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Fixing The Cash Flow Problem
How To Correct Cash Flow Problems - Here at 7 Park Avenue Financial we aren't so sure there's a case for the regular blues, but if the challenges that come with working capital deficiencies and cash flow are ' top of mind' with your business it might be refreshing to know we have some solid solutions , tips and techniques to solve those key issues . We suppose you can call them a ' cure for the cash flow blues '.
When a company can properly address the issue of working capital, cash management and ensure accounts receivable and inventories are being managed properly that helps ensure daily and long term survival, while at the same time improving owners overall return on investment, aka ' R O I '. Proper management of the current assets on your balance sheet, relative to your sales growth simply brings a double whammy of benefits to your business.
So what about those ' current asset ' accounts on the company balance sheet that we have been talking about . Having a poor handle on receivables and inventory can severely impact your overall company performance. We're speaking of two things, how you manage those assets, and how to finance working capital. It's a dynamic situation, because those two asset categories - a/r and inventory literally change every hour - sales get generated, invoices are issues, receivables get paid and inventory gets shipped as more goods are purchased. Talk about ' dynamic '.
Canadian business owners and financial managers often have a poor handle on their current asset accounts - primarily of course receivables and inventory. We can forgive them for that, because those balances changes pretty well every couple hours. Talk about a moving target! .... Invoices get issues, receivables get paid, inventory gets shipped... and more goods are purchased.
How Do Cash Flow Problems Occur?
Simply speaking it revolves around the fact that if you are mismanaging these accounts, or not financing them properly you lose the ability to deploy funds more productively - i.e. growing your business. That’s when the total ' mix ' of your assets becomes important.
Clients of 7 Park Avenue Financial might sometimes tire of our focusing on the importance of isolating which type of financing is going to fix the company working capital problem. Solutions vary and they include:
Short Term Working Capital Loans
Long Term Loans
More Owner Equity
Asset Monetization ( We confess that's our favourite )
There is a very simple way of matching the financing you need to your assets. The solution - use financing of similar maturity to your assets. A quick example ?
Utilize leasing /equipment financing for long term more permanent assets. Another example? Utilize a receivable financing program for your Accounts Receivable
Why Do Cash Flow Problems Occur ?
Another solid rule of thumb is to always not forget that the longer it takes for a dollar to flow through your firm (your cash conversion cycle) the more working capital financing you will need). That is critical to identifying the long term solution for your business, which often is industry specific as industries vary as as to being asset intensive, service oriented, etc.
Business owners and their financial mgrs should focus on proper management and financing your accounts receivable in a manner suited to your business.
Here's a shocker - there’s a cost to carrying receivables and inventory . Receivable financing, aka ' factoring ' is a solid tool when you can get a good handle on net savings using this type of short term financing . Never forget (everyone else seems to!) that stronger sales, asset turnover, and more profits can easily justify the use of a receivable finance facility.
There needs to be a solid balance to the overall problem your firm might be facing. The ' text book answer ' is that if your are able to manage your working capital accounts properly you can better assess any financing risk and cost for the overall cure to cash flow shortages. That perfect balance is what your firm should constantly try for .
As we noted cash flow accounts change daily and require a lot of vigilance. Solutions to your business financing needs include:
A/R Financing
Inventory Finance
Purchase Order / Supply Chain Finance
Asset Based Non Bank Credit Lines
Unsecured Short Term Working Capital Loans
Tax Credit Financing
Sale Leasebacks
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success who can assist you with your business finance needs.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
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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