Raising the cash

It may sound obvious but businesses need money. They may need it to increase working capital, especially when taking on new orders. Or they may need cash to fund growth or acquisition projects. Sometimes they need it because they are losing money. There are several ways in which you can generate more cash.

Increase your profit margins.

The first and easiest route to raising funds may be to try to make more money yourself by increasing your margin. In this way you increase your profits without increasing your workload and hence cash requirements. If this is not feasible, consider appropriate external funding:

The bank overdraft

Bank overdrafts are ideal for short-term funding, reflecting factors like the seasonal pattern of your business's trade. Yet many people use these as a long-term borrowing requirement. This is a bad idea because overdrafts are conventionally 'on demand' facilities; the lender can legally withdraw the facility any time. However, they are unlikely to do this without good reason, and only then after discussion with you.

Factoring.

Factoring is where an agent, the factor, pays you up to 80% of the value of agreed invoices as soon as you raise them. The factor is then responsible for collecting payment from your customers. Once the invoices have been paid, the factor pays you the remaining 20%, less a service charge and interest on the 80%. Research shows that factoring speeds up invoice payment by 20 days, producing savings in bank interest while injecting working capital into the business. It also saves you the time-consuming and sometimes awkward task of chasing debtors but it can be an expensive alternative especially to independent pharmacists and should be examined very closely before any commitment is made.

Discounting.

Discounting is like factoring, except you retain responsibility for credit control. When you raise an invoice, the discounter pays up to 80% immediately. You then collect the debt and repay the discounter, plus a small service fee and interest.

Bank loans.

Bank loans can be used to finance new assets and meet long-term capital needs. The advantages are that you know exactly how much you have to repay, when and for how long. You are able to negotiate the repayment terms and interest rates - fixed or variable - to suit yourself.

Small Firms Loan Guarantee Scheme.

The Small Firms Loan Guarantee Scheme (SFLGS) allows banks to lend money to new and existing businesses that have a viable business plan but lack the personal or business assets necessary to secure normal borrowing. Under the SFLGS, the government guarantees the lending bank against default by the borrower. The application process is the same as for a standard bank loan. The size or line of your business may affect eligibility for this type of funding.

Local funding.

Your Business Link, or national equivalent, has an on-line database to help you identify funding schemes particular to your locality.

Venture capital.

Venture capitalists are professionally run fund management companies prepared to give potential high-fliers significant backing. They invest rather than lend money. They commit themselves to you long-term, often with open-ended investments, in return for equity in the business, probably a seat on the board, but no other security on their investment. They usually invest in businesses with a solid track record - typically ones that have traded for at least three years and are turning over at least £1m.

Submit a business plan.

You will need to submit a detailed business plan showing your plans for the next three years at least. This must convince the investor that you, your management team, your company strategy and market position can take the business into a higher sphere. Your bank manager should be able to put you in touch with venture capitalists. Beware, though, that you don't give away too much equity or you could lose control of your business in the long run.