchers, entrepreneurs and innovative companies turn intellectual property into successful commercial ventures.

Grant values for these activities can range from $10,000 up to $2,000,000+ and sometimes include in-kind support provided by experts and mentors that are a source of knowledge, experience and expertise you can also draw on.

There are also retrospective grants where you apply to recoup expenses already incurred.

One such grant is the Export Market Development Grant, where you claim up to 50% of export promotional activity expenditure.

Grants range from $5,000 up to $150,000 and are awarded to aspiring and actual exporters who meet the selection criteria.

Applications for EMDGs close November 30 so if you’re a business looking to export or that is already exporting, you should seek advice or investigate this program as soon as possible.

In addition to grants, tax concessions also provide an opportunity for businesses to recoup some of their expenses or offset losses to their advantage.

Tax concessions are claimed at the time of submitting your tax return.

They are best handled in conjunction with an accountant that understands how they work and what planning should be put in place, to maximise your claim to support your business strategy and needs.

2. Debt

Bank lending can be used to provide the funds for additional working capital, investment in the assets and growth of the business, enabling the purchase of commercial property, buying or leasing additional equipment or vehicles or to support the establishment or investment in pursuing other business interests.

There are also special purpose loans available such as inventory finance, debtor finance, insurance premium funding and import finance.

You can maximise lending by having a sound financial management approach, planning ahead and being proactive with your needs.

This means thinking about the entire year ahead and setting out all your lending requirements, rather than treating lending as a single transaction and being reactive when the need for cash arises.

Bank managers respond best to a collaborative relationship, rather than a cry for help, if you can’t find the cash to pay a significant supply order or even worse your tax bill.

You can build credibility and enhance your bank relationship by:

• Understanding the key indicators banks focus on when lending.
• Clearly articulating your current financial position.
• Forecasting your funding requirements for the whole year and beyond at a macro level.
• Explaining the specific need for finance.
• Outlining how that finance will enhance the position of your business.

When you have a loan in place, it’s important to consider changes in your financial position and needs from time to time, as well as movements in interest rates and lending products available. This ensures your facility is still working hard to best meet your needs as they evolve.

Remember bank finance needs to be paid back and with interest. Cashflow forecasting is essential to ensure you can meet those commitments.