Don’t Take This The Wrong Way: Do You Know The Difference Between Business Solvency And Liquidity
OVERVIEW – Information on business liquidity and solvency finance solutions for Canadian business financing strategies for growth and operations
Business liquidity , we've found, means different things to different people. So... don't take this the wrong way, but do you really understand ' solvency finance issues when it comes to your firm's current and long term cash flow needs? Let's dig in.
The challenge around understanding the overall liquidity of your business essentially revolves around long term commitments, recognizable by the term ' solvent'. As all business owners and financial managers know only too well business also operates in the short term, requiring ' real cash ' to make its commitments.
Another way to explain the situation is as follows - when lenders as well as investors look at your firms overall financial status they view it in terms of all your assets versus your liabilities. More assets are better!
Your goal? To insure your company has long term health as well as meeting its daily commitments. Although it shouldn’t be the case (but unfortunately is) many owners/ managers are ' distracted' by paper profits and sales growth, not foreseeing the ' liquidity ' crisis coming down the road.
Having those assets we spoke about, and knowing how to finance them is the key to liquidity - you're 'solvent' on paper and liquid in the bank. Assets, both current and fixed, give you ' financing power' to become more liquid.
However, we're the first to mention that assets poorly managed, valued, or the lack of current asset turnover again brings us back to our point - you're solvent on paper but facing failure in liquidity .
Canadian chartered banks are the best when it comes to providing capital when your business, as well as the economy, is in ' good times'. When does that change? Banks are rightfully not prepared to finance financial losses, downward spiraling sales, etc.
How then does the business owner/mgr finance itself properly and avoid the dreaded ' cash crisis' that almost all businesses , large and small, face at one time or another. One solution is ensuring that your available cash is augmented by a business credit line. Canadian business can access either bank revolving facilities, or if they don't qualify ' ASSET BASED LINES OF CREDIT - ' ABL'S are available from commercial lenders.
Typically combinations of mgmt activity are required to ensure proper liquidity - that includes structuring credit lines that make sense, managing payables, and addressing key profit/margin issues.
Bankers, as well as those friendly Bay street guys, and other commercial lenders have various time test tools to quickly assess your solvency and liquidity. These ' ratios’ include net working capital calcs, debt to equity tests, interest coverage, and asset turnover.
Knowing how these tools measure your company is a great asset for any owners/mgr.
Financing mechanisms that help you to both manager liquidity and solvency include:
A/R Financing
Inventory loans
Bank revolving credit lines
Non Bank asset based lines of credit
Tax credit finance
Equipment Financing/ Sale Leasebacks
Royalty Finance
Unsecured cash flow loans
If you're focused on ensuring you've got both the tools ( to measure ) and the solutions ( to solve ) liquidity and solvency issues seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can assist your firm .
Stan Prokop
7 Park Avenue Financial :
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 . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS LIQUIDITY FINANCE EXPERTISE
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
' Canadian Business Financing With The Intelligent Use Of Experience '
ABOUT THE AUTHOR
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
