Cash flow and working capital solutions in Canada. If there is one myth about success with growth and financing solutions its that sales and revenue growth will get you there. It won’t.
As the Canadian business owner and financial manager well knows it takes more than that to get lenders, ( bank and non bank ) to get a good feeling about financing your firm . At the end of the days its about ‘ protecting ‘ their financing and collateral interests in your company.
Unfortunately there are ways to be totally ‘ not great ‘ at proving that you’re a good cash flow business owner/manager.
In financing, more often than not its about ‘ the assets ‘. So while we can easily get caught up in fancy formulas are EBITDA and other calcs the reality is that its your assets and their turnover that determine your real working capital health. Mismanaging those assets makes you a great ‘ mismanger ‘ of cash flow and working capital.
Americas great cash flow and investment manager once said Does management thing the tooth fairy pays for (future) capital expenditures?).
Naturally term debt lenders focus on your long term viability to generate payment for their loans. At its very simplest its about your cash flow from the management of your working capital accounts (A/R and inventory) that pays bills, not the fancy EBITDA formulas that reflect how much your assets have actually depreciated.
So when profits and ebitda calcs are positive we meet clients that still are having a challenge paying suppliers and meeting payroll obligations.
So what we are saying is that its important to understand that sales revenue and profits and the ‘ value ‘ of your company, if you’re focusing on just those, have made you a great Mismanager of cash flow and working capital.
It’s all about know how your firm can access cash from assets , as well as being able to plan for future needs . That’s where a bit of planning comes in – putting together a sales and receipts forecast, discussing these needs with bank or non bank lenders. The biggest mistake we see in this area from clients is they are not properly analyzing cash timing of collections from accounts receivable.
If your cash flows are negative through this plan process the solutions are pretty clear, and limited:
Take on term debt
Have shareholders put in more money
Delay payments to suppliers
Really increase sales!
And finally – convert assets into cash.
Converting assets into cash via receivable financing, sale leaseback, or comprehensive asset based lending lines of credit is our personal favorite, mainly because they monetize assets without really creating new debt.
Use these solutions and tips to avoid being a MISMANAGER of working capital solutions for your firm . Speak to a trusted, credible and experienced Canadian business financing advisor on how to achieve the right solutions for financing your firm for health, growth and success.