So how do people/ small businesses do it?

[Andy lane]

Hi guys,
New here as I’ve just found this site! - I’m sure I’ll be using it a lot!

So to start the question; how do people do it? Raise capital for their small business?

Background;
So we are a small business, started in 2020 just after all Covid lockdown restrictions were lifted with a turnover of approx £320k,
We started the business with approx 10k of our own savings but now it’s been going a few years we are finding cash flow difficult.

We’ve acquired a bit of business debt in the last few years with credit from suppliers and a few other things which isn’t helping our current situation as we thought it would. It the initial two years we felt we needed to grow pretty fast to cope with the demand so invested this debt into stock & machinery but now I feel we are paying this debt and still need to buy more & more stock
We never seem to be able to put any money into a pot as it were, that can be used on slower weeks / months

The products we sell are profitable and our online sales are growing massively so far this year but to keep up with this we feel we need funding or at least this ‘pot of money’ that we can dip into when rents / wages etc are due that can be replaced when sales increase

I spend a bit of my time looking at other similar companies on companies house and am baffled by the amount of cash some are showing and often think they must know something I don’t with financing

So I’m looking into what options people have any experience of in how to raise capital via means other than profit from their sales as currently this is being used to help clear this debt we’ve acquired.

Happy for any help & critique as I’m new to being a business owner and totally accept I may well have got it all wrong so far!

 

[Newchodge]

Perhaps you need to look at your pricing. If you have good turnover but no cash, and a cash injection has not helped, it may be wrong to think that another cash injection will solve the issue. It looks as if your costs (including servicing your debt) are not being covered by your sales.

 

[Paul Kelly ICHYB]

Perhaps you need to look at your pricing.

That was my first thought, along with reducing costs.

Is the machinery you purchased essential to the business?

Is there anything you could get rid of or reduce to reduce costs - vehicles, property leases etc.

You are at a stage that a lot of companies get to but you can manage your way through it.

You will get a lot of good advice here, but, ideally you need to sit with someone/people who can analyse the business and help you through this sticky patch. Or they could identify what you do not want to here.but need to.

 

[Andy lane]

Perhaps you need to look at your pricing. If you have good turnover but no cash, and a cash injection has not helped, it may be wrong to think that another cash injection will solve the issue. It looks as if your costs (including servicing your debt) are not being covered by your sales.

Thank you,
Yes it’s certainly the case during q1 our costs outweigh our income, but then q2,3 &4 are all positive.

As a young small business it’s difficult to have cash reserves at this stage to comfortably get through

Prices are certainly something to look at but as we sell some branded things we have to sell at the RRP

 

[Andy lane]

That was my first thought, along with reducing costs.

Is the machinery you purchased essential to the business?

Is there anything you could get rid of or reduce to reduce costs - vehicles, property leases etc.

You are at a stage that a lot of companies get to but you can manage your way through it.

You will get a lot of good advice here, but, ideally you need to sit with someone/people who can analyse the business and help you through this sticky patch. Or they could identify what you do not want to here.but need to.

Thank you

The machinery is essential yes, we offer personalisation to things so the machinery allows us to do this.

Sitting / speaking to people will certainly be the best way - do you have ideas on the best people to speak to at all?

Thanks in advance

 

[Mark T Jones]

As a starting point, sit down and do a detailed (very detailed) cashflow analysis.

It goes without saying that something is wrong here; it might be extraordinarily obvious when you step away, or it might require real change.

As someone with a lot of experience of 'funding' I'd suggest that looking for external funding before you do this is likely to compound your problems rather than solve them

 

[Shopclicks]

The products we sell are profitable and our online sales are growing massively so far this year but to keep up with this we feel we need funding or at least this ‘pot of money’ that we can dip into when rents / wages etc are due that can be replaced when sales increase

What percentage of turnover is coming through your website? And how much do you spend on advertising the website?

 

[Andy lane]

What percentage of turnover is coming through your website? And how much do you spend on advertising the website?

2023 - 25% was website revenue with a spend of no more than £1000 spent on marketing

 

[Andy lane]

As a starting point, sit down and do a detailed (very detailed) cashflow analysis.

It goes without saying that something is wrong here; it might be extraordinarily obvious when you step away, or it might require real change.

As someone with a lot of experience of 'funding' I'd suggest that looking for external funding before you do this is likely to compound your problems rather than solve them

Thank you, I’ll sit and look at this first,
It’s mainly a short term issue with q1 of the year causing this & being a young business with no backup ‘pot’ to fall back on during any slow periods

 

[Scott DLE]

I would break down your costs into percentage of turnover. Highest costs can generally be wages and salaries.

