How to Get Your Canadian Business Equipment Financing Lease Approved

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Here's The Answer To ' What's My Rate "?!

Information on equipment lease rates in Canada. Leasing rates don't have to be an unknown factor in strategies for business loans and asset acquistion. Here's why !

'What is my rate?' is a question I am often asked by customers when they work with us with respect to equipment and lease financing. They are surprised when I tell them that they get to pick their own rate! (All customers want the lowest rate!)

I am not trying to be facetious when we make that statement. What we are saying is that the over all credit quality of a customer, as perceived by the lender ( that's important!) is in fact set by the customer, thereby driving a final approval on rate, term and structure of the proposed financing request.

The role of the customer, or their trusted advisor is to understand the basic credit information requirements and how the overall risk to the customer and their industry will be perceived by the lender. The irony of a lot of business leasing is that the industry for the most part used historical analysis to project future ability to pay. That is a difficult concept for the customer to handle more often than not - as an example the customer may have lost some money last year, driving a negative cash flow figure. Prospects have improved, new orders are coming in, and yet the business has a problem in getting new financing.

The customer needs to ensure that the information and ' story ' make the transaction become more ' approvable'.

Critical categories in the information submission by the company are as follows:

Length of time in business
Personal credit history of the owners
Relationships with other financial institutions
Quality of the financials (Some customers submit balance sheets that don't balance!)
Additional collateral available if necessary
Summary of key financial info such as depreciation, cash flows
Positive focus on management and its background and experience

If the customer is qualified to make such a submission a solid package as per our list noted above should lend itself towards an approval at current market rates and structures. If the customer feels they are not properly qualified to make such a submission they are strongly encouraged to used a qualified intermediary who knows the industry and, more importantly, knows the specific weighting given by a lender to the above noted submission requirements.

The amount of information required around each component is more often than not determine by the size of the transaction or the lenders total exposure to that customer. In many cases small ticket transactions (those under $ 25,000.00) are adjudicated via a credit application and public reporting sources such as Equifax or Dun and Bradstreet. Typically 60-70% of all small ticket transactions are approved.

In summary, customers who want to get a prompt and of course positive lease approval should focus on providing a clean package of required information that will ensure a prompt approval based on specific industry requirements around the transaction size and asset type. Knowing that the lender will focus on future potential of the firm, the management experience, and the collateral asset are valuable data points for any business seeking a business equipment financing lease.



Stan Prokop - founder of 7 Park Avenue Financial –

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com

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
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














Article Source: http://EzineArticles.com/expert/Stan_Prokop/432698

Article Source: http://EzineArticles.com/3428649

How To Be Successful In Financing Inventories In Canada : Which Business Loan Suits Your Inventory Finance Needs

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We're Talkin' Turkey On Inventory Financing Needs !

Information on financing inventories in Canada. Business Loan needs around working capital and cash flow often require some level of inventory finance to supply your business with capital required to grow and profit

Canadian business owners and financial managers are always challenged to properly finance inventory for both regular operations and of course growth.Does Your Business Have An Inventory Finance Hangover ? Here's Some Cures !



There are a number of inventory options in Canada – some of these are complimentary to your firm’s current operations, some are unique and stand along financing arrangements.



As we have noted, business either require inventory financing as a part of their regular operations, or they often require increased inventory financing based on growth and large new orders and contracts .



Customers that our firm works with fall into a few specific categories with respect to their inventory financing needs:



They have existing inventory financing through their banking arrangement

They have bank financing but this does not include an inventory component

They have alternative financing arrangements via an asset based line of credit or a purchase order financing arrangement



It is also important to mention that when we sit down with a customer and discuss inventory financing the term inventory is used as a ‘catch all ‘term – in reality Canadian business inventories fall into several categories - raw materials, work in progress, and finished goods.



Canadian banks in Canada finance current assets of your firm as an ‘operating facility ‘or revolving line of credit. This type of facility margins receivables at usually 75%, and inventory at much less of a % of margining. That places a working capital pressure on the firm as it requires cash to pay for goods, with this cash not turning into a receivable and cash for at least another 60 days.





When bank financing does not include an inventory component that is when the financing challenge truly begins.



