How To Unlock Capital From Within Your Business

Michael Maina, our Chief Operations has shared some of the critical things that has helped Lipa Later as a business soar during this pandemic. #StartingFromWithin

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Covid-19 first hit Kenya in March of 2020 and life as we knew it has never been the same.

On the frontline of the start-up ecosystem in Kenya, and Africa as a whole, I have witnessed first hand the effects of Covid-19 radiating across businesses on the continent.

My role at Lipa Later involves leading almost everything operational and over the past two months, I’ve been thrown down a steep learning curve. With cashflows dwindling, supply chains in a panic and investors for the longest time sitting back and ‘waiting to see what happens’, we’ve have had to look a lot more introspectively into our Company to be able to etch clear and actionable plans to survive and to continue to prosper; especially from a financial standpoint. Doing this first hand, my point here is simple; there is significant untapped or under-utilized resources, assets and even ‘concepts’ we all have, that when discovered, could unlock an enormous amount of capital. I realized that there are a lot more things in our control than we think and as start-ups, seeking bailouts from investors should never really be an option.

Below are some of the insights that we’ve been able to draw upon thus far:

1.     The devil is in the details:

In times of financial strain or financial difficulty, it is important to get granular on what you are spending money on. For this to work, an in-depth analysis of each and every line item or expense should be looked at through the lens of a microscope. Some of the things you may discover may shock you; you may just find 3 unused email addresses that are charged at $5 a month each or that you’ve been spending 2x as much on Internet services than you really need. Small costs add up, but can only be detected when you go small!

2.     Develop a tight-fist:

They say desperate times, call for desperate measures but uncertain times, call for planning. In order to survive the rough economic times, it is imperative that the business develops a tight-fist and focuses on its core business and it’s essential needs. Identify why you don’t need to spend (or other available alternatives) as compared to convincing yourself why the business needs to spend.

3.     Budget! Budget! Budget!

Mason Cooley once said, “A Budget takes the fun out of money”. I personally align more with the contrarian quote from Dave Ramsey that goes “A budget is telling your money where to go instead of wondering where it went”.

There is always a tendency to overspend when it comes to the budget because there is always an assumption that the money will come back. During times like these, the budget should be a reflection of your values and should be treated as such.

4.     Find the path to liquidity…and take it:

The untapped potential could be lying dormant in your financial statements. Unlocking capital can be achieved through taking various paths – it could be as simple as selling off on simple assets like extra computers, furniture, etc. or could take the form of a campaign to clear stock such as seasonal sales, bundled package offers and cash backs to clients. The end result will lead to increased liquidity.

5.     Spend (read “Invest”) money on things that add value:

Whereas a majority of this piece has had a focus on cutting expenses and budgeting, it is equally important to divert the available resources to value adding/revenue generating investments. For example, marketing generates leads, which can then be converted to sales, which means money for the business. Identify the key expenses to invest in that generate more value and unlock the capital required for your business.

6.     Negotiating is key:

Everything is negotiable. Whether or not the negotiation is easy is another thing.” – Carrie Fisher

In the grand scheme of things, the value chain and eco-system exists because of each other. As such, negotiating and re-negotiating with suppliers, customers and other stakeholders is key to unlocking capital and value from your business. Through negotiating for longer credit term durations or reduced pricing with suppliers and introduction of deposits or shorter payment plans with your customers, you can alter your cash conversion cycle. This would mean that you would collect your receivables sooner than you need to pay your expenses/bills. This would go a long way in boosting liquidity and enhancing cash management.

Obviously, each and every business is different and would have distinctive ways to extract capital from within, but the findings above have helped our Organization adapt to the current “normal” environment. The only question has been, why we didn’t look into our business and our financial statements sooner as some of the changes implemented so far have had a significant impact on the overall business.

As we continue on this journey together, we shall be sure to share as much insight and learning as we can from our experience. In the meantime, stay safe, stay healthy and stay frugal!

LinkedIn article here-

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