Beating the cash flow blues

Expanding a business is hard enough but it’s even more difficult if it doesn’t have a strong cash flow.

As corporate advisors, we work with many clients across the recruiting and staffing industry, and the cash flow challenge is something that resonates with most of them.

There are many ways for a business to address this challenge, including improved debtor collections, streamlining cost models and back end, limiting wage growth and accelerating sales. But all of those options only tinker at the edges and either drip-feed growth or, in some circumstances, can stifle it.

One option that can help accelerate the growth of a business is unlocking the equity in its debtor book through a debtor/invoice finance facility and using it to fund the business’s growth.

We were recently introduced to a small labour hire business with offices in NSW, Victoria and Tasmania, which had been established for five years and had been purchased by our client in July 2019.

It had around $9 million in annual sales and managed approximately 190 contractors in the blue collar field but was struggling to grow.

The directors had ambitious plans but limited capital to finance them, with only a small input of $60,000 in equity to get them started.

Their finance director reached out to us for advice and we identified that they had a solid business, with good cash flow, but just lacked the working capital to stimulate growth.

We helped them create a debtor/invoice finance facility which freed up 80% of the debtors to be used as working capital. This enabled them to unlock and finance their growth options, giving them room to breathe, flex and scale.

Just five months later, that business has annual sales of $22 million, is managing 320 contractors, has a Q1 EBIT of $150,000 and $350,000 in equity in its debtor’s ledger/ScottPac finance facility.

It is also in the process of acquiring another business, adding $11 million in annual sales and 120 additional contractors.

Without debtor finance, they simply could not have achieved this in such a short time.

So, if you’re looking for ways to accelerate your business and stimulate growth, look inside your debtor’s books and unlock its full potential.