We are of the opinion that the best inventory financing arrangement for Canadian firms is a true asset based line of credit that is a non bank facility. We can also call this a true working capital facility, as it provides you with a very strong margining of BOTH your receivables AND inventory! In our experience, and depending on your industry, you will achieve the highest level of margining, and therefore working capital, based on this type of financing arrangement. Although financing costs will be higher than bank rates you will have the capital you need to grow your business and service orders and contracts.



When your business is heavily dependent on an inventory component (unlike a service oriented company that has either no inventory or little inventory) you need financing to be able to turn over stock and remain on strong terms with key suppliers, or overseas suppliers.



How much inventory financing is needed? Many business owners intuitively know how much inventory they need to have on hand, or what amount of financing they need to support that inventory. If they don’t we work with customers to help them understand those calculations and numbers. A great and easy tool for the Canadian business owner or financial manager to use is the simple measure of: INVENTORY TO CURRENT ASSETS



As a business owner you are always concerned about enough inventories on hand to service customers. Receivable are close to cash, but inventory is not exactly self liquidating into cash, so the management of inventory is critical.



To calculate your ratio simply take inventory and divide by your total current assets, and for discussions sake multiply by 100 to get a %. So what is a good number? The answer is there is no right answer as every industry is different. So the best way to employ this great tool is to calculate this ratio historically and on an ongoing basis and determine if you are entering a ‘red flag’ situation.



We encourage Canadian firms to talk to a trusted business financing advisor to determine what options are available, and how they can maximize inventory financing for their future growth and profits! Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can assist you with your business finance needs.


Stan Prokop - founder of 7 Park Avenue Financial –

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com

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
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

How To Assess Business Loans & Alternative Financing Options In Canada ! Financing Cash Flow 101

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In Pursuit Of Business Financing Alternatives ? We've Found Them!
P.S. Traditional Business Loans Solutions Work Too !

Information on considerations owners/financials need to make in financing cash flow . Traditional business loans and alternative financing options abound in Canada . The catch ? Which ones work for your firm ?

When business owners and financial managers contemplate additional borrowing for their firm they must think it terms of whether the business does, or will have, enough cash flow to make the debt repayments. We can further assure business owners that the bank or lending institution is thinking the same way!

When businesses enter into bank loans or other institutional loans the payments are, 99% of the time fixed and specified. The business owner and financial manager must ensure those payments can be made. If the company has over relied on debt it is viewed as highly leveraged  by the lender.

So how can a business owner determine if the company has the cash flow to support the debt? More importantly how does the lender do that calculation?

The calculation that banks and other term lenders focus on is called 'Times Interest Earned '. The business owner (and the banker) can calculate that formula very simply.

The Times Interest formula is calculated as follows:

Net profit before taxes, plus interest expense / divided by interest expense

The calculation becomes an absolute number. If the number is in fact '1 'that means that the company has in act made just enough to pay the exact interest expense for the year. We would point out that this calculation is always usually done on an annual basis.

So is '1' the magic number? The answer is no, and the answer should be intuitive to the business owner. That is because a times interest of 1 means there is absolutely no cushion for anything going wrong, and all business owners no about Murphy's Law!

So if earning decline or if the company takes on additional debt our ' times interest earned ' number become unsatisfactory - that is to say that we have determined there is not sufficient cash flow to service the debt.

We have determined '1' is not a great number then, well what is? The answer, as in many facets of business, is of course 'that depends '. Many industries differ and there is not really any specific number that is viewed as the Holy Grail by lenders. What we have found though that higher is better than lower. When the number is hovering around 1 both the business owner and the lender, should and will, respectively, have some concern.

We point out also that income, as a key component in our calculation varies between companies in final calculation re tax rate and other accounting adjustments. Some lenders and business owners also add deprecation to the profit because it is not a real cash expense.

Another quick calculation business people can perform is to calculate the cash flow number as a per cent age of debt. This calculation is often done by lenders to ensure long term debt is not being miss-used. If a company has a high percentage of total debt to cash flow it should be a strong indicator to the company owners that growth will be constrained, as all cash is going to debt, not growth. Therefore new equipment, inventory, receivables, etc will suffer in terms of growth.

