Knowledge Management

5 Tips To Get Funding For Growth As Banks Will Do Less In Credit/Funds

Last week I attended ‘The Small and Medium-Size Enterprises (SME) Conference’ in the Netherlands. My take away of the keynote speaker Mr. Klaas Knot, the president of the Dutch central bank, was his future perspective that commercial banks will reduce providing credit/funds to and will move focus on other services.

Mr. Knot made recommendation to the SME’s to go for an alternative funding model, the blend needs to be changed; less funds from commercial bankers. Although it was recognized that the impact is more control on decision making of the capital funding providers, which can be assessed as a potential benefit.

I wasn’t really surprised by the views of Mr. Knot, as this was the impact of the requirement to protect the balance sheet of the commercial banks by risk adjusted equity requirements; Basel III.

To give you SME engine dimension in perspective; it’s accountable for 70% professional workers and 60% of the GDP in the Netherlands, which is ranked at the sizable 16th place globally.

The other keynote speaker Mr. Roland Kahn, Mr Retail of the Netherlands, had a really great personal message on customer focused entrepreneurship, and was already faced with the impact of the new reality on a reduce funding appetite by commercial banks earlier this year.

So the key question here is, how to fund for growth without being too dependent on commercial bank credit line or others controlling your decision making. Why handing over control if the only interest is yield and not your business. If you’re running a sound business creating value, the advice is to be capital efficient and good in commercial & contract management! More intimate collaborate with natural business partners will drive a win-win on verticals.

Here are the 5 tips in being capital efficient with commercial & contracts to reduce or eliminate your funding needs for growth;

  1. Owning –Fixed- Assets – Do you really need to own your shop or equipment etc. as SME? In most of the cases you will recognize that your competitive advantage isn’t realised by owning the asset. You will discover that the Total Cost of Ownership (TCO) will be less if managed by others, who are better positioned to this. An easily to be agreeable operational lease or rent-contract will be a better alternative then you expected to be from a cost and funding perspective.
  2. Optimize Inventory – Do you have an efficient stock management, is your supply contract well structured at your needs in terms of lead time, the supply points, number of products, or consignment stock or do you really need stock at all as SME?
  3. Financing Customers – If you’re not a retail shop owner running your business in cash, negotiate your sales contracts at minimum payments terms, long enough to finance the invoice and accounts payable lead-time. Really in the current state of technology, there is no need to have it more than a couple of days or even more extreme get paid as your order is placed, with direct debit. Why should you finance as SME as the customer enjoyed the product already? If not acceptable and/or payment delays are occurring take a junk rate, allowable at law, to signal that you don’t want to get into financial services.
  4. Supplier Payments – In most of the cases your suppliers are in a different position by not being a SME. The large enterprises do have in most of the cases better positions to fund their activities. Here you should go for better credit terms. You will be surprised on the success rate by giving in on the price in exchange of longer payment terms.
  5. Agility/Competitive Advantage – By transforming your funding strategy with your well structured commercial contracts, you will discover that you have a better control on where to put your capital, lower TCO read margin and benefits to be agile when fundamentals of your business changes.

Your commercial contracts provide you the edge to transform your cash flow statement with a better results bottom line, and if managed well and with the current technology, you could get in a position that you could question mark if you want to put your cash surplus on a commercial bank account.

Interested in the art and science on how to get your commercial & contracts win-win discovered, effectively designed, structured and negotiated OR  Interested in more useful free tips visit our Blogs/News on our website BloomingContracts.com.