Your business cash flow problem. A lot of times it can be avoided and or fixed by examining your balance sheet and implementing solutions either traditional or alternative that address that problem and challenge.
Canadian business owners and financial managers have a tendency to always look at their income statement, not the balance sheet. We suppose its the entrepreneur in them that drives that focus – the idea of generating more sales and lowering or maintaining their costs. That sales number in effect becomes their ‘ business scorecard, one that seems easily measured and one that facilitates compensation, and egos!
But when your business is all of a sudden facing a business cash flow problem all of a sudden those assets on the balance sheet will often be your only savior , if managed and financed properly . When you understand how to manage and scorecard those balance sheet assets you’re going to win at the cash flow game.
Getting converted! That’s what balance sheet finance is about – turning those assets in a manner that generates cash flow and managing and arranging your liabilities so that they don’t consume that cash.
In reality those assets on the left hand side of the balance have already arranged themselves in the proper order. By that we mean they are listed in the same order always that reflects their ability to be liquidated for working capital. Of course that order is cash, inventory, receivables and equipment. That’s the pecking order of cash we could say.
Cash is cash on your balance sheet – not exactly a prolific statement and most businesses in the Canadian small and mid sectors don’t typically show a lot of cash on the balance sheet. It’s therefore time to move on to the A/R – here where your credit extension to clients becomes critical in the entire process.
Inventory and equipment make up the balance of the balance sheet, with inventory varying in nature – it might be raw materials, work your firm has in process, or goods ready to ship.
If you are fortunate enough to have the balance sheet and income statement that meets a Canadian chartered bank approval your savior in a business cash flow problem is a bank line of credit. The bank secures your assets and you borrow against them, based on agreed upon borrowing margins.
But what if your firm doesnt not have the ability for financing balance sheet assets. Thats when the overall financial health of your company becomes critical – in effect: The patient is at risk!
When sales are growing and receivable and inventory is building cash flow challenges become readily apparent. And as your company gets older some of that A/R and inventory is, respectively, uncollectable or unsellable.
The business owner has a tool, or tools to measure cash flow and operating performance. We have always called them ‘ relationships’ – the text book calls them ‘ ratios ‘. Its the relationship between certain balance sheet items that allow you to keep score in business. Simple tools such as days sales outstanding, inventory turnover and debt to equity are great scorecards for your business.
In Canada you have a solid handful of solutions in financing your balance sheet and preventing those cash flow problems that can bring the patient to near death mode if not managed properly.
Those solutions include bank facilities, and when they can’t be attained other solutions include receivable financing, inventory finance, asset based non-bank lines of credit, tax credit monetization, and supply chain finance, aka purchase order financing.
Don’t focus solely on the income statement – properly exploit and manage that balance sheet! Speak to a trusted, credible and experienced Canadian business financing advisor on cash flow problem solutions.