Is Cash Flow The Oldest Word In The World ...Perhaps?!
Business Cash Flow in Canada. It always seems to us like a bit of an understatement when you talk to clients about working capital finance solutions and their importance. Business owners and finance managers know the challenge of raising capital or monetizing existing assets... or both!
WHAT FINANCE NEEDS DOES YOUR FIRM NEED
Naturally, financing needs are diverse. It could be operational cash flow, replacing existing assets, etc. Any change in working capital cash flow impacts your firm either positively or negatively. Even managing your accounts payable effectively in daily operating activities provides movement in your cash flows. Addressing the inflows and outflows of capital is the key to long term business success as you manage liabilities due within 12 months.
A FINANCING DROUGHT IN THE SME ECONOMY?
Is there an SME drought of some type in Canadian business financing? The commercials and ads we see every day seem to say not, but in talking to small business owners and managers finance often seems just a step away from crisis mode as they search for an increase in working capital.
What is business cash flow? At the end of the day it's simply the flow of funds in and out of your business - most often measured by a 12-month timeframe. That cash flow comes from sales revenues/accounts receivable collections, inventory turns, and the management of your payables.
Cash flow represents all the money that is flowing into and out from your business during a specified time frame. Cash flow can consist of accounts receivable, accounts payable, and inventory. ... Working capital refers to all the current assets as well as current liabilities in your small business.
2 KEY ISSUES IN BUSINESS FINANCE
When it comes to business cash flows and working capital resources it comes down to two basic issues -
Managing your assets - asset turnover and the flow of money in your company
Accessing traditional or alternative finance to meet your needs - Understanding the cash flow statement
Top experts tell us that surveys of business indicate that well over 50% of all businesses in the small to the mid-market sector in Canada, in all industries are either worried or concerned about their ability to finance operations. Therefore how to calculate the change in working capital must be job 1 for the business owner and financial manager. Changes in working capital are basically the changes that arise out of changes in current assets and current liabilities on your balance sheet. That the ' textbook ' answer for the working capital formula.
While simple mismanagement of your business assets is one reason for that the other is simply your inability to collect promptly from late-paying clients. In some cases, your clients actually might be temporarily unable to pay! Our traditional lending institutions such as Canadian chartered banks are risk-averse - that has made them very strong in global profiles, but has left Canadian business shall we say ' unfulfilled '!
SOURCES OF CANADIAN BUSINESS FINANCING
Rather than wait for the government to step in resourceful business owners/managers have simply gone out and accessed alternative financing to meet their cash flow fluctuation needs.
Those sources of Canadian Business Finance Solutions bringing capital and cash flow include:
Access to Canadian bank credit
Non bank asset based lines of credit
Equipment / fixed asset financing
Short Term Working Capital Loans/ Merchant Advance
WHAT IS THE MOST POPULAR NON BANK METHOD OF WORKING CAPITAL FINANCE
Invoice (A/R Finance) is probably the most popular method of addressing the working capital challenge. Accounts receivable and inventory are the 2 key current assets on the balance sheet that represent potential business liquidity.
THE COST OF FINANCING
While owners and managers are justifiably concerned about the cost of financing they sometimes forget that how you manage your assets can significantly decrease your overall financing cost. And while some ' alternative ' finance solutions are viewed as too expensive there are numerous ways to offset the costs of any financing you undertake.
Don't forget also there’s a huge difference between taking on new long-term debt versus monetizing assets for cash flow. Let's utilize a quick example:
A WORKING CAPITAL EXAMPLE OF FINANCE SUCCESS
Consider a firm that borrows 100,000.00 as a term loan over 5 years, putting new debt on the balance sheet. Interest on that debt might easily be 15,000.00 over a 5-year term, even at excellent rates. Consider the business owner who monetizes 100k of A/R for a 30 day period. Cost is approx 2000$, and new sales create profits over and over again as sales are generated and assets turned via operating capital for the sale of your products and services.
Your focus should be on the overall working capital cycle of your company - simply the time it takes to turn sales into cash. The longer that cycle is represents the need for more investment into working capital that is in effect ' tied up ' and might signal the need for external financing.
CONCLUSION
Our bottom line - don't underestimate the need for business cash flow and the power your firm has when it’s utilized properly. While ‘ cash flow ‘ may not be the oldest word or term in the world we can't underestimate its importance to business survival.
How much money do you need and will your firm always have enough cash? Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business cash needs and working capital finance solutions.
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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