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Business Advisory

The fourth cause of poor cashflow – your debt or capital structure

Posted by: Glenn Sharp on

Often a reduction in interest charges as well as significant cashflow improvements can be achieved with a regular review of existing debt.

A good place to start is to list all bank loans, mortgages, finance company loans, hire purchases, credit card debts, and any other debts (don’t include amounts owed to suppliers in this list). Add columns to cover:

Perhaps your debt can be consolidated, financed by one lender, and paid off over a longer term. This will help you retain more cash in the business which is vital for growth (or even just to cover expenses and your drawings).

Now here’s an important action that you might find a little confronting.

Are the drawings you take from the business for personal expenses placing pressure on cashflow? If so, we might need to look at strategies to lift the profitability of the business. It might mean your drawings are just too high for the business to support right now. The business may need an injection of capital to fund its growth.

Here’s a really interesting exercise for you to do. List out your annual expenditure in detailed categories; everything from rent, to childcare, groceries and eating out. You may need to prepare yourself for a shock. If you’re serious about this, we have a personal budget template that you can use to make life easier. Contact us now to get access to this budget.

Getting your debt and capital structure right makes a big difference to the cashflow in your business. This is a subject we have a lot of experience in.

The first step is to prepare a Cashflow Forecast and measure the extra cash the business will have as a result of making some simple changes. Doing a forecast for the first time seems scary, but once you’ve done this, you’ll realise that it’s one of the most essential business tools you’ll ever put in place. We’ll do the forecast with you. You’ll sleep better for it!

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