So Exactly Where Is The Money ?
Information on working capital and business finance in Canada. How does the business owner determine how much funding he or she really needs?
Working Capital needs come out of your firm’s requirement to meet cash needs. This is of course not the type of business finance and funding that you need when you acquire assets such as equipment.
How then can the Canadian owner and business manager determine the amount of cash flow needs, as well as the best way to solve the problem... i.e. a solution!
The way to do that is to spend some time on whats known as your ' trading cycle ‘... aka ' cash flow cycle '.
It's all about understanding how your payables arise and how the products and services you purchase translate into either inventory or direct to sales. And here’s the secret - the speed, or total time it takes for all that to happen in effect determines your cash flow and working capital funding needs.
To make the actual calculation work you need to look at turnover in your receivables, inventories (if applicable) and payables. Payables are of course ' cash outflow ‘but still very important in our calculation.
Most business owners or financial managers probably intuitively know how long it takes them to collect their sales receivables . The days of sales you have tied up in receivables is calculated by taking your average A/R balance and dividing it by your average daily sales. Hopefully every business owner has quick access to that data... if he or she doesnt we suggest... there's a problem!
Not every company has inventory, but if your firm does the amount of additional product you have to carry translates into extra cash need.
Remember also that those two asset categories, receivables and inventory are your main borrowing collateral in working capital funding. Also note that typically with a standard bank arrangement you can typically borrow 75% of your total receivables and (hopefully) some type of percentage against your inventory.
One of the alternatives to traditional bank financing in Canada is asset based lending - here it's important to note that typical a/r advances are 90% of total a/r, and a healthy borrowing base against inventory . (Every company and industry is a bit different when it comes to inventories).
It's a truth in Canadian business that if your business is growing it needs money. And don't forget that a lot of businesses also have to juggle seasonality of sales and buildups in A/R and inventory. Think of it this way - Receivables Eat Cash! Thats one reason why high growth companies that seemingly are making money are in huge negative cash flow problems that need to be addressed.
How does the Canadian business owner address these challenges? The solutions are readily available:
Receivable Finance
Inventory Financing
Supply chain finance
Asset based lending
Tax Credit Monetization
Speak to a trusted , credible and experienced Canadian business financing advisor when it comes to determining both what your working capital and business finance funding need is, and .. where to get that problem solved!
CANADIAN WORKING CAPITAL BUSINESS FUNDING EXPERTISE
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/working_capital_business_finance_funding.html
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