Tweet

Working Capital Financing – Methods of Financing A Business

Guest post by: Stan Prokop

Article Overview: Overcoming business financing challenges ;Information financing a business, and how to obtain working capital financing to successfully overcome cash flow challenges .

Working Capital Financing – Methods of Financing A Business

We hate to use an old cliché when we talk to clients, but 'cash flow is the lifeblood of your business 'is not the worst cliché you have every heard, especially when financing a business has become one of your biggest challenges. The downside of not having, or being able to arrange cash flow and working capital financing is simply that you have a lesser ability to grow sales, maximize profits and take advantage of new opportunities .

So sitting down with business owners is a great method of ensuring they know what their working capital challenges are, and what the real impact of that phrase ' cash flow ' means to their business . There is a bottom line here, which is a simple one, you have to know what working capital is, and you then have to know how to get or achieve it. To most business owners and financial managers in Canada the term working capital or cash flow simply means - 'what cash do I have in the bank?' But that's a very weak definition, and that wont get you business financing success - you need to understand how your receivables, inventory, and other assets come together to drive working capital and cash flow.

Your business financing or working capital requirements are driven in a number of manners, it could involve solely the growing of your sales, but it also could mean a major expansion of your business. Most clients we meet cannot hardly imagine having too much working capital or cash flow, but the reality is that if that ever was the case you then cross the line and you are in a position of not being able to use those funds to grow your business - so, bottom line - it's a balance act, which is as with most other areas of your business.

One of the main things you should focus on is your ability to pay your current debt - On the balance sheet your accountant shows that as ' current portion of long term debt ' - You always want to be in a position to meet these obligations as failure to do that means you are bordering on insolvency . All of that snowballs into major issues with your bank, your suppliers, and other creditors such as leasing or finance firms.

So as we have said, you need to be able to calculate, or measure working capital, and then address how you will satisfy the need that comes out of those numbers. There are some easy calculations you can perform in measuring your overall cash flow - it's really simply understanding your inventory and a/r turns, as well as having a handle on your accounts payable days outstanding.

If it was a perfect world you could raise all the working capital you need internally. How would that work?! Well, using an extreme example if you collected your receivables in 45 days, and turned your inventory in 45 days, and were able to pay your payables every 90 days you would be very self financing. Sounds great, except you can hear your suppliers and creditors now I bet... Also, the profits that you generate out of your business obviously become a new additional part of the working capital component and would even further benefit your overall position.

But let's get back to the real world, which states that if you have more current assets than current liabilities you 99% of the time need external working capital.

Canadian business owners achieve that additional working capital in a number of ways - the most beneficial is bank lines of credit, or in some cases, if your firm meets the criteria, a cash flow working capital loan. If you are unable to meet bank criteria, and are still in a challenged or growing position then we advise clients to consider a non bank working capital or based lending']);"> asset based lending facility. If receivables tend to be your main current asset than a factoring or invoice discounting facility makes the most sense.

Most Canadian business owners don't fully understand how factoring in Canada works, and are often confused by the costs and process - so we strong recommend you speak to a credible, experienced and trusted advisor in this area of Canadian business financing . In some cases you Canadian business owners and financial managers are looking for an interim or intermediate timeframe solution, so a short term bridge loan with using unencumbered assets has helped many clients get over the hump.

So whats our bottom line recap - its simple - a three point scenario : understand what working capital is and isn't, know how to measure it for your business, and finally understand which cash flow solutions make the most sense for your firm at this point in time .

Related Articles
  Working Capital Financing
  Working Capital Financing – Canadian Challenges and Solutions
  Small Business Loans for Working Capital Financing In Canada
  Finding Information on Small Business Loans
  Business Inventory and Purchase Order Financing Canada
  Avoiding Blunders in working capital financing and Cash flow Financing
  Sources of Financing for Working Capital Cash flow in Canada
  Working Capital Financing – Commercial Financing Solutions
  Looking for Business Financing methods? Tap into asset based lending in Canada Today – 1 2 3 You’re Saved!
  Business Finance Options Canada – Start Up & Commercial Loan Corporate Credit Facilities
  Canadian Business Financing - Tips on Securing Financing For Your Business
  Business Working Capital Financing
  Alternatives and Tips On Working Capital Finance By Banks
  The Key To Working Capital Financing - Asset Based Lenders
  Inventory and Purchase Order Financing in Canada
  Confused About Canadian Working Capital Finance ? Cash Flow Financing Techniques That Work
  Surviving A Working Capital Financing and Funding Challenge
  Working Capital Factoring – Leveraging receivables / Inventory and P.O.’S
  Sources of Working Capital Business Financing
  How Merchant Advance Capital Works in Canada And Why Retail Merchant Financing Produces Cash Flow Today

Article Tags: business financing, financing a business, working capital financing



Related Forum Posts
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
grants for restaurants - Well friend I don’t have any idea about government grants for restaurants, but I will recommend that you may try on some banks who offer loans for small business where the government will have some guarantee. Beside that Restaurants business is very risky so some of banks who gave some Financing Loans they will look at on it if there is enough solid business plans.
Del Castienne - International Business and Project Brokers - In addition to the above, Del Castienne is an international brokerage firm specializing in various entrepreneural services. Del Castienne is more than just a brokerage, as we facilitate Private International Venture Capital for Business and Projects from Commodity Speculation Transactions, MBO, MBI, M&A, Bridging Finance, Patents, Branding, JV, Corporate Advisory Services, Business Plan Development, etc.. Del Castienne is linked to 1200 private international Venture Capital consortiums and Funding Syndicates with a funding capacity of $ 115 billion and 5000 international Investment Bankers and Business & Project Brokers. This in itself should provide you with a gateway to the best source of funding in the world. Through Del Castienne any entrepreneur can have up to a potential success rate of 25% (conditions apply) with absolutely no up front costs. Del Castienne charges a maximum of 5% commission which is far below the international standard of 10% - 12% on project value. If you are tired of running back and forth with countless dissappointments, please give us an opportunity to assist you. Our minimum Venture Capital amount is $1 million and we a Commitment Letter can be provided with in 30 days after formalities are in place and your information was received.
Re: How to finance your independent movie - Hi, The video doesn't come up with its own URL... But it's the very bottom video on the page. Here's the description of it: Financing, Production and Social Impact of Feature Films Host- Carol Atwood - Founder, Spartacus Media Enterprises Panelists: Bill Johnson - Co-Founder and Partner, Inferno Distribution Steven Haft - Producer, Media Consultant Michael Goorjian - Actor, Producer, Writer


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Why We MUST Reinvent The Wheel

TOP Level Selling

Are You Fulfilled

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.