Supposing, you have realized that the business is going to run out of cash, what can you do to raise cash for the company?
There are a few ways you can raise cash for your business and we have highlighted a few of them below
To avoid bankruptcy, a prominent place to start is by going after your customers for payment of outstanding invoices. There is often no connection between your finance department (who may be having difficulty getting customers to pay) and your delivery department, making the problem even worse.
The cause of having a massive number of debtors can be a failure to negotiate and police credit terms firmly with your customers. As a company, set a credit limit on their customers to prevent the amount outstanding, becoming too much.
Slow Down Bills Payment
Delaying the payment of your supplier will not raise cash for the business, but reduce cash outflow. In other words, a business can avoid bankruptcy by getting its suppliers to fund their business to a greater or lesser degree.
Some caution needs to be taken in effecting this idea, as it is often regarded as the first sign of a business in trouble. Good business practice will always be to try to negotiate extended credit terms, but not merely take them.
Selling The Company’s Asset
Clearly, we do not want to offload assets that will be needed to run the business later. However, there are other assets that could be sold to raise cash. If there are redundant assets which have no likelihood of being used, the business should consider selling them to release some money. You can even sell your debtors (customers who owe you money) and turn money owed to you tomorrow into cash today, which is often called factoring.
Factoring has its place, but it can make those in the outside world believe you are in trouble.
Going To The Bank
Banks are always happy to lend money as long as you meet their conditions. Even while trying to get a loan after going bankrupt, banks are also happy to lend you cash so long as you can secure the loan with collateral.
Also, it is a trend to negotiate extra loans using your debtors as security so that in an event when you cannot repay the loan, the bank will seize your debtors.
Going To The Shareholders
Securing some cash from the shareholders depends on the size and make-up of your company. In a small company, it might be possible to go back to the owners and ask for more money. In a large company with quoted shares on the stock exchange, appealing to shareholders, is much more difficult. In a large organization, selling more shares to your existing shareholders is known as a rights issue. Typically, you will need a good reason to ask shareholders to put more money into the company. Asking for a cash introduction because of cash flow difficulties is not a good reason but rather a sign that the company is about to go bankrupt.
Getting more business might not solve an immediate cash flow problem, but it should help in the coming months as the cash flows in once more. It is essential, though, that the business is profitable.
In other words, the sales income must, in due course, generate more money than the costs going out of the company to stay out of debt, or this will just become a more significant drain on your cash.
Of course, getting more business has a cost, and in the short term, this will make your cash flow problems even worse. Spending your way out of cash flow problems can work, but is high risk.