There are several factors that can cause a disruption to cash in a business. Some classic examples are longer seasonality, customers taking longer to pay, a rapid growth in accrued sales, natural disasters or even the topical pandemic...
Not only can an unexpected shortage in working capital lead to emotional and financial stress, it also leaves you with a lack of capital to cover payroll, cost of goods for new client orders, additional marketing or time sensitive equipment purchases, that may help boost your business during peak seasons.
A missed client opportunity, or simply not being able to pay staff, could have severe business consequences - from missed income to expensive lawsuits, causing further damage to your business.
Australian entrepreneurs and business owners tend to strategically plan ahead. But with so much going on with business and at home, even the most astute business owners can miss making important decisions!
The more risk you remove from your day to day operations, the higher the chances your business can survive and avoid becoming another statistic. Having a cash preservation plan is vital!
Not every business is prepared, and many that are prepared have taken some recent hits with investor money having to be redirected to keeping the business afloat over the last 18 months.
Having self funded working capital is a nice place to be, however it is not something that every business can achieve. This is where a disciplined approach to alternative forms of capital can keep a business on a growth trajectory.
We recently had a scenario with a Sydney based engineering consultancy. Their safety and auditing business was growing rapidly, and were struggling to keep up with demand. This was despite the lock downs experienced during the 2020.
The growth opportunity required an increased investment in field engineers to be able to keep up with demand. The work was project based, so they would not receive material revenues until the milestones within the contract were achieved.
The biggest problem they had was finding the additional engineers, and fast to be able to fulfil the contract demands.
They engaged the services of a Sydney specialist Recruiter that focused on the engineering sector. With the targeted niche service offered by the Recruiter, they were able to quickly find the necessary talent. The problem then became about how to pay the placement fees of the four (4) experienced engineers. As a small to medium business, cutting $80k upfront for placement fees was not the preferred option, particularly as contract revenue was in the future.
Fortunately, they were able to take advantage of Procuret, our online buy now pay later payment solution that was offered by their Recruitment Agency.
Other businesses are not so lucky, and the ones that do have access to a number of capital sources, may prefer to invest their cash in diversifying revenues, particularly in uncertain times.