Your business: Working Capital issues and how we can help

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When businesses approach us for advice regarding capital raising, we frequently find that companies start seeking help when they already have serious cash flow or working capital issues.

Working capital refers to the funds available to cover day-to-day operational expenses and short-term liabilities. If a company's current assets (e.g. cash, accounts receivable, inventory) are not sufficient to cover its current liabilities (e.g. accounts payable, short-term debt), it may indicate a working capital problem.  

Some of the common signs of having problems with cash flow include:

  • Outstanding Australian Taxation Office (ATO) debts;

  • Receivable collection issues;

  • Payables being greater than receivables;

  • Struggling to pay suppliers, staff or superannuation payments on time;

  • Struggling to service debt payments, or increasing debt amounts;

  • Margin erosion; and

  • Being in a loss-making position.

Having an ATO debt means that the business is financing its daily operations with cash that should have been paid to ATO.  As you can imagine, this is a big red flag for banks and other debt providers.  Quite often lenders will not provide credit to companies that are in “default” with the ATO.

There are immediate actions that the company should consider taking to assist cashflows and receive funding:

  • Seek professional advice and assistance from a corporate advisory firm and take proactive steps to address the situation;

  • Cut unnecessary costs and divest unproductive assets;

  • Collect outstanding receivables. Again, be proactive, talk to the company’s clients and propose payment plans. Collecting cash is cheaper than getting into further debt;

  • Start building cash. Have an emergency fund for your business, taking into consideration its recurrent expenses and potential tax on future profits;

  • Reduce the receivables payment cycle for new invoices issued and manage the credit cycle;

  • Reconcile and manage your business’ cash flows at least weekly;

  • Ensure the company is paying the right people at the right time and manages its supplier relationships.  

As the company is taking these actions to improve cash flow, we suggest implementing these further actions:

  • Consider short term financing.  Replace high-cost lenders with lower cost lenders. Shop around and refinance the company's debt;

  • Consider other possible types of lenders like personal loans or loans from shareholders;

  • Consider raising equity and offer shareholders the chance to hold more equity;

  • Look for ways to increase productivity and increase and diversify sales;

  • Develop projections based on scenarios with timings and cash flows to better inform business decisions.

These actions seem quite simple to implement. However, each company has different processes and needs, therefore the execution of these steps is critical.

Funding Strategies' sister company BlueMount Capital is an experienced corporate advisory firm and assists companies with strategy and structure, corporate advice, raising and negotiating finance. Our team has more than 10 years of experience tailoring strategies for all sizes of companies and has deep industry and counterparty experience that we can leverage. BlueMount Capital can assist with creating a roadmap and execution plan to assist companies to address these issues. For more information, please visit Debt Solutions | BlueMount Capital.

We are here to help.  Please contact us for more information.


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