In summary, business owners, by doing actual current calculations, as well as projections, can easily calculate their 'times interest earned' and cash flow as % of debt. This will allow the business to position loan repayments positively with their lenders, at the same time providing them with insights into how the bank or other lender will view payment capability. Financing solutions available to your firm include, but are not limited to :

A/R Financing
Inventory Finance
Asset based lending
Non bank business lines of credit
SR&ED Tax Credit Loans
Equipment Financing
Unsecured Cash Flow Loans
Royalty Financing
Sale Leasebacks
Commercial Mortgages

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your financing needs.





Stan Prokop - founder of 7 Park Avenue Financial –

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com


CONTACT:

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
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

Why Equipment Leasing Dominates Asset Financing In Canada : How To Win With Lease Finance Strategies

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The Secrets Behind Equipment Financing In Canada

Information on equipment leasing in Canada. Asset financing strategies and decisions almost always include lease finance solutions. Here's why !

When Canadian business owners and financial managers realize that the core of their business is often the acquisition of capital assets they need to investigate equipment leasing in Canada. Why do they wish to lease? Very imply put – necessity, convenience, risk shifting, and tax and financial statement advantages. Let's dig in.

Depending on what industry you Canadian company is in you potentially have a large need for capital equipment. Capital expenditures, capital equipment they are simply the business ‘buzz words’ for assets that you need to run your business – it might be a new computer system and software ( yes software can be leased and financed!) , plant machinery, or additional office equipment such as copiers, etc . All of those assets can be financed.

As your company has grown it has potentially grown more debt at the same time! The bankers and financial analysts of course refer to that as potentially ‘over leveraging’ your company. Your are of course repaying that debt from your cash flow and profits, and most business owners and financial managers do not wish to hinder their bank arrangements. In certain cases based on the current economic environment you might even be looking at an acquisition , which is another very solid reason to avoid ‘ senior debt ‘ – By senior debt we usually mean bank and mezzanine or subordinated debt that you have in place .

So what’s the solution? You might be saying, ‘... well leasing isn’t necessarily the solution because that’s more debt right ..? ‘And the answer is: maybe. The reality is that by carefully structuring your capital asset acquisitions as operating leases you avoid some of those balance sheet issues which may have, or could become, a concern.

Canadian business owners might be thinking that the same challenges they faced in obtaining that ‘senior debt’ we spoke of might in fact come into play with lease financing. The reality is that equipment lease financing, particularly when structured properly by an advisor or lender who is credible is in fact very asset focused and places significantly less reliance on the traditional metrics imposed by banks.

As in every aspect of business you should be partnering or consulting with someone who is a recognized expert in equipment lease financing and who will maximize flexibility and take the time to understand your business.

The internet might be a very reasonable choice to find such an expert partner, and of course referrals from your trusted sources are worth their weight in gold also.

In Canada, if you are choosing to enter into lease financing and you do not understand:

The industry players
Credit and documentations issues
Types of Leases
Rates structures based on your credit quality

Etc, then you potentially are at a very significant disadvantage with respect to maximizing the best type of lease financing that your firm can achieve.

Competitive pricing and Approved Financing – those are advantages of Canadian equipment financing!


Most Canadian business owners and financial managers understand the basics of leasing and equipment financing, as the industry had flourished and grown for decades. The basic premise is simple, your Canadian firm wants to use an asset, but not necessarily own it, and, more importantly, you don’t want to pay for it all up front and receive the economic benefits of that asset over a number of years. Lease transactions can typically e three to five years, but some assets have much longer terms, and of course much longer useful economic life.

What can get confusing for some business owners is, on occasion, the various terms around the concept of leasing, you may have heard them many times before. They are terms such as financial lease, capital lease, full payout lease, operating lese, and finance lease. All of these terms refer to the general concept of leasing, and specifically to the types of leases then your firm can enter into. You clearly want to know what type of lease you are entering into!

Why does Canadian business choose to use lease financing as an alternative financing vehicle. We will discuss four of them -

The need to finance

Flexibility and convenience

Risk (asset)

Accounting and tax reasons


So let’s recap a bit about those issues. When we say ‘ need to finance’ your Canadian company has a need for assets and capital expenditures, but you either do not have the cash to purchase those items, and probably if you did you would want that free cash to run your company from an operating perspective, i.e. buy inventory, etc.

