Unleashing the Power of Business Cash Flow Financing in Growth Finance

YOUR COMPANY IS LOOKING FOR GROWTH FINANCING SOLUTIONS!

Decoding the Cash Flow Financing Conundrum in Business Growth Finance

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Financing & Cash flow are the biggest issues facing businesses today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CONTACT:

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

FINANCING BUSINESS GROWTH IN CANADA

In the minds of many business owners and financial managers, business cash flow financing often would seem easier to fix with some ' patch ' - that unfortunately probably isn’t available! So it's sometimes necessary to get creative when it comes to cash flow financing and researching your growth finance options for your company's cash needs. Let's dig in.

INTRODUCTION

Getting the right financing for your business is a challenge, but it's a necessity for business future growth while at the same time managing cash flow issues around the need for more money.

The Canadian business financing financial landscape can appear complex. That's where skills around growth financing emerge whether it's conventional bank loans for a profitable business from traditional banks to unconventional alternative financing sources.

The important thing to remember in business financial growth is that depending on what type of lender you choose for business operations there are, in fact, a lot of both viable and, more importantly, accessible funding possibilities. Getting a business loan from banks might be one option. Another option for financing growth in your business is the world of alternative finance from commercial funding companies.

THE CHALLENGE OF GROWING A BUSINESS

Businesses can also finance expansion by generating additional sales and leveraging assets. As an organization scales, it might not have the cash flow to pay for these key activities before its products or services are delivered to clients. Growing companies at risk need to think about their cash flow more than ever- ie how much cash they will require.

When cash flow doesn't match what's required by cash-strapped businesses, experts recommend looking into various forms like working capital or lines of credit which are more appropriate for short-term needs while still being beneficial over time if used appropriately to address cash flow problems.

HOW DO YOU MANAGE CASH FLOW AND BUSINESS EXPANSION?

Business expansion inevitably increases expenses and exerts pressure on routine finances. Taking on too much debt also brings its own unique set of challenges as the business owner focuses on how to generate additional sales via money spent on additional operational expenses.

Securing cash flow resources when growing forces a business to manage every aspect of working capital. This means solid credit management policies, and strategic implementation of working financing solutions - as well as inventory management, is also key.

Formulating practical cash flow forecasts from cash flow statements will equip a business and identify cash flow gaps

Growing too quickly without ample cash flow or working capital to underpin such expansion is always a risk. This occurs when a company accepts large orders and contracts or invests heavily in growth on the presumption of future profits, only to find itself unable to meet its immediate financial commitments. This scenario can lead to cash flow crises, impair supplier relationships, and ultimately, jeopardize the business's survival.

One more thing when it comes to financing for business - Are you looking for either debt capital, aka ' loans,’ or would cash flow/asset monetization solutions get you to the goal line? It is all about financing operations from either monetizing your balance sheet assets or taking on the right kind of debt load for either a small business loan for capital expenditure or a cash flow working capital solution to avoid negative cash flow.

While it might seem like we constantly preach ' capital solutions ' from the Canadian SME FINANCE marketplace, owners/managers should never forget how to generate internal cash. That’s done by managing your receivables and inventory turnover, and payables to the point where you're collecting A/R promptly, turning inventory, and slowing payables to have enough cash (without alienating suppliers) in your financing activities.

Depending on what industry you are in, you also have the ability to ask clients to prepay or, as effective, get special payment terms from suppliers. That is another often overlooked method of securing financing.

Companies with an R&D investment can utilize SR&ED tax credit financing as a bridge loan to cash flow their refundable tax credit.

FINANCING CASH FLOW VIA FINANCING OPTIONS

Financing solutions come with different interest rates and terms, and structures. Being able to present your financial statements and/or your business plan and cash flow projections is key to obtaining business capital of any type.

DEBT SOLUTIONS FOR BUSINESS FINANCING

Govt Guaranteed Small Business Loans

Term Loans

Equipment Loans / Sale leasebacks

Cash flow solutions

A/R financing/factoring

Asset-based non-bank business credit lines

Inventory Financing

Tax credit financing

Unsecured Cash Flow Loans

Merchant Advances

Purchase Order Financing

BENEFITS OF GROWTH FINANCING

Harnessing growth finance to elevate your business presents numerous advantages. One of the paramount benefits is the availability of capital. Growth finance unlocks funding opportunities that may not be accessible via traditional avenues, such as bank loans or credit lines.

