YOUR COMPANY IS LOOKING FOR CASH FLOW ASSISTANCE!
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
When business owners and financial managers are looking for financing in today’s challenging commercial financing environment they are in many cases contemplating alternative types of business financing outside traditional Canadian chartered bank solutions.
HAVE YOU INVESTIGATED ALTERNATIVE FINANCING SOLUTIONS
So why are these companies looking for alternative solutions? There is a fairly strong consistent profile that emerges in Canadian firms looking for alternate working capital solutions.
FINANCING GROWTH IS CHALLENGING
Many companies, despite the difficult 2008 and 2009 financial-economic challenges are encountering many opportunities to grow - and let's not talk about Pandemics/Covid! Yet as those growth opportunities emerge they find themselves challenged by traditional debt to equity ratios and lower tangible net worth’s than are required by traditional financial institutions such as the Canadian banks.
WHEN THE BANK SAYS NO ...
We quickly add that if Canadian businesses are enjoying profit, a clean balance sheet, and adequate capital rations they are absolutely candidates for Canadian banks. However, not all firms find themselves in this situation! Instead, firms are challenged by bank lines that have been capped or constrained, debt covenants that restrict, and higher cash flow needs due to higher investments in accounts receivable and inventory required to fulfill those great new contracts and purchase orders.
UNDERSTANDING YOUR CASH FLOW CYCLE AND BUSINESS NEEDS IS THE KEY TO SUCCESS
So what’s the alternative? There is a triple threat solution’ available to many firms who may not even know this type of financing is available. We will call it the ‘holy grail ‘of working capital financing, because it covers purchase orders, inventory, and accounts receivable. Business owners clearly recognize those as key elements of their ‘operating cycle. That is to say, they get an order, purchase or manufacture a product, and convert the sale into an account receivable. That’s the good news; the bad news is that that entire process probably takes 90 days, even more sometimes. Cash flow is needed in the interim!
THE IMPORTANCE OF WORKING CAPITAL AND FINANCING THE BALANCE SHEET
Why is working capital and cash flow so important to your business. One reason is simple and should be obvious – if you manage and understand the whole process you will have a strong ability to predict how much cash you need in the future – and all you need to do is invest some time in understanding your balance sheet and that relationship of current assets and current liabilities to measure issues around cash flows in your firm. Your financial statements will always point to the amount of cash you require - even managing accounts payable properly will have a major effect on cash flow.
RECEIVABLE FINANCING - FINANCING SALES!
Customers are turning to factor or accounts receivable financing as the most immediate and obvious solution to their problem. By partnering with the right firm they convert their receivable to cash the day they are able to invoice and recognize revenue. The lower Days Sales Outstanding achieved by factoring turns credit sales into cash. This is short term financing versus a more long term permanent solution around your companies day to day operating activities.
This same working capital allows the Canadian business owner to strengthen supplier relationships, which is critical in a negative economy. In some cases your firm might be able to, (for the first time ever perhaps?!) To take prompt payment discounts. It might not be obvious to some owners that the ability to take prompt pay discounts can offset a very substantial part of the higher cost of factoring.
IS PURCHASE ORDER FINANCING RIGHT FOR YOUR FIRM
We have talked of a combo of alternative financing solutions that are interdependent on each other. Canadian business owners may not necessarily be aware that purchase orders can be financed also. With good purchase orders from solid customers, financing can be obtained on the strength of the purchase order itself. This continues to be a relatively unknown financing concept in Canada that is gaining some popularity.
We spoke of receivable financing, a.k.a. factoring, purchase order financing, and let’s not forget the final piece of our puzzle, inventory.
INVENTORY LOANS
Solid financially stable businesses with bank credit lines can in fact obtain inventory financing or margining of their inventory. Many smaller and more ‘frail’ firms cannot, and aren’t aware there is a growing number of inventory financing options. On balance we can say that a reasonable commodity type inventory, (i.e. saleable) can in fact be financing for anywhere from 40 cents to 80 cents on the dollar.
CONCLUSION
In summary, Canadian businesses that do not qualify for a full-fledged bank operating lines can choose one, or all three of three different alternative working capital solutions – those being factoring, purchase order financing, and inventory financing. Consider seeking and working with a trusted advisor with experience in these alternative facilities and your firm will have an arrangement that takes your financial success to the next level. The inflows and outflows of business capital in your business and how you manage them is key to business success in the growth of your products and services.
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Stan Prokop
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