Smart Alternatives to Raising Capital - MBP Advisors + Accountants

Before you go down the path of seeking capital from outside your business or borrowing funds, identify any other ways of raising capital. If you need funds then sometimes it’s not a loan that you need.

Identify areas in the business to make savings

There’s a good chance that you can generate at least some of the capital you need by using business savings. If you can generate the cash internally, it’s often a better option that increasing your debt or taking investors on board. Look at how much you’ve got available in cash reserves or what contracts or payments are due.

Then look at ways you can make savings and increase your cash flow, such as selling equipment you don’t use very often (and leasing it when you do need it), cutting down on travel expenses, moving some staff from full-time to part-time roles, re-negotiating deals with suppliers for better credit terms and reducing your own salary.

It’s also important to chase up any late payers. Make sure you have robust systems in place for handling debt and collecting what you’re owed.

You’ll be surprised at how much all these savings can add up, generating more cash in the business that can be used to reinvest in business growth.

Shorten Cash Cycles

Shortening your cash cycle will increase your cash reserves, keeping your business going and providing a buffer in times of financial uncertainty. The longer your business goes without cash, the longer it takes you to pay your creditors, and the riskier your business becomes. Encourage your customers to pay using online and mobile payment options – the cash is then in your account immediately. If you have to invoice, do it immediately and incentivise your customers to pay early, such as offering discounts. You can also shorten your credit terms.

Focus Your Attention on Sales

Increasing sales is one of the best ways to improve profitability and bring more cash into the business. There are a number of different ways you can improve your sales numbers, such as making sure you and your staff are all trained in how to cross-sell and up-sell, investigating new distribution channels like an online store, implementing a professional sales system so that you can track customer buying behaviour and predict their needs, or even look into franchising your business if demand warrants it.

It’s important to remember the 80/20 rule: 80% of your sales will come from 20% of your customers, so look into ways you can sell more to your existing customers while still trying to gain new customers through your marketing strategies.

It’s always worth considering a price increase too. There are ways to increase your prices without losing sales, and it’s something that should be done now and again, even if it’s just to keep up with inflation.

Alternatives to Capital

Before you jump into researching the different sources of capital that are available, first consider the alternatives. It could be that, depending on what your growth goals are, you don’t actually need extra capital, you just need to be thinking a bit more creatively.

Raising Capital to Grow Sales

If your main goal is to increase sales, you don’t always need extra cash to be able to do this. There are other options that can help your sales numbers and it’s worth looking into them before you go borrowing money.

Strategic alliances are often worth checking out. Business owners are increasingly discovering the advantages of joint ventures and strategic alliances and many experts see strategic alliances as one of the best paths to rapid growth. There are many ways in which you can work with other businesses or people, ranging from short-term joint ventures to more formal long-term commitments. You can form strategic alliances with suppliers, with customers or with complementary businesses or with non-profit organisations such as charities. Think of how often you see a Subway attached to a service station.

It might also be worth looking at updating your business model. A change in your business model might help you find new opportunities for growth to increase your business’s revenue. Direct selling is the shortest route between your business and its customers. It involves buying directly from you without any go-between. It’s probably the simplest and certainly the most direct business model.

Like many businesses, you might currently sell some items through the web but is it time to make a bigger investment in the online world? Global e-commerce is rising daily and the opportunities for growth are significant.

Whether you want your goods distributed widely through wholesalers or via carefully selected retailers, the tweaks you can make to your distribution channels are almost limitless. If you’re a retailer, you might consider also selling at the wholesale level, and vice versa.

Raising Capital to Expand

Your goals may be more focused on expanding your business and you’re considering how to increase your capital to do this. Before you borrow the funds you need, consider other ways of achieving expansion.

For example, look into leasing equipment instead of buying it. If you want to boost your capacity so you can handle more orders, that doesn’t necessarily mean you have to fork out for the additional equipment you’ll need – you can lease it. The monthly lease payments are often less than what loan repayments would be. You can also lease equipment only when you need it, rather than having it sitting around gathering dust and being unproductive when you don’t.

It’s also worth looking into contracting out some work, especially for large projects. Contractors will often have all the resources they need to handle work, and when you bring them on board you’re getting access to those resources.

You could also consider forming partnerships to jointly produce your goods. For example, if you manufacture coffee tables, you might align your business with one of your suppliers, making it cheaper to get the raw materials you need.

Talk Through Your Options for Raising Capital

There is a lot to consider when looking at raising capital. To talk through all your options, get in touch with an MBP Business Partner. You can book in a free 30 minute chat with us HERE.

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