Working Capital Management Cash Flow Growth Solutions In Canada

YOUR COMPANY IS LOOKING FOR WORKING CAPITAL FINANCE SOLUTIONS!

UNDERSTANDING AND ADDRESSING CASH FLOWS IN YOUR BUSINESS

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Financing & Cash flow are the biggest issues facing business today

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Oakville, Ontario
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net working capital formula increase in working capital

Working capital management solutions in Canada. When it comes to cash flow and growth plans for your company it’s not always about the concern of taking on more debt for your company. Let's dig in on that one.

The other day we were listening to the radio as we drove along the Malibu highway in L.A. heading towards Napa... Oh sorry, I think we were actually dreaming and we were stuck in traffic on the Gardiner Expressway in Toronto right near the CNE exit... but we digress...

THE DANGER OF LEVERAGE AND DEBT

The radio offered a news story about how Americans are back to ' leveraging up on debt ' after some really tough years. Canadians in turn were ' De-Levering '. We were a bit better off post 2008 worldwide debacle... and were in fact lowering debt loads after some higher spending years - allowing them to better meet their financial obligations. That's business ' best practices' 101! .. and a measure of a company good management.

THE RELATIONSHIP OF DEBT AND RETURN ON EQUITY

That got us to thinking that companies, when they are in survival and growth mode don't necessarily have to take on more debt if they are planning for sales growth. And no prudent Canadian business owner or financial manager will in fact want to take on more debt at the expense of Return on Equity. That's naturally a tough decision for the business owner/manager to take on when the natural tendency is that if you're not getting bigger or growing your company won't survive over a period of time. Your company liquidity should also be top of mind as you address growth opportunities.

HIGHER SALES = HIGHER LEVELS OF RECEIVABLES AND INVENTORY!

The key point here is that the sales revenue growth you will take on with additional sales causes an increase in your current and fixed assets - namely the need for more working capital. Almost no firm, except that of a firm that has no receivables or inventory could achieve profits and sales success without investing in receivables, inventory, equipment and technology. Those changes in working capital and monitoring and monetizing them is key to business success. The definition of working capital is in fact the numerical relationship between short term assets and short term liabilities such as payables.

The ability to stay with positive net working capital is always a plus in business and helps avoid the proverbial ' cash flow crunch'. Management of current assets and current liabilities is what working capital finance is all about. Your company cash flow statement is an integral part of your firms financing statements, showing the sources and uses of funds in your business and helping you to avoid negative working capital scenarios as the ordinary ' bulges' of business occur within your firm or industry. Having free cash flow to plan your next stage of growth allows owners and their financial managers to plan for the long term and satisfy lenders and owner business needs.

THE BANK DEBT TO EQUITY RATIO

In fact most firms that take on a lot of new debt are immediately suspect with their bankers, who prefer the standard 2:1 debt to equity ratio that comes within their lending guidelines.

So do you absolutely have to plan for new debt load to succeed in profits and cash flow and growth? Not necessarily! One method to avoid high debt levels is the financing of assets already in place, in both traditional and alternative debt mechanisms.

SOURCES OF CANADIAN BUSINESS FINANCING

What are these mechanisms? They include:

A/R Financing

Inventory Loans

Access to Canadian bank credit

Non bank asset based lines of credit

SR&ED Tax credit financing

Equipment / fixed asset financing

Cash flow loans

Royalty finance solutions

Purchase Order Financing

Short Term Working Capital Loans/ Merchant Advance

Securitization

Naturally, not all business debt load is ' bad debt '... If your firm can, in fact, maintain generally satisfactory debt to equity relationships, while achieving profits, a decent return on equity and respectable interest rates on term debt your firm can, of course, maintain a ' CAPITAL STRUCTURE' that is a win-win for owners, lenders, and management and that you will always have enough cash to win the business finance challenges every company faces.

change in working capital cash flow

CONCLUSION

Our bottom line today? Working capital management and cash flow and growth scenarios can be achieved by solid asset monetization. Term debt solutions might make sense, but not in a mandatory manner. Translating the working capital formula into business credit solutions creates a long term win for your company so the investment in some ' financial modelling' is a worthwhile spending of time as you focus on revenue growth in your products and services.

If you want to ensure you have working capital management solutions in place to limit debt and still achieve growth seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in your business financing needs.