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THE CASH FLOW / WORKING CAPITAL CONUNDRUM
Small business owners are sometimes not aware of the nuances around terminology such as the differences between working capital and cash flow. Any change in your current assets and current liabilities, which is your ' working capital ' will affect cash flow. For instance, if payables increase your cash flow increases given you are not paying those payables. By the way, every industry has different working capital requirements - a good example is retail here inventory is a high priority on the balance sheet.HOW MUCH WORKING CAPITAL IS ENOUGH?
Those textbook folks will talk about your current ratio calculation, and that a 2:1 ratio of current assets to current liabilities is satisfactory for most industries. At 7 Park Avenue Finacial, we advise clients that at the end of the day it's simply all about managing your cash, a/r, inventory and payables and ensuring those latter 3 are turning properly - as your cash on hand shouldn't be included in your calculation. That's the true secret to working capital management 101! Note however that negative working capital in your current ratio is NOT a good thing!
So how do you cope with cash flow challenges and what do the Canadian business owner and financial manager need to do to address this financing challenge, and what type of business loan or balance sheet financing mechanism works best for your company's needs? A business loan for startups is even more difficult to address, although more solutions have become available in recent years thanks to Breakthru advances in alternative financing.As a starter, whether business people like it or not (certainly owners and financial managers) you have to have a grasp on your overall liquidity situation. This essentially becomes a matter of relationships, understanding how the relation of your current assets (accounts receivable, inventory, cash on hand) is relevant to your cash flow success.
Not every analysis of some of these relationships are going to be relative to your firm all the time. The reality is that different industries have different financial profiles and it becomes a case of understanding where your company fits into the industry profile. And by the way, we never met a client yet who didn't think their firm was a bit different!
When you look at cash flow solutions you're looking at really two areas of focus, one is the overall solvency of your firm, and secondly, the amount of risk you're prepared to take in making investments, taking on debt, and growing their company.
That's of course the inner view. The outer view is from lenders and suppliers, who are looking inside your company relative to your debt paying capability and your overall financial health, now and somewhat into the future. They have a vested interest in doing that based on what products or services they are supplying. And lenders don't even get us started on that...! The bottom line is they are looking to get repaid!
So business working capital financing then becomes a measure of looking at your balance sheet, i.e. your company resources... and addressing the various types of assets you have and how to monetize them to meet your operational goals. Any look into your balance sheet is a 'static one’... it's where you are at one place in time.It basically reflects how you're performing today. That income and cash flow statement basically show you how you got there.
So it's therefore important to understand some of those structural relationships when addressing cash flow financing.
SOLUTIONS FOR WORKING CAPITAL AND CASH FLOW FINANCING IN CANADA
In Canada, your choices for working capital financing are one, or a combination of the following -
A/R Financing
Inventory Loans
Access to Canadian bank credit
Non bank asset based lines of credit
SR&ED Tax credit financing
Equipment / fixed asset financing
Cash flow loans
Royalty finance solutions
Government Of Canada Small Business Loan Program - The Guaranteed federal business loan
Conclusion
Good management teams will ensure they are funding working capital properly and putting plans in place to do that - they do that by focusing on a/r and inventory and accounts payable management, accessing business credit lines or short term working capital facilities that make sense for their firm or industry.The ability of owners/management to increase working capital and provide support for key day to day operations such as supplier payments is key in today's competitive economy.
Which one of the above makes sense for your firm and how do you satisfy those working capital objectives? Speak to a trusted, credible and experienced Canadian business financing advisor today on how to best meet your business finance needs for growth and operational survival.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. He is an experienced
business financing consultant
.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 financing 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.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
7 Park Avenue Financial/Copyright/2020
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