An additional advantage of growth finance is the capability to rapidly scale your enterprise. With appropriate funding, you can infuse money into novel technologies, recruit new personnel, and broaden your reach into fresh markets at a quicker pace than otherwise possible.

Lastly, growth finance can be instrumental in giving you a competitive edge. By pouring resources into new product development and technological advancements, you can set your business apart from competitors and position yourself as a frontrunner in your industry.

ADVANTAGES OF NON-TRADITIONAL BUSINESS FINANCING

The advantage of many non-traditional financings includes flexibility, the non-dilutive nature of your equity, as well as many prepayment provisions that do not come with traditional bank-type financing.

Knowing how much funds you need and what purpose goes a long way toward ensuring you can cover your cash flow and growth finance needs. Here the ability to plan for ' bulge ' needs or fixed asset investment is the key to ensuring the right financing/right time.

WILL A CASH FLOW LOAN HELP YOUR BUSINESS GROW?

Whether it's a cash flow term loan or an unsecured working capital loan, any type of additional cash flow enhancement to your capital structure will help your company with growth plans. Needless to say, that type of financing will also help with growth projects your firm might have around new products, new customers, out-of-country growth, etc.

Don't forget that any cash flow shortfall can be addressed with a working capital solution that increases your overall liquidity.

Cash flow loans, sometimes known as working capital loans, can be used to finance growth projects, such as investing in a marketing campaign, product research or hiring salespeople. They can also help businesses tide over cash shortfalls when they’ve maxed out their line of credit due to unexpected challenges related to growth.

Many firms that are capital-intensive and have cash outlays for the purchase of new assets or investments in r&d do not have the additional collateral that a major Canadian chartered bank might require around the need for tangible physical assets.

A term loan or a working capital loan such as a merchant advance typically does not require additional collateral from the borrower. Term loans tend to be 3 to 5 years in length, while the thousands of firms opting for short-term loans are typically required to pay the loan back over a 12-month period.

DON'T MAKE THIS BUSINESS FINANCING MISTAKE!

It's a cardinal rule of corporate financing that you should never acquire long-term assets with short-term cash-flow facilities. For example, long-term assets should be financed via longer-term equipment loans and equipment leases financing/equipment loans.

Bottom line? Match the useful life of the asset with the right financing. That leads to the proverbial ' cash flow crunch. '

Businesses that can offer proof of incoming cash flows and require funds for general growth and operations without straining access to their current business credit facilities are strong candidates for business loans. Ensure you can provide accurate and up-to-date information around receivables, payables outstanding, and inventory turns if applicable.

PITFALLS OF GROWTH FINANCE

Expanding too quickly might originate from circumstances like delayed collections or premature overspending on assets prior to actual sales being realized. Excessive dependence on loans and debt is also a key danger. The Harvard Business Review has a great article on determining how fast a company can afford to grow - Click here for the article.

HOW TO MANAGE FAST GROWTH RISKS

Businesses can manage high growth via solid cash flow and working capital management. Solid inventory and supply chain controls can help temper the rate of growth - and supplier/vendor relations are key.

CONCLUSION

Understanding growth finance and the crucial function of business cash flow is essential for SME small businesses/firms aiming for expansion. Through preparation and good financial management businesses can successfully steer through growth-related hurdles.

Growth finance is all about the right type of loans and debt and cash flow financing for growth companies looking for transformational change. Debt is a very flexible strategy as an asset class, unlike equity solutions which also dilute ownership.

Rarely will firms in the ' SME ' space be able to boast they have ' too much cash ‘. A more realistic goal that has real value is to ensure you have business credit access when you need it and for the right reason.

For proven advisory services seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your business cash flow financing needs to grow organically and take advantage of the right capital growth solution.

FAQ: FREQUENTLY ASKED QUESTIONS

What is growth capital?

Growth capital is used by companies for expansion. It's invested in mature businesses that need to expand or restructure their operations, enter new markets, or finance a significant acquisition -Growth capital is a type of private equity investment, usually minority investments in relatively mature companies that are looking for funding to expand or restructure operations.

Understanding financing options is key to growth and expansion. Having the right amount of growth capital helps a company invest in r&d or new markets and ensure headcount matches expansion plans.

How do you create a growth finance plan for a business?

