Recently I mentioned that companies need to be very agile because, in our fast-paced society, opportunities can present themselves very suddenly.
Here’s a tale of two purchases I was recently involved in.
In the first case, the competitor of a client of ours went into administration, and was looking for a buyer. In cases like that, the sale is likely to happen very fast.
Our client understood that this was a brilliant opportunity to make a good purchase at a good price.
It was a big decision, but they had decent cash reserves, and would only be risking 20%.
They were able to act quickly and secure the deal they wanted.
In the second case, I saw a similar story from the other side. This time, it was one of our clients that was looking to sell off part of their own business.
I was brokering a deal with a larger competitor, a company which was substantially indebted. And that meant that when they went to the bank to borrow the money they needed, the bank said no – and the deal was off.
Why was one company able to take advantage of the opportunity which fell into its lap, while the other company was not?
Simple. The former had spare cash, the latter didn’t.
It sounds obvious, but just like you need savings in your private life, your business needs savings too.
It can be crucial in exploiting all kinds of opportunities – not just buying companies. There might be a chance to go into a new market for instance, or buy stock at a discounted price.
And if it’s not an opportunity which comes your way but a threat or a disaster, that cash can be the cushion in your system. You need to put money away for that rainy day.
Now, you may be thinking: “But we don’t have any spare cash!” or (if you’re the business owner), “Any spare cash we have is going straight into my pocket…..”
It’s important to realise that having cash doesn’t necessarily mean having money in the bank. Cash can also mean arranging ready access to credit lines.
That credit doesn’t have to come from a bank or whoever’s financing your business. It could be from, say, factoring or crowd funding. But wherever it comes from, you should make sure it’s available for when you need it.
If you already have access to debt (hopefully for a good reason, to invest in your company’s future – not to prop it up when it fails!), keep some powder dry. So if you really need a £0.5m facility, get double that, so you can have some room to manoeuvre when opportunities present themselves.
I’ve seen too many owners think that because their business is doing well they don’t need to think about putting aside spare cash. But of course it’s much easier to set up a credit line when you’re thriving, rather than rushing to the bank at the last minute, cap-in-hand.
Having the credit doesn’t mean you have to use the money. It’s just good financial management to have access to cash when you really need it.
If that’s something you’d like in place let’s talk. Whether you already have spare cash and need to work out the best thing to do with it, or whether you want to manage your finances better so that spare cash becomes available, we’d be delighted to help.
