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And Now For Something Completely Different - Solutions for SME Business Finance
What is Working Capital Financing ?
Working Capital Financing – Canadian business owners want to maximize the utilization of their receivables, inventory and incoming orders and contracts to leverage working capital.
The goals are very clear, grow business revenues and profit with the right combination of internal growth, borrowing from banks and others, and achieving the best blend of working capital and cash flow by leverage those current assets.
Long term debt or additional new equity is not often the business owner’s choice in arranging more working capital and cash flow for the business.
We meet with many business owners who tell us they have the opportunity to significantly increase sales. They are looking for a financial strategy to grow those profits and equity while at the same time minimizing loan interest and any other external financing costs.
When a business gets its hand on a proper working capital loan solution it has the potential to reduce or minimize debt, and increase bottom line equity or value in the business. It is all about achieving the optimal working capital ratio which quite often is industry specific as the cash conversion cycle for many industries is vastly different
Our point is simply that if your business can absorb a reduction in your gross margin – (the cost of working capital associated with receivable, inventory and PO financing) then you can avoid debt and equity scenarios and still grow your business.
Looking For An Example Of Working Capital Loan Types
It is cash flow solutions such as factoring, invoice financing, and our recommended favourite -' Confidential Receivable Financing ' that are most often associated with cash flow financing, It is important to note that inventory financing, a subset of asset based lending also can provide substantial day to day operating capital.
True asset based lending facilities that encompass the finance of inventory, receivables, equipment, and even allow borrowing power against owner real estate provide a real, shall we call it ' holistic' approach to Canadian business finance. Even purchase orders can be financed as a subset of asset based financed.
The Canadian business owner and financial manager's challenge is to grow the business and understand the cost of growing the business under various financing methods.
Clients are often surprised to learn how much their business can change by a simple analysis of their working capital financing choices.
Using factoring or inventory financing as a cash flow supercharger is many times the best strategy for working capital enhancement. Most non financial business owners do not appreciate that power that working capital turnover and are focused on repayment meaning.
There are all sorts of tools that your business can very easily use to monitor your working capital needs. One is simple - you need to monitor your working capital to sales ratio.
What Is Working Capital?
How do we calculate the working capital to sales ratio? It’s easy. Working capital is essentially your current assets minus your current liabilities. Take that number form the balance sheet and divide it by sales. If you have a low ration then your ability to generate cash flow is stronger.
The solution for Canadian business owners is to maximize the turnover of those current assets such as receivables and inventory via working capital facilities. If those facilities can’t be arranged with a bank then you have the option of working capital lines of credit and asset based lines of credit that will cover receivables, inventory and even under many circumstances bulges for new contracts and purchase orders
Working capital facilities via asset based lending business credit lines, factoring or inventory financing or purchase order financing maximizes your cash flow – they also cost more and many Canadian businesses simply focus on the cost.
But they fail to measure the cost of carrying those receivables and the cost of not turning over that inventory efficiently. These two costs alone have the ability to completely in some cases erase your cost of financing under a working capital and cash flow facility.
How does a business compute its cost of credit? The formula relates to your firm not taking credit and payment terms extended by suppliers. Your supplier gives you terms that specify a payment date the amount of the discount if you pay early, and of course the due date. The cost of NOT taking that discount is huge! Most owners don’t realize that. If your firm can negotiate better prices by utilizing working capital financing strategies such as factoring and inventory financing and purchase order financing you have just become the best comparison shopper in business!
In summary, the cost of not taking trade credit discounts is very significant when your business has the ability to take those discounts via aggressively financing your receivables and inventory. Utilize great working capital strategies, you will find that the cost of paying in full is higher than the cost of a working capital facility to cash flow those receivables and inventory!
What is The Cost Associated with Working Capital Finance Solutions?
Non bank, non regulated commercial finance companies that offer cash flow solutions in Canada have traditionally been somewhat cumbersome for the Canadian borrower and often mirror the Canadian chartered bank borrowing experience.
The banks focus on long term loans is often not what the client is looking for. That is changing rapidly with the rise of online finance/peer to peer lending. The types of working capital provided by banks often involve lengthy application processes and solutions such as long term loans. That forces the business owner to assess the difference between working capital loan vs. line of credit. Online providers utilize slick software solutions that are focused on speedy approvals, albeit at much higher costs.
We recommend utilizing a business finance expert to determine which online solution, if any, is recommended for your firm. Also, it's important to note that typically working capital provides have no geographic boundaries, and operates throughout Canada.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance experience who can assist you with loan and cash flow needs.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Click Here For 7 PARK AVENUE FINANCIAL website !
7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
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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