Start by evaluating your current financial situation: Analyze your cash flow, revenue, and expenses.
Identify growth objectives and the necessary funding for future cash flow needs: This could encompass capital for product development, marketing and advertising, recruiting new staff, or expanding into new markets.
Explore financing options: After pinpointing your capital needs, begin examining your financing possibilities. These could include traditional bank loans, as well as many alternative financing solutions such as an asset based loan around tangible assets.
Develop a comprehensive plan for funding utilization: Formulate a plan which specifies how the funding will be used. This should incorporate distinct milestones and timelines for attaining your growth objectives which are usually required for approval via traditional financial institutions.

How does cash flow impact business growth?

Cash flow represents the net quantity of capital circulating into and out of an enterprise. It's indispensable for business expansion as it finances daily operations, settles debts, and channels investments into business growth. Sufficient cash flow guarantees that a business can fulfill its commitments and capitalize on opportunities without excessive dependence on external funding. On the other hand, ineffective cash flow management around areas such as accounts receivable can impede growth and even culminate in business insolvency.

What strategies can a business use to manage cash flow during growth?

There exist numerous tactics that a business can employ positive cash flow amidst expansion. These encompass proficient management of credit, utilization of factoring and invoice discounting and other cash flow lending solutions such as asset based credit lines.

Control over stock and inventory, and competent management of the supply chain are important also, In addition, firms should also devise cash flow projections to foresee business needs and potential financial deficits. Short-term working capital loans such as the merchant cash advance financing solution might be appropriate for smaller businesses.

What is sales growth finance?

Sales growth finance refers to the financial strategies and resources used to fuel an increase in a company's sales. These can include various forms of funding aimed at helping businesses expand their sales operations, boost marketing and promotional activities, enhance product development, or enter new markets to increase their customer base and sales volume.

While growth finance broadly aims at supporting all facets of business growth and the needs for future cash flows, sales growth finance specifically targets initiatives that directly or indirectly stimulate sales. This can include investment in new sales personnel, training for existing sales staff, technology upgrades for better customer service, or more targeted marketing campaigns.

As with all forms of finance, sales growth finance should be managed carefully, with a clear understanding of the potential return on investment, to ensure that the increased sales will generate sufficient profits and operating income and cash flow to cover the cost of the finance and income taxes.

How do you finance future business growth?

Financing future business growth involves a series of steps and considerations:

Self-Financing: Start by using your own capital or profits if possible. This is often the simplest form of finance and it doesn't dilute ownership or control of your business while maintaining a positive net cash position for cash generated by the business's current assets.
Retained Earnings: Reinvesting the profits back into the business can also finance growth. This strategy requires good profit margins and careful financial management to ensure funds are available when needed.
External Financing: There are several options for external financing for businesses with good credit ratings -
- Traditional Bank Loans / Unsecured Loans: You could consider a traditional loan or a line of credit from a bank or credit union. These generally require a good credit history, the ability to demonstrate generating cash, profits / net income, and some form of collateral.
- Equity Financing: This involves selling a stake in your business to investors, often venture capitalists or angel investors. While this can provide a significant cash injection, it does dilute ownership and may involve giving up some control over your business.
- Crowdfunding: This involves raising small amounts of money from a large number of people, typically via the internet. Crowdfunding can take the form of equity, reward-based, or donation-based funding.
- Grants and Government Funding: Depending on your location and industry, there may be grants or other funding available from local, state, or federal government agencies as an alternative to debt financing.
Strategic Alliances and Partnerships: Forming alliances or partnerships with other businesses can also provide growth finance. This might involve co-investing in projects or sharing resources.
Cash Flow Management: Effective cash flow management is essential to finance growth via the company's cash flow around operating expenses. This includes understanding the company's cash flow statement, efficient credit management, short term investments financing via the use of effective receivable financing, buying equipment only when needed, robust stock control, and effective supply chain management. Service companies typically require no inventory financing.
Financial Forecasting: Preparing accurate financial forecasts can help identify your funding needs and when they will arise as you spend money. It can also help you evaluate potential returns on investment and assess the viability of your growth plans at financing that comes with a reasonable interest rate based on overall creditworthiness. Ensuring positive cash flow and free cash flow means there are more cash inflows coming in while a negative cash flow indicates high spending while at the same time generating sales.

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Wednesday, June 14, 2023