Working Capital Financing – Methods of Financing A Business

We hate to use an old cliché when we talk to clients, but ‘cash flow is the lifeblood of your business ‘is not the worst cliché you have every heard, especially when financing a business has become one of your biggest challenges. The downside of not having, or being able to arrange cash flow and working capital financing is simply that you have a lesser ability to grow sales, maximize profits and take advantage of new opportunities .

So sitting down with business owners is a great method of ensuring they know what their working capital challenges are, and what the real impact of that phrase ‘ cash flow ‘ means to their business . There is a bottom line here, which is a simple one, you have to know what working capital is, and you then have to know how to get or achieve it. To most business owners and financial managers in Canada the term working capital or cash flow simply means - ‘what cash do I have in the bank?’ But that’s a very weak definition, and that wont get you business financing success – you need to understand how your receivables, inventory, and other assets come together to drive working capital and cash flow.

Your business financing or working capital requirements are driven in a number of manners, it could involve solely the growing of your sales, but it also could mean a major expansion of your business. Most clients we meet cannot hardly imagine having too much working capital or cash flow, but the reality is that if that ever was the case you then cross the line and you are in a position of not being able to use those funds to grow your business – so, bottom line – it’s a balance act, which is as with most other areas of your business.

One of the main things you should focus on is your ability to pay your current debt – On the balance sheet your accountant shows that as ‘ current portion of long term debt ‘ – You always want to be in a position to meet these obligations as failure to do that means you are bordering on insolvency . All of that snowballs into major issues with your bank, your suppliers, and other creditors such as leasing or finance firms.

So as we have said, you need to be able to calculate, or measure working capital, and then address how you will satisfy the need that comes out of those numbers. There are some easy calculations you can perform in measuring your overall cash flow – it’s really simply understanding your inventory and a/r turns, as well as having a handle on your accounts payable days outstanding.

If it was a perfect world you could raise all the working capital you need internally. How would that work?! Well, using an extreme example if you collected your receivables in 45 days, and turned your inventory in 45 days, and were able to pay your payables every 90 days you would be very self financing. Sounds great, except you can hear your suppliers and creditors now I bet... Also, the profits that you generate out of your business obviously become a new additional part of the working capital component and would even further benefit your overall position.

But let’s get back to the real world, which states that if you have more current assets than current liabilities you 99% of the time need external working capital.

Canadian business owners achieve that additional working capital in a number of ways – the most beneficial is bank lines of credit, or in some cases, if your firm meets the criteria, a cash flow working capital loan. If you are unable to meet bank criteria, and are still in a challenged or growing position then we advise clients to consider a non bank working capital or asset based lending facility. If receivables tend to be your main current asset than a factoring or invoice discounting facility makes the most sense.

Most Canadian business owners don’t fully understand how factoring in Canada works, and are often confused by the costs and process – so we strong recommend you speak to a credible, experienced and trusted advisor in this area of Canadian business financing . In some cases you Canadian business owners and financial managers are looking for an interim or intermediate timeframe solution, so a short term bridge loan with using unencumbered assets has helped many clients get over the hump.

So whats our bottom line recap – its simple – a three point scenario : understand what working capital is and isn’t, know how to measure it for your business, and finally understand which cash flow solutions make the most sense for your firm at this point in time .

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/working_capital_financing_financing_a_business.html

Canadian Equipment Leasing - How To Get The Best Lease Deal!

As a Canadian business owner and financial manger you need a certain amount of skill and knowledge to successfully source and negotiate a Canadian equipment leasing strategy. Equipment financing in Canada can be simple or complicated – the business decisions you make around the financing and acquisition of your asset involves a number of factors which have to do with credit quality of your firm, the way in which you will account for the lease, as well as any business or legal considerations around the transaction.

From the viewpoint of your lessor we can probably safely say they are most interested in simply getting paid back, so the ability to present your firm as a reasonable credit risk will allow you to get the asset and amount you want approved, and, as what seems most important to many of our clients, you will get what we would like to call a ‘competitive rate and structure. You also want to know if you are making the right financing decision as opposed to considering an outright purchase or some type of term loan for your asset financing. So at the end of the day you want to know what type of lease and benefits are available to your firm, and who is the best ‘lessor partner’ for this particular transaction.

