Looking for some facts and ‘ real world ‘ information on working capital for financing purposes in Canada? Business cash flow is at the center of your firms day to day operations, here’s some great ideas for Canadian financing; let’s unlock some of those secrets your competitors are using… and give you some vital insights into business financing success.
You may or may not be in a liquidity crisis – we’re pretty sure though that you would prefer to avoid one! Naturally that sort of ‘ crisis’ or just plain challenge revolves around how you have chosen to finance your firm from an operational point of view. So yes, it’s all about (unfortunately) ratios and balance sheet structures, which you in many cases have chosen not to deal with. So let’s determine how you can get some cash flow predictability into your business.
So how do you go about addressing business cash flow? It’s more simple than you thing, you have to accelerate business receivables, control your cash outflows, and address those balance sheet issues we referenced above. It absolutely does not mean you have to take on additional debt, if in fact that is even possible in some cases. There are numerous ways to monetize your balance sheet. We have always gotten somewhat of a ‘kick ‘ out of the standard metric that banks and other financial lending institutions use to measure your business ‘ cash flow ‘.
The reality is that there are tens of different meanings and interpretations to cash flow (don’t panic, we’re not going to cover them off today!) but the one 99% of people gravitate to is the ‘ current ratio ‘. It’s the simple calc that takes your current assets over current liabilities and gives you a ratio (we call them relationships). We’re told bigger is better in this calc, and that a 2:1 final number is preferred.
But… guess what? If your inventories aren’t moving and receivables are slow to collect and perhaps even over 90 days is that number relevant anymore. The most effective way to measure cash flow is really ‘ operating cash flow ‘ – it tracks business cash based on the changes in working capital accounts. For example, if your sales are going up and receivable levels went down then you are generating that positive operating cash flow we just spoke of.
We can assure you we have learned by now that clients don’t visit us looking for classroom lectures on ratios, and debates on what measurements lenders use or don’t use ineffectively. What they do want is ways to liquidate or monetize those current assets.
In Canada you have numerous alternatives to working capital financing. These include traditional bank lines, receivable financing, asset based lines of credit that are non bank in nature, and the monetization of any tax credits such as a SRED credit. (Yes, Sred credits can be cash flowed today!).
So is there a bottom line..?? if there is it’s simply that you can improve your working capital yourself by accelerating A/R and inventory turn overs, creating a sale leaseback on assets owned, or, even consider a permanent working capital injection via a term loan.
Or, as we have stated, consider re monetizing your balance sheet today in the 4 methods we’ve noted above. Want assistance in whats right for your firm. Speak to an expert Canadian business financing advisor who is experienced, trustworthy and credible. Don’t underestimate the need to address these issues today.