New business owners can underestimate how challenging success can be. For owners of a manufacturing business, bridging the gap between receiving a new order and getting cash in the bank can lead to failure without enough cash flow.
Having the right financial support at the right time will ensure a business can invest in new machinery that is required to fulfil orders and reduce costs. It will ensure employees are paid to produce the goods before payments have been made and it will allow a business to buy the raw materials needed to produce and supply the goods.
When is the right time for a business to borrow?
Below, we cover the purposes of funding for manufacturing businesses.
It’s not just during the start-up phase that capital is required. The life cycle of a business needs cash injections at many stages, such as:
- Expansion into new products or markets
- Sourcing new suppliers
- Increasing inventory volumes to reduce costs
- Bridging a late payment from a large customer that is in financial difficulty
- Fulfilling larger orders than usual
The working capital cycle explained
A good financial model for cash flow forecasting will highlight when your business may need more cash to continue to operate and understanding your working capital cycle is a vital part of this model.
The working capital cycle (WCC) is the length of time it takes to convert net working capital (assets and liabilities) into cash in the bank.
If a business has a short WCC then it quickly releases cash from its production cycle, which is then free to either reinvest or purchase more materials. As a result, the business will require less funding.
If a business has a long WCC, then capital is stuck in the working capital process and is not free to use. Businesses in this position are more likely to need funding and finance, rather earlier than later.
Asset-Backed Term Loans
If you have a manufacturing project that needs financing, you are at the right place. We understand that having the right finance support at the right time will ensure that your business can invest in new machinery that is required to fulfil orders and reduce costs. We have the financial backing and capabilities to help our clients expand and finish their projects on time.
Get in touch with our experts today or simply apply online.