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Get A Cash Flow Solution In Place For Working Capital Financing – Your 2011 New Year Resolution

Guest post by: Stan Prokop

Article Overview: Information on how to achieve a cash flow solution for working capital financing as you head into 2011 . How to assess the need and type of solutions you require for cash flow financing for growth and profits .

Get A Cash Flow Solution In Place For Working Capital Financing – Your 2011 New Year Resolution

What if... just what if you could eliminate your working capital financing issues via a cash flow solution that works as you head into 2011 and beyond? That surely is the wish of most, if not all Canadian business owners and financial managers.

The reason you need that working capital is of course to pay of all your short term obligations in a timely manner. Typically those are accounts payable and items such as lease or loan payments, and of course we're including payroll and salary obligations in there.

As a business owner you need to be aware of whether your overall working capital position is stable, declining, or even increasing. There are some very simple measurements to assess overall situation. One of the most basic measures is simply to monitor sales growth against those current assets. Quick example - if your sales are growing by 20% per annum but you determine your receivables and inventory have grown to 35% of their former values, then, guess what, you have a working capital solution need . No surprise there, as most business managers intuitively know the strains that working capital needs place on a business.

Unlocking. That's the key to a cash flow solution. What do we mean by that? Simply that you have to do two things to unleash the cash flow that is invested in your business in the form or receivables and inventory. First, you have to improve turnover. That's an internal thing, and we can't help our clients on that one, you have to do it yourself. Collect receivables faster, be more diligent in extending credit terms, and control your inventory.

Secondly, and here's where are clients do ask for external help, is the need to ' monetize ' working capital accounts. How can that are done. The most common solution is bank financing via an operating line of credit for A/R and inventory that would address working capital financing needs.

But most business in Canada today, certainly in the small and medium sized sectors can't access all the bank financing they need. if at all .

In business you achieve positing working capital financing via profits which fund growth, borrowing on a long term debt basis ( not our favorite!), or selling assets .. Again the latter not our favorite.

What is our favorite then?! It is, as we said, monetizing current assets. You do this via a working capital facility that margins A/R and inventory properly. These facilities, when combined with the inventory component, makes sense for firms with monthly a/r and inventory balances in excess of 250k. When that amount is less than 250k a receivable financing strategy is required. Our favorite is confidential invoice financing or discounting, which we feel is the ultimate cash flow solution. It allows you to bill and collect your own receivables and turns your firm into a cash flow machines readily able to handle all manner of sales growth.

Speak to a trusted, credible and experienced Canadian business financing advisor - he or she will help you pinpoint the working capital challenges and focus on a specific solution that makes sense for your firm. That's a solid New Year resolution for your business that is achievable.

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Article Tags: cash flow solution, working capital financing



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