In my industry as a rule of thumb we should get rid of 10% of old kit and invest 10% in new kit over a 3 year period- anything above is capex, I generally spend 20% or slightly above and constantly need to control myself when I look at the percentages. By doing it I make a profit and holding off until I have a decent RTI from the kit I have already got has seen me right. Even if there is outside pressure to get the latest and greatest piece of kit.

Every industry is different but no harm in checking online resources about your particular industry and see what percent they spend on different overheads and how much they need to be investing to keep the wheels turning.

 

[Shopclicks]

2023 - 25% was website revenue with a spend of no more than £1000 spent on marketing

You're spending time on your socials but you're missing hashtags on your Facebook and Instagram reels and posts. You can use up to 30 hashtags to improve your reach. It takes time but it's free. With the right hashtags you can get 10x more views. And include a link to specific pages of the website in every Facebook post. People see your posts in their own feed, not on your page. So make it easy for them to find your shop in one click.
When you post, your content is only shown to 10-20% of your followers. That's how Meta make their money. If you were posting 6-8 times a day, it won't be too often.
It's far easier and cheaper to grow your website sales than to get footfall to your shop. But you can do both with targeted and optimised posts.

 

[Andy lane]

You're spending time on your socials but you're missing hashtags on your Facebook and Instagram reels and posts. You can use up to 30 hashtags to improve your reach. It takes time but it's free. With the right hashtags you can get 10x more views. And include a link to specific pages of the website in every Facebook post. People see your posts in their own feed, not on your page. So make it easy for them to find your shop in one click.
When you post, your content is only shown to 10-20% of your followers. That's how Meta make their money. If you were posting 6-8 times a day, it won't be too often.
It's far easier and cheaper to grow your website sales than to get footfall to your shop. But you can do both with targeted and optimised posts.

Thanks for this,
You’re dead right! I’m honesty I never thought of it as people see in in their own feeds! - I’d never used social media before the business and now only use it for business so my understanding of it isn’t great!

Certainly something to action straight away ! Thanks for this

People see your posts in their own feed, not on your page

 

[David Griffiths]

It's not necessarily an issue with pricing, but a common issue with growing businesses. Just as starting a business requires cash, so does growing one. It's not clear exactly how you trade, other than the proportion that you spend online, or how the non-online sales breakdown. Are they retail sales, where you get paid straightaway or invoiced sales where you have to wait for the money.

Growing from any point usually means investing. That could mean assets such as equipment as you have done, additional stock and possibly funding more customer debt on credit sales. That's offset to some extent by increased purchases with supplier credit, although that's normally lower than the customer debt. There are often extra staff and premises costs in anticipation of the growth. The overall affect of that is to put a demand on cash. In fact, it can lead to what is known as overtrading.

You can search that term for more information. It also covers stock market trades but you are looking for information about over-expansion. I searched "overtrading - meaning in business" which seems to get the right suggestions including this one I haven't watched it all the way through, but it might be helpful or perhaps one of the other results would be better for you.

The key in expanding is control so that you aren't overreaching yourselves. There are numerous examples of profitable businesses going through - nothing wrong with pricing, just they they ran out of cash to fund the expansion.

 

[Andy lane]

It's not necessarily an issue with pricing, but a common issue with growing businesses. Just as starting a business requires cash, so does growing one. It's not clear exactly how you trade, other than the proportion that you spend online, or how the non-online sales breakdown. Are they retail sales, where you get paid straightaway or invoiced sales where you have to wait for the money.

Growing from any point usually means investing. That could mean assets such as equipment as you have done, additional stock and possibly funding more customer debt on credit sales. That's offset to some extent by increased purchases with supplier credit, although that's normally lower than the customer debt. There are often extra staff and premises costs in anticipation of the growth. The overall affect of that is to put a demand on cash. In fact, it can lead to what is known as overtrading.

You can search that term for more information. It also covers stock market trades but you are looking for information about over-expansion. I searched "overtrading - meaning in business" which seems to get the right suggestions including this one I haven't watched it all the way through, but it might be helpful or perhaps one of the other results would be better for you.

The key in expanding is control so that you aren't overreaching yourselves. There are numerous examples of profitable businesses going through - nothing wrong with pricing, just they they ran out of cash to fund the expansion.

Thank you! I’ll take a look more into this but basically what you’ve wrote is exactly the case.
Online made up for 25% of sales in 23 with the remaining from a retail premises so cash is usually Available within a couple of days. But trying to invest in stock and then machinery as we grow and still grow a back-up pot of cash is increasingly difficult.

Thanks for the link & the terminology I’ll be looking much more into this

 

[BusterBloodvessel]

As a starting point, sit down and do a detailed (very detailed) cashflow analysis.

