YOUR COMPANY IS LOOKING FOR BUSINESS CASH FLOW FINANCE!
The Power of Cash Flow Financing and Working Capital Finance: Maximizing Your Business's Potential
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing businesses today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Cash Flow Financing and Working Capital Finance: Understanding Their Importance for Your Business
Canada's cash flow financing is rarely termed a great success story by Canadian business owners and financial managers.
How can working capital finance challenges be reduced? Let's dig in.
INTRODUCTION - THE KEY TO LONG-TERM SUCCESS - MANAGING AND ACCESSING WORKING CAPITAL FOR ENTREPRENEURS
In the world of financing a business, it's all about cash flow financing and working capital loan solutions. The changes in your working capital accounts have a large impact on the cash inflows into your business - Knowing how you can bridge the working capital finance gap is key to long-term business financial success.
There are a number of financing solutions all of which have their benefits and some drawbacks - navigating these solutions is job #! at 7 Park Avenue Financial. Business owners in Canada know too well that managing working capital is all about key issues in short term obligations, such as managing inventories, working with suppliers and customers on payment terms and accessing financing solutions for long-term success.
WHAT FACTORS AFFECT YOUR ABILITY TO ACCESS BUSINESS FINANCING
Numerous factors affect your ability to access the right amount of funding you need to run your business. Profit or the amount of it is certainly one of them. Many firms are profitable, but only marginally - and in a lot of cases we see with clients, those profits fluctuate tremendously year over year.
PROFITS AND CASH FLOW
Turning profits into cash flow is, of course, another story. In traditional ' bank lending,' it’s a strong requirement instead of alternative financing, which often focuses on assets and collateral in your business. And every business owner knows that in the SME ( small to medium enterprise ) sector, most times, a personal guarantee of some sort is, of course, required. Those personal guarantees are a discussion for another day.
SOLUTIONS FOR CANADIAN BUSINESS FINANCING
Let's recap traditional and alternative financing methods for funding cash flow and working capital needs. They include the following:
Traditional Canadian chartered banking - credit lines/term loans
A/R financing
Inventory financing
Working capital term loans
Government Small business loans - structured as term loans but with maximum flexibility around payment
Asset-based lines of credit - (These ' ABL' transform all your business assets into one revolving credit line
Tax Credit Monetization
Unsecured cash flow loans often terms ' subordinated debt' or ' mezzanine.’
Sale leasebacks of owned assets might include assets in one of two categories - equipment and real estate.
WHAT IS THE DIFFERENCE BETWEEN CASH FLOW AND WORKING CAPITAL?
Both terms are two ways to measure the financial health of your business, but they are not exactly the same - Cash flow is about the money that flows into your business and those cash flows might be positive or negative - Cash flow can be negative when expenses are higher than your profits.
The key to understanding working capital is assessing the difference between the current assets on your balance sheet, compared to the current liabilities on the balance sheet. Positive working capital reflects higher current assets than current liabilities - That is why asset turnover and sales growth are so important.
HOW DO YOU MANAGE THE CREDIT CRUNCH?
In some cases, it makes sense to form some cash flow contingency plan that might include various forms of ' bulge financing ' solutions or approaching suppliers and lenders for a payment moratorium of sorts. Those are tough to do, by the way.
FOCUS ON PROPER AND UP-TO-DATE FINANCIAL STATEMENTS
Unfortunately, many clients we meet don't always have a handle on their financial performance and the changes in working capital - for example Operating cash flow. In some cases, they are ' rear focused,' having only historical data, which is challenging if no financial forecast or financial statement strategy is in place re-reporting and analyzing.
MAKING SENSE OF YOUR BUSINESS'S FINANCES
Your cash flow statement, a key part of your financial statements, will show the changes in current assets and current liabilities, reflecting your operating flow. It is an often overlooked document! For example, if your accounts receivable have increased, that is a use of funds, not a source of funds, and we recommend you constantly look at the balance sheet and review your ' dso ' - days sales outstanding.
Accounts payable play a key role in cash flows - your management of payables increases cash flow by extending them as long as possible. It's those operating activities on a day-to-day basis that generate positive working capital if managed properly. Over a period of 12 months, your examination of these sorts of numbers will help ensure you have enough cash for the short term,
Over a long-term period, it's optimal to have a business line of credit to manage the cash peaks and valleys in your business.
Businesses with a handle on financial performance have much greater credibility with lenders and financial analysts; it’s as simple as that.
ASSET TURNOVER IS THE KEY TO INTERNAL FINANCING
Managing Cash Flow and Working Capital is all about turning over inventories, accounts receivable, and of course payables, They have a very direct impact on your overall net working capital position and are a great way to assess your company's operating performance.
One rule of thumb some lenders use is to look at a company's receivable and payables ratio, which should be 1:1 or higher. Focus on solid collection and credit granting policies and using operating lines of credit or receivables finance facilities properly so you are only paying for financing you use and need.
Remember also that while cash flow financing solutions are the fix from an external perspective, it makes even greater sense to manage your assets to create internal cash flow.
That is done by having strong A/R controls and turning inventories over faster if inventory is a key part of your business. Naturally, financial statement tools and other business software forms greatly aid the business owner/finance manager today.
Knowing your DSO (day’s sales outstanding) and inventory turns and days outstanding payables is a fundamental you must know to be successful. Watch the business news on TV at night, and you'll notice the ' big boys, ‘those major successful corporations always have a handle on these numbers; they're the key elements of the cash flow operating cycle.
CONCLUSION - BUILDING A STRONG FOUNDATION AROUND CASH FLOW FINANCING AND WORKING CAPITAL FINANCE FOR YOUR BUSINESS
If you're looking to be a success story in your mind (or that of your competitors ! ), call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you reduce those cash flow and working capital challenges.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How Does Working Capital Impact Cash Flow
Working capital and cash flow are key essential concepts of financial analysis that impact each other directly.
Working capital represents the difference between a company's current assets and current liabilities and is the amount of money it has available to pay its short-term expenses. While positive working capital indicates financial strength, negative working capital indicates that a company may struggle to make ends meet and rely on borrowing or having to seem more equity and dilute ownership.
Cash flow is the net amount of cash and cash equivalents being transferred in and out of a company. Positive cash flow indicates that a company's liquid assets such as cash on hand and receivables are increasing, enabling it to settle current obligations, reinvest in its sales growth, and create profit /net income for business owners, providing a buffer against future financial challenges.
Negative cash flow can occur if operating activities don't generate enough cash to stay liquid. Understanding the cash flow statement is crucial for assessing a company’s liquidity, flexibility, and overall operational performance.
What is working capital financing?
Working capital financing is a type of financing that provides businesses with the business capital it needs to cover their day-to-day operating expenses. This can include paying vendors, covering payroll, and other expenses that are necessary to keep the business running. Working capital financing is typically used by businesses that have a seasonal or cyclical cash flow or those that need to bridge the gap between cash inflows and outflows of the business.
How can businesses manage their cash flow and working capital?
Businesses can manage cash flow and working capital by regularly monitoring their cash flow statements of the business. A focus on accounts payable reduction and improving days sales outstanding and accessing lines of credit or short-term debt via working capital loans will lead to better cash flow management without taking on long term debt on the balance sheet. These solutions also alleviate the need to raise money without diluting equity.
