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Working Capital Financing Canada – Canadian options and Solutions

Guest post by: Stan Prokop

Article Overview: Information on working capital financing solutions in Canada from a short term and long term perspective - What solutions are available and how can Canadian business owners assess which solution best meets their needs .

Working Capital Financing Canada – Canadian options and Solutions

Working capital financing is both confusing and challenging to many business owners and financial managers in Canada. When we meet with clients they generally feel that working capital needs revolve around two key areas: Additional operating facilities or cash flow for daily business needs - i.e. receivables growth, inventory growth, ability to meet other loan and lease payments, etc On a longer term basis some permanent working capital is typically used for projects, expansion, etc. When working capital is obtained and structured properly it clearly has the ability to take your company to the next level of growth and competitiveness. We recently met with a manufacturer who sold to 'Big Box 'stores all across Canada - Sales had grown 20% in 2009, when in fact many businesses failed to achieve sales growth in what was a very difficult year. The customer felt he could easily grow 100% in the current year based on additional orders. So whats the problem - you guessed it - working capital that allows the firm to carry additional inventory and receivables. When you are looking for working capital additions or alternatives structure is key - you want to be in a position to get a rate, term and structure that meets your cash flow and business growth needs. You also want a financing commitment that has flexibility to grow but at the same time does not limit you in other arrears, such as additional collateral requirements, etc. It clearly is all about structuring. If you are adding things such as new headcount or new computer and software systems you, as a business owner realize the benefits of those investments are achieved over time, they are not instantaneous. Therefore you need solid advice as to how to structure payments under a true working capital solution. Many times you can extract additional working capital via current asset solutions - that is simply examining how your receivables and inventory are currently financed. When we meet with clients they generally are not getting the working capital and cash flow from receivables and inventory when they should be doing so. While Chartered bank credit in Canada is absolutely the most cost effective way of obtaining working capital it is in many cases not able to deliver the amount of capital you need. Additionally one of the most important things not to do is to enter into long term working capital loans or lines when in fact you need short term working capital and cash flow.

Most business owners we meet with don't understand their cash conversion cycle, as 'textbook 'as that term may sound it simply means the following:

How long does it take a dollar to flow through your system from the time you get an order to the time you cash your customer's cheque. In many cases that is easily a 90-120 day process. So you need to examine how fast you are collecting your receivables, is your inventory turning as quickly as it could, and are you getting the right amount of financing for short term assets such as orders, receivables, and inventory .

Let's look at a quick example - let us say your company has sales of 1 Million dollars and has 200,000.00 tied up in working capital - Let us also assume you have strong growth prospects and you feel you could double sales over the next 5 years. If your working capital needs stay the same you will need double that amount of working capital needs, as you will be forced to carry that additional amount of inventory and receivables.

In summary, there are very simple and effective tools, available to yourself, and easily calculated, to determine your working capital needs. If you feel you can get a handle on that yourself a number of alternatives are open to you - aggressive financing of receivables and inventory, a cash flow working capital term loan, a mezzanine loan, etc. Speak to a trusted, credible, and experienced financing advisor in this area to determine how you can maximize that valuable working capital.

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Article Tags: canadian business, cash flow and working capital solutions, financing solutions, working capital, working capital financing canada



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