Cash Flow Financing For Working Capital Solutions. It’s Like A Knife Fight In A Phone Booth Out There!

Cash flow financing challenges and working capital solutions for Canadian business. Keeping your firm solvent / liquid can almost seem like a crisis sometime. We were talking to two of our favorite business marketing guru’s the other day and one of them made the comment ‘ it’s like a knife fight in a phone booth ..!’. Wow, we thought, could there be any more a propos comment than that when it comes to business competition and business survival

Naturally it’s important to be in a position to ensure you understand the nature of those challenges, why they occur, how to measure or track them, and finally … put financing in place that ensures business liquidity.

There is a lot of statistics out there that say that a majority of business in the SME sector fail in their first 5 years in business. They simply didn’t have the access to capital they needed to survive. Ever since the 2008 recession/financial debacle cash flow and working capital have become ‘ job 1’ for Canadian business owners and financial managers.

Having observed Canadian business for over 40 years now the one thing that never surprises us is the fact that when a business is enjoying strong success there often exists a general sense of complacency exists within the company. Cash flow seems kind of ok… and if it isn’t we’ve got the bank to support us, right ?The bottom line on that one – fast growth and sales can hide a lot of problems .. for awhile .

The need for working capital for your company arises out of some basic needs – pay suppliers, finance, growth, ensure banks and other creditors are happy .

One term used in business is ‘ technically solvent ‘ – the basics on that one are that you have more assets than debts. That’s the key to our message today – simply that that is just a calculation, and calculations don’t pay bills.

Your ability to finance and monetize those assets is what liquidity is all about. Oh and by the way, if your balance sheet shows more liabilities than assets you’re technically bankrupt!

As we have said, you need financing solutions to properly fund those assets, and that growth over time. It also helps that you are focusing on asset turnover – collecting receivables on time, turning inventory within your industry norms, and not mismatching short term cash outflows with long term obligations.

Canadian businesses tend to, on balance, not have a lot of cash on the balance sheet. That’s ok if they have the credit facilities to draw on.

How can the business owner or finance manager monitor just how good, or bad the overall situation is? Some very simple calculations such as your days sales outstanding, inventory turns, and debt to equity calculations can provide tremendous insights. Monitoring these over time can provide very relevant information on an approaching crisis.

When your bank no longer seems to support you in a manner that you require we would offer up that they have also been benchmarking those same calculations on your financials. By then it is often too late to mend and repair that bank relationship.

Managing your assets, measuring that performance, and using debt in manner that suits for firm is key for cash flow financing survival.

In Canada the re are a number of working capital solutions for that ‘ knife fight in the phone booth ‘ that proverbial battle for cash flow survival.

Those tools include bank facilities for those that qualify. Other solutions include receivable financing, inventory financing, leasing assets or sale leaseback scenarios, or a true asset based line of credit that margins A/R, inventory and equipment all under on revolving facility. Two other relatively unheard of solutions are monetizing your tax credits and supply chain financing.
Why should you consider these working capital solutions?
Several reasons, including finally have a handle on accurate and timely information. Also, you prefer to manage growth, not fail from it. Managing day to day cash flow crisis is not … fun!

Speak to a trusted, credible and experienced Canadian business financing advisor on how your firm can successfully win the cash flow challenges you face everyday.