Raising Capital

Recently I was discussing with one of  our clients as to whether they needed investment or not and I realised very very few of our clients started their business with outside investment. Before you go looking at raising capital I would strongly suggest looking at the following.

 

  1. Can you adjust the business model slightly to allow bring in revenue sooner, I know some IT Entrepreneurs who consulted for other businesses during the start up phase to provide working capital for their own business. This left them with no investors, no outside pressure and really incentivised them to get their product to market sooner
  2. What do you want the investment for? Sometimes business owners expect to need a lot of cash to start up, Often you don’t. For example we have assisted one of our retail clients to get 12 months rent free on premises. This reduces their need for investment.
  3. Can you get it? Before spending months on a business plan which requires investment do some research and see is investment achievable. The banks are still not lending and outside investors are few and far between in Ireland
  4. Can you work with an outside investor? By their very nature entrepeneurs like doing their own thing, Investors want a return on their investment, Nothing else.  Richard Branson floated Virgin on the stock exchange , had a few stressful years and then bought it back.

 

 

If your looking for Inspiration CraigsList was bootstrapped and showed revenue of over $100M in 2011.  Threadless was started with an investment of $1000 and is now worth $40M

It can be done!

 

 

Reducing Debtor Days – 10 Ways to get paid!

Reducing your companies Debtor Days will improve cash flow, reduce the risk of bad debt and decrease financing and interest costs. So there’s a lots of reasons to do it! But how?

  1. Improve the flow of documentation. If you are presently raising invoices once a week consider raising them once a day. The faster your debtors have them the faster they can pay.
  2. Go digital! If you must have proof of delivery dockets or signed invoices scan them immediately and your time spent filing and finding dockets will be reduced by up to 80%, This will allow you to provide the documentation your customers need fast as well as reducing the write off’s from missing documentation. Do My Books have an IT partner who provides an excellent scanning solution. Contact us if you need further details.
  3. Keep track of what your doing. Every time you contact  a debtor by phone or email  log the communication  in your accounts or CRM package. If you don’t have one or don’t know how to do this contact us we’ll help you out. This will allow you to see the debtors  you are spending too much  time calling and if you are not around it will allow your partners and colleagues to see who you have been calling.
  4. Offer a settlement discount. If you are paying large overdraft interest rates it may be beneficial to offer your debtors a small discount for paying within 30 days say 1.5%.
  5. Email Statements. I’ve been in so many offices and seen people trying to fold, envelope and put stamps on 500 statements. WHY? Email them to your debtors save at least 55cent on each statement from  postage let alone time spent, printing and paper. You will also have an electronic record of when the statement was sent so it cant get ‘lost in the post’. Use technology work smarter! If you don’t know how to email statements again Phone us we can help you SAVE!
  6. Badger people. This is unfortunate but it works. If a debtor is slow to pay you have to badger them, Phone ever day don’t stop until you have been paid. You might be frightened of loosing a customer but a sale isn’t a sale until its paid in full.

    Cash flow Debt Collection - Badger People

    Sometimes in credit control you have to badger your debtors!

  7. Work fast. There’s no point in chasing a debt for two years  to find the company has gone into liquidation . If your not having any luck in collecting a debt go legal as soon as possible.
  8. Monitor the situation, Calculate your debtor days monthly and watch them very carefully. If you don’t they can easily get very high very fast.
  9. Call in person. This is not pleasant but it works. Tell your debtor your passing by so you’ll call in to collect the cheque. They wont like it but it often works
  10. Incentivise your staff, If you have sales people working on commission hold back a percentage of their commission (or it all!) until the invoice is paid. This will give them an incentive to get involved int he debt collection process.

Without a doubt 2010 will be a though year for Irish SME’s but by working smarter you can ensure your business not only survives but thrives!

If you need any advice on your software, processes or generally debt collection feel free to contact Ralph for a free consultation and business review on.  We can also provide training on improving your debt collection process.

hello@domybooks.ie 0863336665 or 091 -442 882

Will your business survive 2010?

Almost every business owner I speak to at the moment is having issues with their cash flow and unfortunately more business’s will fail in 2010.  You can have thousands of great customers and make huge profits but without cash flowing through the busines it will fail. Despite what the advertisements say Banks are still declining lots of loan/ overdraft applications so micromanaging  working capital is critical.

Firstly what is working capital? Working Capital is loosesly regarded as: Current Assets – Current Liabilities

Managing working capital involves ensuring the business remains liquid by balancing the  need to keep  adequate cash to meet obligations on one hand and on the other hand  not being too conservative and utilising the available funds.

Sounds good but how can we do it, Most important is the matching concept (sounds exciting doesnt it) This means long term assets (fixed assets: Buildings , vehicles ect..) must be financed by long term funds, (Debt/ Equity) , Short term assets can be financed with short term funds (Creditors/ Overdraft).

Mis-matching can have lead to serious issues, for example if a long term asset is purchased using an overdraft, The overdraft may expire due to a change in circumstances. This could have disastrous effects for the company.

Working capital management is crucial to liquidity. To assess the liquidity of a company we can use the current ratio:

Current Ratio= Current Assets/Current Liabilites

The ‘prefect/ideal world (never happens!)’ current Ratio is 2:1 so even if the current assets halved their would be funds remaining to pay creditors but presently in business in Ireland 2010 any figure above 1.5 is very healthy. If the current ratio falls below 1:1 there is likely to be serious liquidity issues.

If you would like a free consultation on your companies cash flow situation please email me at:
cashmanagement@domybooks.ie

This is the Blog of an Accountant based in Galway providing Bookkeeping services and accountancy software