Hi how would you like a different way of thinking about getting a loan for your
Business and how to use the money for that loan different way of thinking about getting
A loan for your business and how to use the money for that loan this is a bit of a case study
Hi my name is Gordon D Silva
And along with being a multi award-winning chartered accountant
I also help businesses as their virtual financials director and
This was particularly was a call I had with a client who
If I give you a background they spit up as a partnership one of one of the partners or directors left
The company and was brought out over a period of time so that’s drained a bit of cash flow
The there’s been other personal circumstances which has affected cash flow but generally
The business has been going on steady
You know steady Larry no changes the same number of clients in the past two years
You know a bit of a photocopy of what they’ve had so no real progress being made and you know
The amount of money you know we have we have
this liquidity calculator we do when we’re working with clients
we look at how much money you’re owed from debtors people
Who are you money for your for your invoices how much money you owe creditors
These are people you owe money to for suppliers and wages and taxes
We then look at stocking work-in-progress and that figure needs to be around three months cash flow
So if you know if you look at that figure and it isn’t equivalent to three months off your standing costs
Then there is a bit of an issue and in this particular case they
This wasn’t enough and they were living month-to-month on an overdraft facility and
So they were thinking like the business is going alright
We’ve got some good contracts coming up
Why don’t we go and get a loan and pay us pay off some of our creditors and so
What I did was worked out a plan with them on how to use this 50,000 pound loan
The three potential uses are off the loan words of course paying
Off creditors the second one would have been buying assets that could be used in the business
The third one would have been working cash flow and what
They were looking to do at the beginning was pay off all their creditors buy some assets
That would be that would be cool and then reduced the overdraft and reduce
The amount of overdraft facility they had because that would reduce their standing costs
So here’s what we did we identified that the overdraft
If it was brought down from let’s just take some some figures
Let’s say it was twenty thousand if they brought it down to ten thousand they
would save and the bank wasn’t asking them to do that as a condition of the
Loan by the way which isn’t which is a good thing
So if they brought the overdrafts down from 20,000 to 10,000 the equivalent
Cost would have been about two hundred and sixty pounds a year so not a great
Deal of saving there for the benefit of having 10,000 pounds cash flow
Availability should a big contract come up and you need it because you don’t
Want to go to the bank every three months and go oh I need a bit more money
Because they’re gonna think well you know this person doesn’t know how to
Plan their cash flow they’ve got no control over their business and most
Clients to be fair don’t have that control they just run the business and
Hopefully they have enough cash to survive but if they’re to go to the bank
Of you three months ago I got another deal coming in I need more cash you know
The bank would soon think that this person is not a serious business owner
They can’t forecast and then they’re not anticipating things and obviously the
Cost of getting new loans all the time and the time it takes is to absorbing so
What we agreed was would leave the overdraft in place for the extra two
Hundred fifty pounds a year it was it was well worth the facility of having
That so that’s the first thing the second thing we said was look let’s look
At where we are hiring assets on a regular basis
And where we are hiring a certain type of acid regularly and we know we can get
We can get a return on investment we’ll buy those assets of laurels ship
Wilma earmark you know ten to fifteen thousand pounds out of a fifty thousand
Pounds for four year marking for buying those assets to save and increase
Margins in the longer term the third thing we then did was we said well it
Will apportion some of the creditors and the old creditors the oldest ones we’ll
Get rid of and we used about six thousand pounds for the old creditors
And we’d pay off the remaining creditors because of increased cash flow cuss one
The overdrafts not being used the interest rate is going to be less on the
The hiring of equipment is going to be lesser we’re going to make more profits
On and more returns on that and and you know that would be the position on that
And then the rest would be useful running contracts and making sure we
Open you know we’re running contracts well cash flowed and so really that is
How we structured the the use of fifty thousand pound load otherwise it would
Have been less buy some assets let’s pay off the old creditors and and you know
There we are and and I think what we came up with and it didn’t take long by
The way you know this conversation it worked very quickly this whole
Conversation probably took about fifteen maybe twenty minutes because I really
Understand the business and one of the things that we’ve only just s tarted working with this business in a detail
Way and one of the things that had no idea of was why over three years they’re
Not changing the circumstances why having you know run the business for
Three years why cash flow isn’t getting better and so what we have now agreed is a process
of monthly reporting which identifies where the money is going so that we do a
Little chart that shows of all the money you’ve collected where’s that gone and
That way we can track what percentages go on different things so we can then
Stop managing it and we know without the detail you can’t manage different things
You can’t manage cash flow is a total because it’s just too big a problem
You’ve got to manage elements of
The cash flow and when you manage elements of the cash flow you take control of
Your business you can take control of
Your cash and you can take control of
Your profits and that’s exactly where
Businesses should be rather than being controlled by their business and
What cash the business seems to have left at the end for periods training hopefully
That case study has helped you a little bit get a bit of perspective that is why numbers in businesses so
I think Warren Buffett said numbers are a language of business right can you imagine going into
You know to try to sell something and you don’t speak the same language an language as your prospect just say
There were you know you speak English and they spoke Chinese and didn’t speak English
Can you imagine how hard it would be to make a deal right to get a sale
We’re really hard without a translator or
Whatever and so it’s important to speak the language of business because
If you don’t you lose out on opportunities hopefully this is one example of many
I have in my blogs and podcasts that
They’re bring you that if you
If you won’t have a chat about our external financial director services please
Connect with me we always have start off with a 10-minute call because
It wastes very little of your time very little my time we get to understand the circumstances and whether
we can help you and whether you would like to be helped by us in the way we do it you do know
I act fast so in 10 minutes we cover a lot of ground and
I look forward to speaking to you then take care
good bye