Keeping your business funded and operational will always be a top priority. This is your baby, after all, and you want to make sure there’s always enough cash in the kitty. But when you end up regularly having to use your own money to bail out the business, it’s time for a rethink.
74% of business leaders have had to use their own personal finances to support their business. That’s the response we got from the business leaders who took part in our recent Get Fit For Business report. Dipping into your own cash may seem like your only option when money is tight. But the reality is that there are plenty of other routes to available funding.
The challenge of unexpected cashflow holes
Circumstances can force your hand when you’re running a business. A large unpaid client bill, or a steep hike in the price of raw materials can suddenly cause a cashflow gap to appear. And unless you have enough cash reserves, this can quickly cause a financial problem.
Although the temptation is to take money out of your personal account, this can have repercussions. Of the leaders who had used personal cash, 57% found that using this money caused problems with their personal relationships. When you and your partner or family end up arguing over money, that’s an additional headache that you can do without.
So, how do you overcome the need for breaking into your own piggy bank?
Prevention is better than cure in the world of funding
If you want to keep in control of your cash position, it’s crucial to keep a close eye on your numbers. The more insight you have around your cash position, the more you can do to avoid any sudden unexpected funding needs. With a proper business plan that’s aligned to a funding strategy, you shouldn’t need to dip into your own finances at all.
Today’s all-singing-and-dancing online accounting tools have made it easier than ever to keep on top of your main numbers and financial metrics.
Use your finance systems to:
Track your operational spending, so you know what your cash outflows will be
Be aware of prices changes in your regular supply chain, so you’re not caught out
Plan your growth spending and measure performance against the agreed budget
Project your revenues forward, so you know how much cash will be coming in.
If you can track your spending and have an informed idea about the money coming into the business, there shouldn’t be too many surprise cashflow gaps along the way.
Talking to your accountant about funding
Even with the best possible planning, unexpected costs can pop up. For example, none of us expected the unpredictable cashflow ups and downs of the pandemic. But when you do have a need for extra funding, it’s a great idea to talk to your trusted accountant.
Increasingly, your accountant is the go-to adviser when it comes to funding advice and access to the best possible financial products. They know your business inside out and they also know your personal plans and the planning you’ve done to manage your own personal cash. Next time you catch up with your accountant, make sure that funding is on the agenda.
Open up about your funding needs – explain your plans for the business and the opportunities and threats that you’re facing. You might need a short-term cash injection to sort out your operating cashflow. Or you may have grand plans to scale up and will need extra growth funding to get things off the ground. The more honest you are about your funding requirements, the more your adviser can do to help.
Talk about protecting your personal wealth – you’ve worked hard to earn your money. The dividends you’ve earned have come about through hard graft to make the business profitable. So, you want to make sure that this cash isn’t sucked back into the business. Talk to your accountant about the right tax planning for this personal wealth and how you can ring-fence this money for your own personal projects and family requirements.
Talk about working capital – working capital is the cash that keeps the lights on in the business. Having enough capital means you can cover your operational costs and can pay your staff’s salaries. It means you have the funds to expand and grow. And when there’s capital in the business, there shouldn’t be a need to break into your personal cash. Your accountant will be able to produce management information and capital reports that highlight the health of your capital position.
Forecast the future path of your cashflow – cashflow can be hard to predict, especially during challenging economic times. Forecasting tools, like Float or Fathom, let you project your cash numbers forwards in time, so you can see where the peaks and dips lie. When you can see that there’s a potential cashflow hole in the next quarter, that gives you plenty of time to prepare, take action and get better funded. And that’s without any need to bring your personal wealth into the equation.
Dive headfirst into the world of funding – choosing the right financial products from the ever-evolving funding landscape can be challenging. 50% of the business leaders we spoke to don't know which finance options are the best fit for their business. This is where a chat with your accountant can start to open new doors. Their knowledge of the funding market makes it far easier to pin down the best financial products. And with their access to a wider network of lenders, you know you’ll get a far better deal on any lending.
Capitalise for Business: your route to more funding options
If you want to get in total control of your finances, Capitalise for Business is your one-stop shop for managing your capital position. Rather than running your finances on a wing and a prayer, you can get the best possible overview of your credit, capital and cashflow. And that means no more borrowing from your personal savings to get the business out of trouble.
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When you’re in control of your finances, your personal cash can stay safely in your savings account. That’s good news for your business, your wealth management and your future goals.