We meet with many clients who spend countless hours, if not longer sometimes in talking to a large number of lease companies on any given transaction. What they don’t understand ( other than wasting their time ) is that lease companies in Canada are organized by asset and credit quality, and many lease firms are funded in different manners, and in some cases offer only one type of lease , which is not necessarily the lease financing you might need for your asset finance decision. So how do you wade through all this clutter and noise? It might be proper to consider working with an expert who knows the Canadian lease industry, and is a trusted, credible and experienced advisor to your firm in this area.

When we meet with or get a call from clients who have been out in the market ‘ shopping ‘ for a lease it becomes very clear that they appear very un organized and have spent an inordinate amount of time . Also, they are looking for ‘ all ‘ the ‘ benefits’ of lease financing in Canada, when in reality only a certain number , or even a limited number of those benefits might apply to their transaction . Countless firms recount stories of having paid too much for a lease or having focused on an option that ultimately had limited benefit to their firm. Again, understand the market, or work with someone that does.

Your ultimate goal in a lease financing strategy in Canada is to ensure you have, at the start, outlined what makes sense for your firm regarding the lease structure and the appropriate partner.

When you are soliciting lease pricing you should do that selectively with firms who are interested in your overall credit quality, asset type, and dollar size of your transaction. We tell clients to get a ‘market sense ‘of the type of lease financing that is available as the industry has the ability to use jargon that can be considered confusing to say the least!

One strategy you can use is to outline a basic lease financing request and solicit a number of bids – by clearly showing who you firm is, the asset you wish to finance, and the dollar value of the transaction, and the type of lease you require (there are two types) you can quickly eliminate a lot of wheat from the chaff!

In summary, understand what key benefits you want to achieve from a Canadian Equipment Leasing transaction get a sense of who can deliver on those options, and ensure you have a level playing field for lease firms you might want to work with.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/canadian_equipment_leasing_equipment_financing.html

P O Financing and Inventory Financing – Benefits … and Risks!

In the old days Canadian business owners went to their bank for PO Financing and Inventory financing... no really, they did... yes really! Most companies now know that the financing of your inventory, purchase orders, contracts, etc is a formidable challenge in the Canadian business financing landscape.

Simply speaking, your purchase orders, or inventory were collateralized by the bank and you borrowed against them. Therefore cash flow and working capital that was in effect tied up, or rather invested in your inventory and contracts was monetized, and you had the ability to draw down against those dollars.

Well the business financing landscape changed – yet your firm still has inventory, you have growth needs, and you need the financing to drive that growth into sales and profits. If you can acquire inventory financing then the ability to borrow against that inventory and purchase order is a key benefit.

So if the banks aren’t really that into inventory and p.o. financing in Canada, then who is. Well the reality is that it’s done via a select and specialized group of private finance firms who have a total knowledge and focus on the value of your inventory, and furthermore usually carry significant knowledge about your industry and the overall business model you operate in.
You should approach inventory financing with a positive attitude – by that we mean that your presentation for the financing should focus around the positive aspects of your business – those should include inventory turns, marketability of your product, and, very importantly, the gross margins associated with your business. We can categorically say that businesses with very low thin margins are not the best candidates for inventory and PO financing, simply because the financing costs around this type of financing chip away significantly at those final remaining profits.

We mentioned in our title that you should be cognizant of the risks associated with inventory financing – by all means don’t consider the financing of out of date of very slow moving or unsaleable stock – this quite frankly will be viewed simply as a ‘ cash grab ‘ that doesn’t make sense .

You will obtain a better inventory financing and p.o financing deal if you have good controls on your products – that typically might include a perpetual inventory accounting

Clients always ask if there are any special tips or tricks around the financing proposals around p.o and inventory financing. We tend to focus on the basics, which always work - a listing, or preferably an appraisal of your inventory – updated financials, copies of pertinent purchase orders or contracts, and a business plan or cash flow forecast.

The bottom line is that 9 out of 10 financiers have never even heard of p.o financing or inventory financing, so seek the services of a trusted, credible and experienced advisor in this area to assist you in putting the right type of facility in place. An experienced advisor in this area will help you avoid some of the potential risk, pitfalls, and financial ‘damage’ associated with inventory and p.o financing gone awry. They might include higher than market rates, requests for additional hard collateral, locked in contracts you can’t get out of, or inordinate appraisal and inventory count costs.

