Cash flow solutions are sort of best implemented when you know what the problem is. Makes sense, right ?We’re discussing working capital financing and the danger signs your firm needs to look for to both prevent and of course solve some of those problems .
The challenge in business financing many times is that both the challenges and the solutions to business financing aren’t readily obvious. The good news to that story is of course that many finance challenges can be fixed with some very immediate solutions.
And there are more solutions than you might think which becomes readily obvious every time we talk to a client. By identifying working capital problems early in the cycle allows you to prevent a much larger problem down the road?
Shrinking working capital is often the most obvious problem. The irony here is that many firms are in fact growing, and profitable (on paper – profits do not equal cash!) But a combination of external factors or losses, or hyper growth all can lead to insolvency.
Many business owners view bank credit as somewhat of a blessing, if in fact they can get a business line of credit from a Canadian chartered bank. This facility allows you to borrow against receivables and sometimes inventory based on pre established margins. The quick example is that 99% of eligible business can borrow against 75% of their total under 90 day receivables.
Operating lines of credit work great if you are growing !We can say that for both traditional bank financing and non traditional solutions such as receivable financing, inventory finance, tax credit finance and monetization, etc.
A real danger sign though is when your business has stopped growing and credit facilities, both short term and long term are in place. An even worse danger sign is when Canadian business owners and financial managers use the line of credit to unwittingly mask some other problems such as issues in their organization, financial or operational mistakes, or being at the mercy of some external event – i.e. the loss of a key supplier or client.
In general if you are operating at a loss and your balance sheet accounts aren’t really changing cash flow should be viewed as trending down, and that’s a danger signal.
What about the issue that we have referenced a couple times already, strong growth? There isn’t a more classic good news/ bad news scenario. Sales are great, inventories and receivables are up, and cash is down. In fact any expert will tell you strong long term growth is better when its planned, not just happening .
There are numerous danger signs as we have noted when it comes to cash flow solutions for working capital financing shortages. In Canada these solutions include asset based lending, invoice financing , sale leaseback of long term unencumbered assets, tax credit monetization, and purchase order and inventory finance .
Speak to a trusted, credible and experienced Canadian business financing advisor on both avoiding, and oh yes, fixing those challenges.