With respect to convenience your firm may require the latest technology for, say, computers, or plant production equipment. You certainly don’t intend to purchase an asset for a short time, take the depreciation hit, and then sell it. That would not make business sense.

We alluded to ‘risk ‘as a key concept in lease financing. By that we meant that there are risks associated with many asset types, think computers as an example. New computers and technology come out it seems almost every day – why would we pay full price for an asset that wont be producing to industry requirements in a year or so, and , furthermore, what would we do with that asset after its no long ‘ leading edge’ technology . That is where lease financing in Canada makes perfect sense.

And don’t forget when we said flexibility is a key concept in leasing. It’s never a perfect world with perfect timing in business. Let’s say, using our computer example, that your firm invested in computing technology, or telecom for example, and you structured a lease to use operating lease for 2 years.


Now we come to the end of that 2 year term and what do we find. The asset seems to still be fairly leading edge, and we are receiving fairly good economic benefit. But our lease is up. What do we do? Here comes the flexibility – we call our lessor or trusted leasing advisor and negotiate a 6 or 12 month extension to our lease. Savvy business owners will also ask the lessor to reduce the monthly payment, as the lease company has generally recovered all its initial investment.

Canadian lease financing and equipment financing – is it your only business financing option – No. Should you consider it as one of your financing alternatives – most certainly! Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your asset finance needs.



Stan Prokop - founder of 7 Park Avenue Financial –

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com

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
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

How Does Ed Predict My Business is Going to Go Bankrupt? And Who is Ed?

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We are quite sure that many business owners and financial managers, and to some degree even sophisticated financial analysts have never heard of Edward Altman.

Altman was a pioneer in financial research into troubled firms. He was a New York professor/scholar. Obviously this took a lot of what we could call ' back testing ' - that is to say going back in a companies history to determine why they failed and what were the financial characteristics of that failure.

A lot of his work revolves around the in depth analysis of 33 firms that went bankrupt eventually.

Altman wrote volumes on companies in distress and bankrupt companies, and is most known for his contribution of a short formula called 'THE Z-SCORE '.

What is the Z-SCORE? In essence it's a predictor of bankruptcy and business failure! One might think the formula is overly complex, but it is not. It is simply an analytical tool that could be used by any business owner, financial manager, or for that matter a personal investor looking to purchase a stock in the stock market. It is somewhat of a dramatic statement, but Altman felt you could predict the bankruptcy, in many cases, several years before the actual event. (Short sellers of stock take note!!)

Altman developed the tool in the 1960's and we feel it is still very valid today. The ultimate result of a Z-SCORE calculation is an absolute number. If firms have a score of 1.8 or less Altman maintains the company is a strong credit for bankruptcy.

How is the score calculated? Again, readers will be surprised at how easy the score is to calculate. Remember that the absolute number of the score essentially is a reading on the company's financial health.

The elements of the score are as follows:


Working Capital
Total Assets
Retained Earnings
Earnings/Profit
Sales
Total liabilities

Note ** If any business owner does not know how to get those numbers from his financial statement we suggest they are already headed for business failure!

The calculation is done as follows:

Working Capital divided by Total Assets
Retained Earnings divided by total assets
Earnings divided by total assets
Retained Earnings divided by Total liabilities
Sales divided by Total Assets

Each number is calculated and then added up. The result is a final Z-SCORE. Remember that we have said that if a company has a score of less than 1.8 Altman believed they were headed for bankruptcy. (Note there is a weighting assigned to each calculation also - readers can do their own research on the calculation) Obviously when he back tested those financials of firms that ultimately failed he showed they had exhibited a score of less than 1.8 much earlier.

Altman noted that firms with a Z-SCORE of greater than 3 were, in general, strong financially. Readers can also guess that a company with a score somewhere in the middle is a firm in the 'grey zone '. The bottom line - lower is worse!

So would you invest your personal money in the stock market in a company that had a Z-SCORE of 1.8? And do you believe you have a tool that can effectively predict the ultimate failure of a company. And finally, do you know the Z-SCORE of your own firm as a business owner or financial manager - we have shown that it is not hard to calculate. We note that ALTMAN did feel strongly that the formula works better for larger corporations. What the reader does with that data is a subject of another discussion.

