Cash is the lifeblood of your business and knowing how to raise it, manage it, and use it efficiently and effectively is as vital to your business as knowing how to make and sell your products.

When thinking about raising business finance, there are essentially two sources of finance: money generated within the business itself, and money introduced into the business from outside in the form of:

•    Debt, typically loans to the business by say a bank, by way of an overdraft or a commercial mortgage to raise finance for a property, or an advance from a factoring company. But don’t forget that obtaining credit from your suppliers is a form of debt that you can use to fund your trading.
•    Grants, where as long as you keep to any conditions attached to the grant you will not have to repay it as you would with a loan, nor will you have to give up any shares in your business, as you would with an equity investor.
•    Equity which is money or other assets put into a business by investors in return for a share of ownership of the business (and therefore a share of its profits as it trades and of its value if it is sold).

Raising finance from any investor or lender will involve a process, and normally starts with a business plan. Each lender or investor will have their own commercial and financial criteria on which to assess a proposal and a good starting point is an old banker’s formula called CAMPARI:

Character    Are you trustworthy and reliable?
Ability    Do you have the skills to do what you are planning?
Means    How much are you worth (both as a guide to your past money making performance and your ability to provide cash to cover any short-term problems)?
Purpose    What is your plan, what are you intending to do with the money, is it feasible and does it fit the lender’s criteria?
Amount    How much are you putting in compared to the risk you are asking the lender or other investors to take; and are you asking for enough to properly see the project through to completion?
Repayment/return    How is the lender / investor going to get their money back; and how much will they earn by way of a reward for the risk taken?
Insurance    What security is available to ensure that they can get their money back?

However, if you are thinking about raising corporate finance, it’s worth thinking about this.

When it comes to raising finance, many business owners only think in terms of the external sources of finance, sometimes by raising equity, but more often by raising debt.

But before going ahead and incurring the costs, and risks, of raising business finance by borrowing against the cash tied up in your assets, surely it makes sense to look at freeing that cash up instead by using Lean Cashflow techniques to reduce the amounts tied up in stock and debtors?