It goes without saying that something is wrong here; it might be extraordinarily obvious when you step away, or it might require real change.

As someone with a lot of experience of 'funding' I'd suggest that looking for external funding before you do this is likely to compound your problems rather than solve them

I'd agree fully with this. Particularly with the last statement - as someone who has done exactly this and faced the fall out from it, taking on more debt "to give us some money to fall back on" would be the last thing I'd do, if you can.

I would sit down and do a detailed cashflow forecast, and analyse every single area of your business - every single expense. Where do you have wasted time? Do you have jobs that are less profitable than others and perhaps not worth doing at all? Do you have certain jobs (personalisation?) being done in individual jobs taking (I'm completely guessing here by the way) 15 minutes each time you do one, where you'd be better to batch order and do 3 in 30 minutes? Analyse your shop opening hours and sales....are you getting anyone in the shop on a Monday morning? Or could that be better spent closed and saving a wage or using the time to do something else? And/or could those quiet times be when you focus on doing your social media for example?

That would be my first step, to really look at where your money is going and how efficient you're actually being. It's great to have had so much growth, have online growing etc but sometimes that can come with rushed decisions - "we need a new saturday girl/boy", "we need to employ someone to pick & pack orders" etc..... and yeah needs must when you're growing quickly but there needs to be a point to step back and rationalise.

As for increasing revenue alongside that = price increases as mentioned, can certain high running items take even a minimal increase? Are there other ways you could do it e.g. keeping the base item fee but adding a "personalisation fee"?

What about easy upsells? I notice at checkout on your site I can add a personalised message - what about gift wrapping or gift box? I bought a personalised baby item for my new nephew recently and was offered a "luxury gift box" of some sort at checkout. I gladly paid £5 for a £2 printed box with some tissue paper inside!

 

[Andy lane]

I'd agree fully with this. Particularly with the last statement - as someone who has done exactly this and faced the fall out from it, taking on more debt "to give us some money to fall back on" would be the last thing I'd do, if you can.

I would sit down and do a detailed cashflow forecast, and analyse every single area of your business - every single expense. Where do you have wasted time? Do you have jobs that are less profitable than others and perhaps not worth doing at all? Do you have certain jobs (personalisation?) being done in individual jobs taking (I'm completely guessing here by the way) 15 minutes each time you do one, where you'd be better to batch order and do 3 in 30 minutes? Analyse your shop opening hours and sales....are you getting anyone in the shop on a Monday morning? Or could that be better spent closed and saving a wage or using the time to do something else? And/or could those quiet times be when you focus on doing your social media for example?

That would be my first step, to really look at where your money is going and how efficient you're actually being. It's great to have had so much growth, have online growing etc but sometimes that can come with rushed decisions - "we need a new saturday girl/boy", "we need to employ someone to pick & pack orders" etc..... and yeah needs must when you're growing quickly but there needs to be a point to step back and rationalise.

As for increasing revenue alongside that = price increases as mentioned, can certain high running items take even a minimal increase? Are there other ways you could do it e.g. keeping the base item fee but adding a "personalisation fee"?

What about easy upsells? I notice at checkout on your site I can add a personalised message - what about gift wrapping or gift box? I bought a personalised baby item for my new nephew recently and was offered a "luxury gift box" of some sort at checkout. I gladly paid £5 for a £2 printed box with some tissue paper inside!

Thank you for the detailed reply!
I’ve scheduled some time to do a cash flow and see where it’s going!
I’m an ideal world I want to avoid financing ‘for a rainy day’ type of thing but really am wondering how young business do it!

With regard the shop, we are tied by the estate we are on with opening hours but do try to utilise any down time with completing website orders here along side our home office doing them too with a flexible hour staff member.

I like the idea of gift box/ wrapping and will jump straight onto this!

Price increases (as in any industry) are difficult as we still need to compete with competitors and also abide by RRP on some of the branded goods.

It thank you so much for your time, certainly a lot of things to look at which should help thank you

 

[JEREMY HAWKE]

We have a customer who is selling bulky high end products on line and they are the cheapest in the UK
Why are they the cheapest?
because they own their own warehousing when all their competitors are renting big premises

There are so many variables that is always difficult to pin down the comparisons.

I would ignore what everybody else is a achieving and work towards what your business can realize

 

[YuriyZaletskyy]

I'd like to add these suggestions based on what I've read.

1. Do you have dead inventory?
2. Can you ask your vendors to give you some items in credit?
3. With help of ABC-XYZ analysis ( or any similar inventory management method ), analyze your inventory, and make sure that AX is always available, and CZ you get rid off.

P.S. AX - best sellers, CZ - irregular sales with low frequency of buying.