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OVERVIEW – Information on cash flow and working capital financing solutions for Canadian business. Types of loans and finance strategies that can save and grow your business
The incredible part of the article was that although Canadian business owners and financial managers were more optimistic about their business these days, dramatically so, the incredible part being that 70% of respondents said that access to ' cash ‘ and capital was still a challenge . Wow. do we ever envy that other 30% who seems to have all the cash flow and working capital financing they need!
There are some unique working capital loans and strategies that work for you, it’s simply a matter of understanding what your current needs are, assessing your financial position, and most importantly, understanding your financial alternatives.
When we think of financing working capital you need to focus on the following, receivables and inventory, other assets, as well as your ability to re structure and re organize your firm if in fact that’s required .
In many cases a simple re financing of existing, owned assets is a unique strategy that often makes sense. This can be done via a sale leaseback strategy, or, not as commonly used, a short or intermediate bridge loan of refinanced assets such as equipment, real estate, etc.
At the core of looking at either traditional or more alternative or unique cash flow and finance solutions is simply to understand the cost and benefits of these strategies. Those costs vary with your overall credit quality and can range from a point or two over prime to 1-2% per month, depending on your current financial position.
Many business owners wrestle with how to simply understand working capital, which allows them to then determine their needs. Unfortunately the text book or your accountant doesn’t do a great job of that... in that they tell us go to the balance sheet, subtract current liabilities from current assets, and that’s supposedly your magic number. We wish!
So we tell clients to look at some very rudimentary but useful tools and allow them to assess their cash flow and loans strategies. One is simply the metrics of the operating cycle - understanding how fast you collect your receivables, how your inventory turns, and the average number of days you take to pay your key payables. Simply tally up the total amount of days in your A/R and inventory and you will find you can’t finance that excess just by stalling suppliers/payables.
The shortfall brings us to those solutions you are looking for. You could finance all your working capital if you paid your suppliers every half year or so, but they won't really buy into that plan!
In Canada the traditional solutions for working capital are bank lines of credit - the only caveat being you have got to have decent financial strength, profitability, good owner credit and assets, etc.
Failing bank financing in Canada you have the ability to access just receivable financing - our favorite facility is called CONFIDENTIAL RECEIVABLE FINANCING - a method in which you receive cash for your receivables immediately, and bill and collect under your own control.
Other more robust solutions are what we term working capital facilities or asset based loans. These finance loans (they are not loans per se) combine your receivables, inventory and fixed assets into one revolving line of credit. The more sophisticated a facility you utilize brings you maximum margining of your assets.
Alternatively a more esoteric candidate on the horizon is purchase order financing and contract financing - your suppliers are paid by the lender. It’s more costly, but boy does it work to allow you to generate sales you may never have been able to entertain on your own.
So what's our bottom line - we guess it’s simply don't despair! Understanding your operating cycle , assessing the amount of capital you need, and then weighing those needs against the best solution, traditional or alternative, is clearly your recommended route.
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
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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