5 Working Capital Solutions CFOs Should Consider Before Raising Equity
When a business starts growing quickly, the conversation around funding is never far away. New staff, larger inventory purchases, longer customer payment terms and expansion plans all place pressure on cashflow. Before long, someone around the boardroom table inevitably suggests raising equity.
There are certainly situations where equity makes sense, particularly for high-growth businesses pursuing aggressive expansion. What I've noticed, however, is that many businesses start exploring equity before fully understanding the working capital options already available to them.
The reality is that raising equity is one of the most expensive forms of funding. Once shares are issued, ownership is diluted and that dilution doesn't disappear when the cash is spent. Before giving away a portion of the business, it can be worth reviewing whether existing assets and cashflow can support growth instead.
1. Overdraft Facilities
For many businesses, the first conversation should be with their bank. An overdraft remains one of the most common and flexible forms of working capital funding available and can be particularly useful for managing short-term cashflow fluctuations.
I've seen businesses immediately start discussing capital raises when a relatively simple overdraft increase would have solved the problem. While overdrafts aren't suitable for every situation, they remain one of the cheapest and most accessible funding tools available when a business has a strong banking relationship.
2. Invoice Finance
One of the first places I would look when reviewing a business is the debtor ledger. In many cases, companies have significant amounts of cash tied up in unpaid invoices while simultaneously exploring ways to raise additional capital.
The business has often already done the hard work. The product has been sold, the service has been delivered and the invoice has been issued. The challenge is simply waiting for customers to pay. Invoice finance can help unlock a portion of that working capital and convert receivables into usable cash much sooner.
For businesses experiencing growth, this can be particularly powerful because funding capacity often increases alongside sales.
3. Trade Finance
Businesses carrying inventory or importing stock frequently experience a different challenge. Large amounts of cash become tied up before products are sold, particularly when suppliers require payment well before customer receipts are collected.
Trade finance can help bridge that gap by supporting supplier payments and inventory purchases. Rather than using all available cash to secure stock, businesses can preserve working capital while still maintaining inventory levels and supporting growth.
This is something I see regularly with wholesalers, importers and manufacturers where growth creates increasing pressure on purchasing requirements. Trade and Overdrafts do require a strong balance sheet and good history of transactions.
4. Inventory Funding
Inventory is often one of the largest assets sitting on a balance sheet, yet many businesses overlook it when reviewing funding options. While inventory doesn't provide immediate liquidity on its own, certain funding structures can help businesses leverage stock holdings more effectively.
For businesses carrying significant inventory positions, particularly those with established trading history and predictable stock turnover, inventory funding can provide an alternative source of working capital without requiring shareholders to inject additional equity.
In my opinion this is the hardest funding to comeby and I have not yet seen anyone want to offer this with excitement.
5. Debtor And Creditor Optimisation
Not every working capital solution involves a lender.
Some of the best improvements I've seen have come from businesses simply reviewing their cash conversion cycle. Small changes to debtor collection processes, supplier payment terms or inventory management can have a significant impact on working capital.
If customers are paying ten days faster, suppliers are providing slightly longer terms and inventory turnover improves, the combined effect can release meaningful amounts of cash back into the business. While these changes are rarely as exciting as a funding facility, they can often be some of the most effective.
When Equity Still Makes Sense
None of this is to suggest that equity should never be raised. There are plenty of situations where bringing in new capital makes strategic sense, particularly when a business is investing heavily in growth, entering new markets or funding long-term projects.
The key point is that equity should ideally be considered after reviewing the working capital options already available. In many cases, businesses are sitting on valuable assets such as receivables, inventory or established cashflows that can support growth without immediately diluting ownership.
If You Want to Talk It Through
If you want a quick idea of what this could look like for your business, I’m happy to run through it with you.
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