Category Archives: Cash is King

You don’t get anything for nothing

At the Food For Thought workshop in February we were lucky enough to have a presentation from Janet Herniman looking at both what grant funding is currently available and also sharing some of her top tips for making funding bids successful.

BREXIT has undoubtedly introduced uncertainty in the grant funding landscape, but the government is expected to continue supporting investment in our business performance one way or another both before and after March 2019; small businesses are an essential part of the UK economy.

Janet is in a rare position as she works closely with several of the grant awarding authorities in Devon and is in an excellent position to give us the most up to date information about what is available in which area.

Also, this experience gives her detailed knowledge of building a strong funding application; the difference between a fantastic application and one that is not successful.

Whilst some funding opportunities have recently closed to new applications there are still funding streams open and many other businesses are still working on full application preparation.

Janet has four points to consider when writing an application:

1. Need for the money
Grants are available to support investment that would otherwise not take place. You will need to show that the grant money is needed to enable the project to go ahead.

2. Market need and demand
Information on market size, trends, who your target customers are, evidence that you can acquire the extra customers forecasted and that your project will not impact on competitor businesses is an important part of your application.

3. Quantify
When it comes to explaining why the plan you have should be backed by grant funding you’ve got to have more than vague ideas for what the benefit will be. Grant assessors want to see specific proof in terms of: Finance for Food & Drink Businesses Workshop
– what new sales you can generate?
– who will buy your new product or service?
– how much more profit will you make?
– how many jobs will you create as a result?
– what about benefits for your suppliers and other local businesses?
– how do you know all this?

4. Evidence
As well as explaining clearly what your project is, the benefits it will bring to your business and importantly how your project fits into the programme funding priorities you will need to back up your statements with evidence.

Evidence can be supplied in a number of ways such as quantifying specific outputs, sharing your own or independent market research and getting letters of support from suppliers and customers.

In rounding up, Janet stressed that while a successful application can take a lot of work and preparation, the benefits are worth it financially and many applicants say it makes their business stronger as a result.

Taking stock of the value of stock

One of the most common questions I find myself helping businesses to answer is “Where did all the money go?”

Even in the most profitable businesses it can sometimes feel as though there just isn’t enough cash to pay all the bills.

Usually (* but not always) the culprits are increasing customer debts and increased levels of stock. I posted a blog about debtors previously; basically the key is to know what you’re owed and make sure the customers pay.

Stock can be harder to pin down. It’s easy to see, but it takes time to keep track of exactly what you’ve got and unless you know for sure what’s in stock how can you be sure it’s what you need.

Surely having stock is good?
Stock is an asset of your business – goods held so that you can sell them at a later date.
The problem comes when you have already paid for the stock, or paid for the stock to be made.
Until you sell the stock you can’t get your money back.

So you could think of having stock being like having piles of money locked up in a warehouse.

But I need stock to be able to meet my customers’ orders…
That’s right you do need some stock, and some businesses need a lot of stock. The key thing is to make sure you don’t have too much stock.

There are two parts to this:
1. First the only accurate way to know what you’ve got in stock is to go find it, and count it, and repeat regularly.

This might be time consuming to start with, but usually the more you count stock the easier it gets. You’ll have better awareness of what you have in stock and where it is.

Initially all you really need to know is the quantity of stock that you’re holding, but to see the whole picture you need to know the value too.

Be realistic about this – you need to know how much you paid for the stock, and also how much you can sell it for.

2. Next you need to have a forecast of how much stock you’ll need.
Forecasts don’t predict the future, so there’s no need to get hung up in too much detail. How much stock do you need to cover the time it takes for replacement stock to be ready or delivered?

But it’s cheaper to buy in bulk…
Sometimes suppliers offer cheaper prices for bulk orders, but it’s only a bargain if you actually need all that stock!

A bigger problem can be where suppliers set a minimum quantity per order. Depending on what your forecast says you need it may be worth paying much more to buy just what you need from a different supplier.

So managing stock will help cash flow, but it won’t make me any more profit…

Actually I think it will:
– It’s likely that you will waste less because you know exactly what you’ve got and what you need
– You won’t need as much space for storage, and you won’t need to ensure the stock either.
– You won’t be paying interest on a bank loan (say) to fund all the cash you’ve got invested in the stock.
– There’s less chance that you might be left holding stock that you can’t sell, for any number of reasons – maybe your customer changes to a different supplier.

If my sales increase I’ll need more stock…
That’s true. What often happens is that when sales increase you end up with more cash tied up in debtors and stock, so life gets more difficult.

If 50% of your costs of sales are in raw materials, and you find a new customer who buys £10,000 per month then you will have to find £5,000 extra to cover the cost of additional stock purchases.

This is when you really need a plan – the extra cash flow or “working capital” that you need will have to come from somewhere and life is easier if you plan in advance.

In short, if your business holds stock you need to make sure that you’ve got good information to hand so that you’re looking after your investment.