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Financing & Cash flow are the biggest issues facing businesses today
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Business cash flow in Canada. What in the world would that have to do with pigs, cows, and... Heaven forbid... killing pigs? That's the question business owners ask us here at 7 Park Avenue Financial - and we have an answer!
Basically, it comes down to this, and all of a sudden our animal analogies will make a lot more sense when it comes to working capital and funding your business.
And what do we mean by that... just that your current assets in your business, i.e. receivables, inventory, prepaids, etc. are cash pigs. They require and use cash, and if you don't manage them properly bad things happen and positive cash flow doesn't happen!
Your business's financial statements will help you determine your liquidity issues and overall solvency - the actual cash flow statement ( the least read by owners unfortunately) shows your operating cash flows, investment flows and financing activity - At the end of the day its a clear and exact picture of ' where got, where gone ' in cash.
TURN YOUR BUSINESS INTO A CASH COW WITH 7 PARK AVENUE FINANCIAL FINANCE STRATEGIES
But the good news - when you do manage them properly your company embraces that other barnyard friend, the ' cash cow '!
Your cash flow from operating activities is a picture-perfect statement of what you received from customers and spending. It's the inflows and outflows that will help identify if you are eligible for cash flow financing solutions.
MANAGE AND PROPERLY FINANCE YOUR INVESTMENTS IN CURRENT ASSETS AND FINANCE THE BALANCE SHEET
The Canadian business owner and manager can easily be forgiven sometimes when it comes to concepts such as growing business assets.
That's a good thing, right? Well, sometimes but definitely not always because the constant build-up of current assets (again, your accounts receivable, inventory) can be disastrous for your company if not addressed by two actions you can take - Managing assets and financing them to maximize working capital. It hopefully will be no secret that managing current liabilities properly, typically accounts payable will lead to further cash improvement.
It's all about knowing how to read and more so, ' interpret' your financial statements, and we want to help.
While we're all for working with clients on financing working capital and providing solutions that match their needs its the business owner/manager that can also make a huge dent in their cash flow plan by simply reducing and managing receivables and inventory.
The prestigious Harvard Business Review has a great article on reading your cash flow statement and understanding key issues around net income vs cash flow from operating activities.
THE FINE LINE BETWEEN COLLECTING ACCOUNTS RECEIVABLE AND MAINTAINING CLIENT RELATIONSHIPS
Naturally, it's human nature for the business owner/manager to feel that if they overly pressure their client base for payment that they might be in a position to lose their customer. Don't forget though that large corporations invest huge amounts of capital in people and systems when it comes to enforcing their payment terms and enjoying operating cash flow success
KNOW YOUR METRICS - DSO IS AN IMPORTANT ONE!
By the way, that’s one of the ways that they became a large company - and we shouldn't be surprised that the metrics of Days sales outstanding / inventory turns and working capital are often keenly related to the compensation of very senior management, up to and including the president.
So those big guys just might be on to something! Whether you are a small business or a large corporation in business finance the same success factors and solutions apply!
THE BUSINESS OPERATING CYCLE
The same general concept applies to inventory also, and if your business has an inventory component on the balance sheet (services businesses of course don’t) it might already be taking months for inventory to work your way through your system and finally become: ' CASH FLOW '!
While we have focused on the left side of the balance sheet the corresponding current liability on the other side is of course payables, and if you properly manage payables that’s also a great cash flow generator. Again don't our large companies do that great also? Their modus operandi... pay everyone slowly... because... hey... they're big and they can!
CANADIAN BUSINESS FINANCING OPTIONS FROM 7 PARK AVENUE FINANCIAL
Working capital solutions to enhance business cash flow are abundant. it's all about which one is for your firm. Some solutions are short term in nature, some long term and they need to be matched to your current needs. So whether you are looking for a small business loan to start a business all the way to considering an acquisition of a competitor these solutions apply -
They include:
A/R Financing
Inventory Loans
Access to Canadian bank credit/line of credit/term loans
Non bank asset based lines of credit
SR&ED Tax credit financing
Equipment / fixed asset financing - financing capital expenditures
Working Capital Loans
Cash flow loans
Royalty finance solutions
Government Of Canada Small Business Loan Program - The Guaranteed federal business loan
KEY TAKEAWAYS:
- Good cash flow analysis techniques will help you understand how your business generates cash
- The ability to address sources of cash helps ensure business growth and success and enhances the company's net income
- Profit does not equal cash flow - fast-growing companies can be profitable and burning cash at the same time
- Business owners who take the time to understand cash outflows and the ways to measure cash in their business will have a solid grasp on the company operating income finances and its fiscal health
- There are alternatives to cash flow loans such as the Canada Small Business Financing Program, as well as the use of business cards or Receivable Financing solutions such as factoring.
- Businesses should understand certain eligibility requirements around cash flow loans such as time in business, size of the business, requirements around personal guarantees, etc
CONCLUSION
There is a great analogy around managing and financing current assets, and it revolves around running your company like a car, with yourself as the owner or financial manager always watching the controls. And when you don’t... there's a crash around the corner, and the cash flow pigs have in effect won the battle.
Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advising on barnyard management - turning your company into a cash flow cow and wrestling down those cash flow pigs! Get successful in positive cash flow and business capital and working capital financing solutions today!
FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
What are some strategies to accelerate cash flows in a business?
Aside from lowering spending companies can focus on strategies to grow revenues while managing collections around cash inflows of accounts receivable receipts to avoid negative cash flow . Cash inflow can further be enhanced via the practice of offering prompt payment discounts to the client base. Net cash generated via effective turnover of inventories will also assist the cash position, In some cases, companies should consider eliminating all or part of dividend payments to owners/shareholders.
The cash outflow for the purchase or replacement of capital assets via long-term debt solutions such as equipment leasing /equipment loans is a good use of cash flow from financing - Debt repayment for business and technology assets can be amortized via such solutions around asset debt financing for terms up to 5 years. Negative cash flows can often occur via improper matching of short-term and long-term uses of cash and cash equivalents.
What are cash flow loans?
A cash flow loan is often also called a ' working capital loan ' and is a form of financing to finance growth and operations or investments in r&d. All businesses will at some time experience a cash shortfall when business lines of credit are fully utilized based on unexpected business issues. Companies that are not asset-intensive and unable to provide additional loan collateral can benefit from the right type of cash flow finance solution to benefit sales and profits on the income statement.
Traditional and alternative lenders offer financing solutions based solely on historical and present cash flow. Loan terms can be short in nature, or on a more permanent basis. Certain lenders will consider postponement of interest and or principal payments for a period of time.
What is the purpose of cash flow analysis via cash flow statements?
Business owners and financial managers who use cash flow analysis via the company's cash flow statement will benefit from understanding the movement of cash in the company and where the sources and uses of funds are focused. Solid cash analysis techniques allow companies to improve growth and maximize opportunities for a stronger income statement. The cash flow statement records the company's net income plus or minus the changes in working capital accounts.
Unlevered free cash flow shows your cash flow before financial obligations while levered free cash flow explains cash flow after taking into account all bills and obligations. It is important to understand that Accounting profit, sometimes referred to as net income or earnings after tax is the amount of money that an organization has left over at year's end when all explicit costs and expenses have been subtracted from total revenue.
