Get your house in order before seeking finance, and you may not need it!

Before looking for capital from external sources, it is paramount to ensure you are already managing cash effectively within your business. If you do end up seeking external investment, demonstrating good cash management is a huge plus when talking with potential investors, in particular building their confidence on the competence levels of the management team in place.

It all starts with ‘cash-flow’. Review (regularly) what’s coming in, what’s going out in order to optimise your cash position, particularly in a growing businesses where spend can quickly spiral out of control, unless monitored closely. You need to understand the working capital requirements to operate and grow sustainably and also to ensure that you don’t overtrade. This should be managed by focusing on a few key areas as follows;

• Have a robust invoicing and collection process. Invoice in a timely manner and follow up to ensure you are paid within agreed terms. Setting up automated payments through direct debit will enable forecasting more reliable cash inflows
• Look at supplier contracts to determine whether you can get extended credit, or a discount for prompt payment
• Look at your capital expenditure and understand the cashflow implications of outright purchase vs operating leases or hire purchase contracts
• Review stock and work-in-progress (WIP) levels and ensure you’re not holding onto excess stock – cash tied up in stock can be hampering your business, (not to mention it is likely to increase your insurance premiums due to the additional risks associated with doing so).

These are just the basics to get you prepared for taking on investment and/or debt, but should also be part of your everyday business operations – especially once you’re under the microscope of an investor – it’s important to consider other ways of improving your cash too….

R&D tax credits and The Patent Box
As well as getting your cash-flow and working capital in order, make sure you’re not missing out on government initiatives such as R&D Tax reliefs which were introduced to encourage innovation and reward businesses for it.

Businesses spending money on creating or appreciably improving existing products, services or processes which incorporate or represent an increase in overall knowledge or capability in a field of science or technology could be eligible for a sizeable reduction in their Corporation Tax and / or a cash payment to reward their investment.  Relief for SME’s is currently equivalent to between 21.5p and 18.6p for every £1 of qualifying expenditure depending on profitability. R&D Tax Credits can not only provide a cash boost to your business, but will again demonstrate good practice for an incoming investor or lender. You can find out more here.

Get rewarded for your patents
If you hold an EU or GB registered patent, have undertaken R&D development activities in relation to the patented invention, and have profits arising from the sale or licensing of the patented product then you may be eligible for patent box relief. The relief can provide an effective 10% rate of tax on profits arising from patented products/services providing a 15% tax saving for corporate entities that are eligible. You can find out more here.

So, a few things to think about and actions if you’re serious about seeking funding. If you want to know more about how Wilson Partners can help you navigate the business journey, then don’t hesitate to get in touch.