If you are successful in avoiding those risk the benefits will clearly be obvious - the ability to grow sales with unlimited financing of new sales or contracts, quick turn around for approval, and cash flow benefits derived from your suppliers being paid directly by the finance firm. Additionally you may be in a position to negotiate better pricing on products, thereby improving those gross margins we talk about.

PO and inventory financing, its all about risk and reward – understand those risks, seek an expert to minimize them, and reap the benefits of increased sales and profit growth.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/p_O_financing_inventory_financing.html

Factoring Accounts Receivable – Cash flow Strategy 101!

Factoring accounts receivable is fast becoming one of the most popular ways to generate cash flow and working capital for your business. Thousands of firms in Canada utilize this strategy as a primary method of funding their business.

Let’s examine why this business financing strategy works and how you can best assess if a factoring receivable solution is the best choice for your firm. We also point out to clients that the Canadian landscape for this type of financing is somewhat different from the U.S. models of this type of financing, and one of the most important decisions you can make after choosing to enter into such a strategy is simply picking the best partner for your particular needs .

Factoring is becoming more popular for Canadian business financing simply for one reason – which is that some of the other more traditional forms of business finance have dried up and are not available due to the world economic meltdown of 2008-2009.

Business prospects have clearly improved, but business access to capital has been very slow to catch up. Most Canadian business owners and financial managers turn to banks when they need financing; if your firm is established, has decent financials, is profitable, and means a number of ratios and metrics required by the banks then this clearly is your option of record for business financing – certainly from a cost perspective.

However, if your firm can meet, or qualify for traditional business financing (we are referring mostly to business lines of credit for receivables and inventory) then you must search out and explore additional sources of working capital.
One great piece of mis information out there is embodied in the question many clients come in and ask us about – namely ‘Are there any government grants or loans for my business?”. The reality around that is that there are two programs that consistently deliver on the governments promise to fund small business – one is what is commonly known as the Small Business Loan; the other is the government’s research and development non repayable grant, commonly called the SRED program. That’s great news, you say. Well yes and know, because neither of these programs touch on nor affect our subject matter, which is working capital. The SBL loan covers only equipment and leaseholds, and the SRED program covers a refund on your R&D, if in fact that is applicable.

So we come full circle to how does factoring work and why are it a potential solution for your firm. It works in a very simply manner - you sell you invoices, either one at a time, all at once, or regular periodically at your choice . The key word is selling. When you sell something you get cash, and factoring receivables is your method of obtaining immediate cash.

The complexity of factoring, if we can call it that, is simply how it works on a day to day basis within your own business model, and more importantly, how it affects your customer base. Using traditional factoring as our explanation your firm issues an invoice, you are advanced immediately approx. 80% of the funds, i.e. almost the same day!, and when your customer pays you get the rest of our funds immediately, less a financing charge .

That aforementioned financing charge becomes the most important point of focus for many of our clients – as rates in Canada on a monthly basis range from 1-3% per month .When clients address that issue of cost we point out to them that if they have solid gross margins, can turn over receivables, and have the ability to purchase more effectively with the new cash that the cost of factoring inevitably becomes somewhat of a non event, based on the fact that this facility provides you ‘ unlimited’ working capital on a long term basis.

In Canada the challenge becomes finding the firm that works best for you with respect to the receivable strategy we have outlined. Many of the small nuances around how factoring is marketed, explained, and works on a daily basis becomes the bone of contention for our customers. Seek out a trusted, repeatable, and experienced business financing advisor who can guide you through the factoring maze relative to price, size of facility, and most importantly, how the facility works on a daily basis to augment your cash flow and working capital.

Factoring accounts receivable, when done properly, is a solid tool for you cash flow and working capital needs.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/factoring_accounts_receivable_factoring_receivable.html

SR&ED Financing – How to Cash Flow Your Sr&ed Tax Credit for Cash Flow and Working Capital

First of all lets get the name calling out of the way, you can call it SR&ED, or you can call it SRED ; whatever you call it you can finance your research tax credit !

Canadian business owners and financial managers in a variety of industries have the ability to of course file sred claims, and at the same time, if they choose, they can finance their claim and generate immediate cash flow and working capital from this valuable government grant program. And it is of course a grant because those funds are non repayable.

