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Business Growth And The (Inevitable) Funding Gap
- 1. Business Growth & The (inevitable) Funding Gap Essential for all SMEs and startups that are planning for growth © Virtual FD 2010 | ciaran@virtualfduk.com
- 2. Growing your business will inevitably require funding, either directly (on new equipment, systems, product development) or indirectly through increased amount of cash tied up in working capital (i.e. more customers on credit and paying you after you have to pay your suppliers and staff). © Virtual FD 2010 | ciaran@virtualfduk.com
- 3. This short presentation illustrates the impact on future cashflows as a result of growth, the funds that will become tied up in working capital and remaining free cashflow (e.g. to hold in reserve or pay dividends). © Virtual FD 2010 | ciaran@virtualfduk.com
- 4. A good forecasting tool should assist forecasting business growth by clearly highlighting funding gaps in advance , giving confidence in the overall return in cashflow terms and reduce the risk of over trading and tying up all your cash up in working capital. © Virtual FD 2010 | ciaran@virtualfduk.com
- 7. Illustration 01 © Virtual FD 2010 | ciaran@virtualfduk.com Cashflow follows profits except for VAT ; more money in bank from collections of VAT which is paid quarterly in arrears (in Apr, Jul, Oct). Working capital = VAT balance, which increases in line with trading. Profits grow from £10k per month to £100k by end of year, £660k in total for the year.
- 9. Illustration 02 © Virtual FD 2010 | ciaran@virtualfduk.com £75k funding requirement to deliver growth with H2 returning to overall cash positive position and £350k in cash by year end. Working capital grows from c.£40k x 7 times to £280k due to increase in trade debtors (£550k at year end). Profits grow from £10k per month to £100k by end of year, £660k in total for the year.
- 11. Illustration 03 © Virtual FD 2010 | ciaran@virtualfduk.com Profits grow from £10k per month to £100k by end of year, £660k in total for the year. 7 months of funding required with £100k peak funding gap in H1. Cash reserves recover in H2, with £300k cash by year end. Working capital requirement increases with £600k+ of debtors by month 12.
