So we’re all in agreement, right ? – staying afloat is better than sinking… and talking to clients seeking cash flow for business seems to be mostly what we are doing these days. Cash flow financing for your business, whether you like it or not is at the top of the ‘ worry pile’ for Canadian business owners these days.
We’ll discuss the problem, how you measure the problem, and, most importantly, some great solutions both traditional and alternative. And by the way, alternative is fast becoming traditional, but more about that later!
In talking to clients about business financing and business cash flow we always get the distinct impression they feel their business is unique – and that may be so but the truth of the matter is that the cash flow financing challenges you face are being faced by everyone else in and out of your industry.
As a business owner you can be forgiven for thinking your business cash flow financing challenges are unique, probably because of the mix. What do we mean by the mix? Simply that each h company and industry has difference levels of inventory, receivables, payables, all of which factor uniquely into the working capital challenge.
In fact, whether you like it or not, about 80%, yes 80% of all you assets are in receivables, inventory, and to some extent prepaid.
Your ability to ‘ turnover’ these assets is what makes your business successful, or not.
Each industry has different gross margins, and if you have great gross margins then you can withstand a bit less turnover that is required in inventory and receivables. If you are in a low gross margin business turnover is absolutely critical. And you measure that turnover by three key metrics, inventory turns, days sales outstanding or collection turnover, and finally days payable outstanding.
Turnover drives working capital and many business owners kind of know that, but more often than not aren’t focusing on improving that turnover.
So , lets get back to staying afloat , which is what its all about !There are a number of cash flow financing solutions that allow you to address cash flow financing for your business . If it was a perfect world you would have all the liquidity you need from you bank, but bank financing is always a challenge for business, and in many cases inventory is not part of the financing mix that is available.
There are at least 5 great cash flow for business solutions available to help you succeed in Canadian business financing. These include the selling of your receivables, which can be done confidentially, and thereby generating instant cash flow for your company. For firms with 250k+ in assets and receivables you are in a position to be a candidate for a fully margined A/R and inventory working capital facility, available through a non bank solution. Larger firms with significant investments in working capital (receivables and inventory) are eligible for asset based lending which is in our opinion the ultimate Canadian working capital solution.
Most business owners don’t know they can access cash flow financing via the financing of Purchase Orders (p o’ s) and contracts. They allow you to consider orders significantly higher than you could have ever handled in the past. And, finally firms with relatively good financial standing can access unsecured cash flow working capital term loans via non bank lenders.
So whats it all about. We think we have been fairly clear, and hope you agree. It’s about understanding your cash flow financing challenges, measuring them via the turnover of working capital accounts, and finally, accessing any one of the five, yes 5! solutions we have provided .
Speak to a trusted, credible and experienced Canadian business financing advisor as to what makes sense for your firm.