You can’t take advantage of the program if you do not file a claim, so understanding the basic around a claim, as well as the characteristics that claim needs to be financed is valuable information for Canadian business owners and financial managers. You essentially want to ensure you are getting your piece of the multi billion dollar ‘pie; that is held out to Canadian business for this program.

As we stated, your claim must be filed and substantiated under the normal program guidelines. Canadian firms recoup, as we said, billions of dollars each year for research and development and experimental work for their products and services. One of the misnomers around the program is that your R&D has to be successful in nature, and that’s actually not correct, you just have to be in a position to document what you did and how you did or tried it.

With the information we are sharing here we want to be able to ensure you understand how the quality and size of your claim affect its overall financeability. SRED claims are applied for in all sorts of amounts, we have seen clients file as low as 20,000 – 30,000$ per annum, and as high as 1.5 million dollars, and we are sure there have been higher claims

The actual claim preparation has an effect on your claims financeability – as your goal, should you need the cash flow and working capital, is to monetize that claim into a short term sred loan – with the sred itself being the collateral for the loan.

Although claims prepared by owners and management can be considered for financing, the reality is that if you are applying for sr&ed financing it makes a lot more sense to have your claim prepared by one of two parties, either your accountant , or what is known as a ‘ Sred Consultant ‘. Claims require special documentation and wording, and the reality is that just very recently the government introduced paperwork and online processes in their effort to ‘streamline ‘the program. We tell clients that we are all for the government streamlining things, but if you don’t understand the ground rules things can get confusing.

Depending on the type of expenditures and the exact nature of your claim you should be in a position to get as much as 40% and in some cases the 60% range of your funds back. When you choose to finance a claim the general advance is made at 70% - so let’s do some rough arithmetic around a sample claim and it’s financing.

Let’s say your firm, in tandem with your accountant or sred consultant file a claim for expenditures of $ 575,000.00 – Lets further pick the mid range of our estimate on what your final tax credit rebate will be, so lets assume 50% - That’s a sred tax credit rebate of almost 280,000.00$ .

As a business owner you can wait anywhere from 1-12 months to get your cheque in from the government, which is reimbursed at the federal and provincial levels. Or, if you choose to utilize those funds now under a sred loan, you can get an immediate advance of 70% of that claim, or in our example: 200,000.00$. Could your firm put 200k to go use for either working capital purposes, equipment purchases, or even more on going sred activity?

Furthermore, if you have successfully financed sred claims in the past you could be very eligible for sred accrual financing – which is a special program that reimburses your for your sred expenses as you go along during the year.

Traditional financing institutions such as banks and business credit unions are poorly equipped to understand and finance sred tax credits .As a result we recommend you work with a trusted and credible business financing advisor to ensure your claim can be financed quickly and with a modest amount of preparation. Quite frankly we tell clients that as esoteric as a sred claim might be they should view as simply as any other Canadian business financing – i.e. complete an application, provide back up on your sred claim itself and of course you’re firm, and to be prepared to collateralize the sred for your sred loan funding.

If you feel you are in a position to file a sred claim of any significance then think what the discounting, or cash flowing of that claim could do to your firms working capital .Oh, and by the way, no payments are made on your sred loan, financing costs are calculated at the back end of the claim when you receive your funds, including the previously mentioned 30% that was held back on the financing.

So our bottom line is simply that you should apply for sred tax credits if you qualify, and, as importantly, consider cash flowing those claims if you need funds now.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/sr_ED_FINANCING_SR_ed_tax_credit_sred_loan_.html

Financing Your Film Tax Credits Canada

Canadian film , television, and digital animation producers and owners continue to leverage Canada’s generous tax credit program , and are increasingly being joined by their partners and investors in U.S. and other parts of the world as the momentum in filmtax credits gains traction almost on a daily basis .

The overall challenge however, hasn’t really changed – Simply put –how do owners put together a sensible financing package that includes a proper combination of debt, equity, gap, and tax credit financing that properly leverages and monetizes their production.

As consumers we tend to gravitate towards ‘ experts ‘ in any field, and that should clearly be the focus of your production when you are considering afilm tax credit financing strategy in connection with your overall financing . We therefore recommend to all clients that they seek the advice and guidance of a trusted, credible, and experienced advisor in this area of entertainment finance.