No formula is absolute, but, the weight of evidence suggests that if Ed (his formula /model) is predicting something, we should listen!



Stan Prokop is the founder of 7 Park Avenue Financial

http://www.7parkavenuefinancial.com

The company originates business financing for Canadian companies and is a specialist in working capital and asset based financing of all types. For more information or contact details please see: http://www.7parkavenuefinancial.com

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
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



Article Source: http://EzineArticles.com/expert/Stan_Prokop/432698

Article Source: http://EzineArticles.com/3670251

Business Financing In Canada : Understanding Your Operating Cycle For Working Capital & Cash Flow

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The Operating Cycle - Your Washing Machine Or Your Business?

OVERVIEW - Information on the operating cycle of a business . Canadian business owners and financial can understand their working capital and cash flow needs relative to business financing solutions

The 'operating cycle is a distinct part of any business. Frankly we believe that most business owners intuitively know it exists - they just didn't know it had a name.

The operating cycle is the repetitive pattern of a turnover of a businesses current assets and liabilities. Let's examine that in a bit more detail. In essence each business established within their company, and probably within their industry, a repetitive pattern of turnover.

In the first phase of the operating cycle a business, unless it is a service business, buys inventory and materials which they will resell to customers. Normally these goods are obtained on credit. The company buys product, and obviously has an account payable to that supplier. So we find that company paying their supplier, cash goes down and inventory goes up. So far so good.

In phase two of the operating cycle the company sells product to a customer. More often than not it sells on credit - this generates accounts receivable - the good news is that the company can finally record sales, or revenue.

In phase three, the final phase of our operating cycle, the company collects the receivable and converts the entire process we have gone through back into cash.

Yes, our analysis is over simplified, and of course behind all these processes the company has administrative and sales costs that back up the entire operating cycle. All of these costs are in some manner related to the final sale and have some sort of contribution in that regard.

We also need to remember that through the entire process bank loans or working capital facilities regularly turn over.

Each company and industry has a different operating cycle - within each industry some companies are clearly doing better than others.

One of the best know ways to measure a firms operating cycle is a formula created by the DUPONT COMPANY many years ago - not surprisingly the formula is called the DUPONT FORMULA!

The formula looks at relationships, or ratios, in the balance sheet and income statement and provides solid ways of measuring the operating cycle and how it affects a company's profit, and operations. It provides a lot of insight into how a company can improve profitability by emphasizing asset turn over and showing how it's important as sales. Even a non- financial person should be able to understand this - we are simply saying that if a company get buy something, sell it, and collect the money fast and start all over that will increase profits over a company who takes twice as long to repeat that entire process. Sales are not always the be all and end all! A company, using DUPONT, can show that even if they make a little less on each sale, but turn over inventory and receivables faster, can do as well or better than the competitor.

In summary, a true understanding of the operating cycle allows a business owner or financial manager to focus on expenses, asset turn over, and margins, and see the inter - relationship of all these three components of a business. Understanding and improving your operating cycle will make your firm a leader, not a laggard, in your industry. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your business finance requirements.

Stan Prokop - founder of 7 Park Avenue Financial –

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com


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
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

Business Finance & Working Capital Financing Cash Flow Loan Solutions In Canada

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And Now For Something Completely Different -

Solutions for SME COMMERCIAL FINANCE needs

OVERVIEW - Information on working capital financing solutions for small and medium enterprise commercial business finance needs in Canada. Which cash flow loan or asset monetization strategy works for your company ?

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 clearly, 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 the at the same time minimizing loan interest and any other external financing costs . When a business gets its hand on a proper working capital solution it has the potential to reduce or minimize debt, and increase bottom line equity or value in the business.


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.


The Canadian business owner and financial managers 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 chance 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


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.


How do we calculate the working capital to sales ratio? It’s easy. Working capital is essential 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 you 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 maximize 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’s 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 that the cost of a working capital facility to cash flow those receivables and inventory!



Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with loan and cash flow needs.


Stan Prokop - founder of 7 Park Avenue Financial –

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :

http://www.7parkavenuefinancial.com



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
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