Growth financing in Canada. It's a harsh reality for many business owners that with new found revenue growth comes a cash flow problem. Knowing why that problem exists and what to do about it is what we're talking about today.
Cash flow goes higher and lower with growth. Simple as that. But why those changes ? That is the key question. It's because your working capital accounts change all the time, every day in fact. Those working capital accounts are receivables, inventory, and your payables on the other side of that balance sheet.
So if there is any one point you can take away here its that as your assets and payables increase your business cash flow goes.... DOWN! It therefore goes without saying (almost) that if your sales go up and your working capital assets such as inventories and A/R stay the same or decrease your working capital cash flows get ... Better!
It’s your ability to either finance, or turnover those working capital accounts that will ultimately make you successful in growth financing and solving any cash flow problem you have.
The big take away here, again, is that you have to watch your receivable and inventory growth. Not all companies have an inventory challenge, such as service Type Company, but pretty well all of us have A/R. One internal way you can address a cash flow and working capital challenge is to slow down payables. As we have pointed out in the past that is a very double edged sword given that you value your supplier and vendor relationships which can often be key to long term success.
Don't forget also that when your sales go down for whatever reason that also has, somewhat ironically a positive effect on your working capital. The trick here is to also reduce some of your expenses as much as you can.
It's also a good tip, over time, to monitor your levels of inventory and A/R in conjunction with sales going up and down. That's because it’s simply a great tool for predicting better or worse cash flow in the coming months based on history.
So is a cash flow problem necessarily a bad thing. Ironically, definitely not. It's all about the reason for that issue, which typically in a good environment is growth.
We've talked a lot about internal issue and knowing when and why a problem might exist. But a better questions form clients is of course ' what solutions exist?! '.
Here the key rule of thumb is to match the right type of financing with the actual problem. To put it even more clearly, finance shorter term working capital with short term cash flow solutions. In this case we're talking about some traditional and not so traditional solutions.
In Canada they included bank lines of credit, receivables financing, working capital facilities, non bank in nature that finance both A/R and inventory, as well as purchase order or supply chain financing. If you have a SRED claim you can even finance that for short term cash flow, as these loans don’t even carry monthly payments!
Speak to a trusted, credible and experienced Canadian business financing advisor for solutions to growth financing.
Stan Prokop - founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
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