One of the reasons for dealing with an expert is that, while Canada’s tax credits are currently among the best and most generous in the world, the reality is that it is a combination of a federal and provincial effort in Canada’s ten provinces – each province has varying credits, and some are more generous than others! As an example B.C.’s film incentive tax credit is currently 21%, with a 33% production services credit on labour that qualified.Although in conversations with clients we tend to more often than not discuss film tax credits, we should not forget the sister credit, ‘ digital media tax credit ‘; again using B.C. as an example that credit is 17.5%.As an example, Ontario’s production services tax credit is 25%, so you can see the subtle difference in choosing various geographies for domiciling or completing your projects.

Film tax Credits in Canada can primarily be financed in one of two ways, you can arrange financing on completion and certification of your project, or, more popular with clients, you can arrange for an accrual financing. Under this accrual financing of your tax credit you receive funds as you spend them, therefore significantly augmenting your overall working capital and cash flow strategy for your project.

In order to have your film tax credit in Canada properly financed, and as important, in a timely fashion you should focus on some key elements of criticality in advance. First of all you should be in a position to present an overall fiancé plan for your project – that should include timelines, a budget, and your ability to produce proper records around the projects special purpose entity, i.e.Ensuring your filings is up to date. Most productions we see are domiciled under a separate legal entity for the project.

When submitting a tax credit for financing consideration, either when filed, or using our accrual financing scenario you should ensure the numbers have been vetted by a proper accountant, one with entertainment credibility and experience. That simply helps validate the numbers and ensure that you can obtain maximum loan to value for your project.Generally tax credits are financed, when filed, at 70% or more of their overall value – accrual financing tends to be a lower loan to value because of some of the final uncertainties around the size and quality of the filing.

Film, TV, and digital animation productions in Canada can be significantly assisted by a proper tax credit financing strategy.

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http://www.7parkavenuefinancial.com/film_tax_credits_canada_film_financing.html

Franchise Financing – A Canadian ‘ how to’ Model !

Franchise financing – you’ve made the decision about your future as a Canadian entrepreneur and selected your franchise of choice. Now the only minor detail involves how to pay for and finance this major investment on your part!

The purchase of a franchise is an investment in your future, the ability to operate your own business and generate personal income and wealth – it therefore makes sense to ensure you finance that purchase in the right manner.

If you have purchased the right franchise you should first feel comfortable that you have selected a solid business model, and, where applicable, a good location. Franchises have a strong ability to generate sales and profit from the beginning because they have proven marketing plans, solid training for franchisees, and sources of supply and support. All of these factors are necessarily harder to obtain if you are starting a business that is a non franchise.

So we agree you have aligned yourself with a winning franchise model. How do you finance that franchise when you in fact read that business financing is as challenging as ever in the 2010 environment. The ‘ trick ‘ if we can call it that, ( its actually hard due diligence and working with the right people ) is to match the proper amount of debt and equity that leaves you with the right financing options for both the purchase of the franchise and future growth .

Let’s look at a real world example - We recently worked with a client who wanted to open a high end grocery chain. The client was under the impression that the entire 1 Million dollars + he needed was readily available from various single financing sources. The reality is that many lenders still view franchisees, as proven as they are, as start ups, and no one is ever going to lend one million dollars for a new venture. So what do I do now, asked the client? A practical solution for this client is what we call the ‘ cobbling together ‘ of various financial mechanism that will allow the franchisee to meet his goals, in this case that was a government small business loan, a term loan for equipment and working capital, and lease financing .

So we can’t over emphasize that franchise financing in Canada is about ‘options ‘. Investigate those options thoroughly, match benefits to risk and reward and cost of financing, and pick a suitable combination that works for your risk appetite. The largest corporations in the world have Chief Financial Officers that wrestle everyday with two terms – debt and equity. That is, how much do they borrow, and how much do they ask their shareholders to put in.

Guess what , you’re now the CFO of your own corporation and you are wrestling with that same conundrum – how much of your personal resources will you put in, and how much can you, and are you willing , to borrow . The proper balance of debt and equity in your Canadian franchise is what will bring you financial success.

Buying a franchise and then financing a franchise successfully is the key to your overall business success. Speak to a trusted, credible, and experienced franchise finance expert who will guide you through the maze of franchise finance options. Be prepared to make the proper amount of personal financial investment into the business, but at the same time don’t be afraid to take on good debt that makes sense for proper leverage and growth .That’s a solid financial strategy!

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/franchise_financing_buying_a_franchise.html