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We’re Doing Some Fact Checking On Canadian Business Financing
OVERVIEW – Information on business financing needs in Canada. Business Owners and financial mgr’s need to know the right type of working capital loans and debt finance specific to their growth and funding needs
Business Financing in Canada , when it comes to working capital loans and debt finance solutions comes with a lot of... do's and don'ts! We've been doing some fact checking, (which seems to be happening a lot these days!) so let's dig in.
Most business owners / financial mgr's recognize that the search for capital and funding for their business is never ending.
Two key facts clearly emerge:
1. Working capital needs are both short term and long term - It's key to know which one (or both?) that your company needs
2. Once your company has determined the type of working capital or debt you need what are your options and how to do pursue those successfully and in the least amount of time?
We've stated that working capital is both a short term and a long term need. Let's examine that key point. When we talk to clients about working capital needs it becomes apparent they are often confused by 'textbook issues 'as compared to real world issues. The textbook of course tells us that working capital is a simple calculation - go to your balance sheet, subtract current liabilities from current assets, and , voila! There's your working capital. The perfect answer, right? The reality is that business owners must consider two key elements not often covered off in the textbook.
They need to know their cash flow needs based on past issues, current and future needs. Also, turnover of current assets is critical and many Canadian business owners and financial managers don't know how to measure turnover. If A/R and inventory isn't turning properly your working capital is going to feel ' sluggish'!
We're talking about short term needs vs. long term needs as we have stated. You may have had historically enough cash flow for working capital to satisfy your overall sales growth needs. But what if you have a large new order or contract you need to fulfill. That more often than not necessitates a short term need for cash flow to fulfill purchase orders, contracts, etc.
The good news is that, with the right help and knowledge it's relatively simple to measure cash flow needs. Don't forget though that sales and profits rarely relate perfectly to cash flow! When that issue becomes painfully obvious it's somewhat too late to put the proper fix in place.
Two options are in fact available for your firm when considering a working capital solution. One of those options is to take on more debt, and enter in a working capital term loan - this is simply a cash term loan with a fixed repayment and term - typically three to five years.
For larger firms this might be called subordinated debt, or mezzanine financing, but for smaller and medium sized companies in Canada we can simply say 'it's a working capital loan '! This type of financing puts permanent working capital into your business and allows you to feel comfortable that you can meet short term obligations such as lease payments, etc. If there is a disadvantage to this type of financing its simply that in reality you are adding more debt to the balance sheet, as the working capital loan is debt .
You can also monetize existing assets to maximize cash flow. Typically these assets are A/R, inventory and fixed assets. Yes you are leveraging those assets, but the reality is that your balance sheet ratios stay intact.
For smaller and medium sized firms in Canada these solutions come under several names, working capital facilities, asset based lines of credit, or even a standard operating line of credit with a Canadian chartered bank that allows you to margin receivables and inventory .
In summary, we have covered off the need for business owners to determine what type of working capital they need, albeit short term or long term .
Ensure you're aware of the important do's and don'ts in business financing solutions available. Do your fact checking, and consider seeking out and speaking to a trusted, credible and experienced Canadian business financing advisor for finance leverage.
Stan Prokop - founder of 7 Park Avenue Financial –
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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