Business and Xero accountants and advisors

Think Your Business Needs Finance? – Part 2

10 November 2022

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Following on from Part 1, where we looked at why your business may need finance, the costs and risks of finance and how to position your business as ‘low risk’, in this blog we’ll look at:

  • The alternatives to borrowing finance
  • Real-life worked example

What are the alternatives to borrowing?

There are many options that you can seek before turning to borrowing finance:

  • Are you getting paid timely and efficiently by your customers? 
  • Are you regularly reviewing debtors and age receivables? 
  • Are you regularly reviewing credit terms and limits for your customers?
  • Are you paying suppliers on time rather than unnecessarily early? 
  • Could you get better rates and credit terms from your suppliers, or shop around and obtain better terms with other suppliers? 
  • Are you making most of your stock, equipment and assets? These resources should be earning you as much as possible. If they are not, it may be worth you thinking about selling them and using the money to re-invest.

All of these areas can be leaking money in your business. If you spend some time and effort on the above points, the money you save could be funnelled back into areas of business where you previously thought you needed to borrow finance.

Worked Example 

In a recent business review with a client, we learned that they had been turned down for a bank loan of £50,000. Unfortunately, they were making a loss within the business and were cash poor. After the initial review, it was obvious that they would struggle to raise finance because they had no management information, their last accounts showed losses, and they had poor security. If they did go ahead with borrowing, it would have been with 40% – 50% interest rates and with guarantees. 

We recommended that they stop giving credit to individuals and tighten up on their credit control procedures including pre-quote checks. It was taking 2 – 4 months to complete their sales process; from buying materials to the end sale. They were giving 30 days credit on top of this. 

With the bigger contracts, we suggested stage payments; milestone payments which matched the clients costs and risks. This included a percentage on order, on receipt of materials, on delivery and some on installation.

We helped them to increase their pricing, especially on the lower value works and provided them with a cash flow forecast, and then trained their staff on how to get that running on a day-to-day basis so they could plan ahead for peaks and troughs. 

So what difference have those changes made?

Within 3 months, with regular pricing reviews and turning away contracts that were too risky / not enough margin, their cash had improved meaning that they didn’t need to borrow. They went from loss making to being profitable after 6 months. 

So what do you, as a business owner, to do now? Most importantly, you need to understand your numbers and know your figures, especially where your break-even position is and your pricing in the marketplace, taking into account a different pricing structure for smaller and bigger customers.

Also, you need to get to know what your market conditions are, and put a solid system of processes in place with regular reviews such as credit control, terms and conditions, and updated cash flows. You also need to consider what costs you have and know how to reduce them, that includes making the most of your space, stock, and equipment.

Always look at ways to avoid the unexpected use of overtime and subcontractors. Maximising the use of your resources, to make sure they work efficiently for you whether that’s people, premises, stock, cash, systems and getting control of your business rather than the business controlling you. 

In such a changing, uncertain and at times lonely world for business owners, you need to have good management information and good support around you to help you to make the right decisions for you and your business.

Next step?

If any of this is resonates with you and you’d like to discuss profits and resilience in your business, get in touch and we’ll set up a time to talk. Alternatively, you can book a Business & Xero Review for a fixed low fee.

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Graham Potts


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