Danger Signs ( And Solutions!) For Canadian Working Capital Financing
Real World Cash Flow Soluti
Cash flow solutions are sort of best implemented when you know what the
problem is. Makes sense, right ?We're discussing working capital
financing and the danger signs your firm needs to look for to both
prevent and of course solve some of those problems .
The challenge in
business financing many times is that both the challenges and the
solutions to business financing aren't readily obvious. The good news
to that story is of course that many finance challenges can be fixed
with some very immediate solutions.
And there are more solutions than you might think which becomes
readily obvious every time we talk to a client. By identifying working
capital problems early in the cycle allows you to prevent a much larger
problem down the road?
Shrinking working capital is often the most
obvious problem. The irony here is that many firms are in fact growing,
and profitable (on paper - profits do not equal cash!) But a
combination of external factors or losses, or hyper growth all can lead
to insolvency.
Many business owners view bank credit as somewhat
of a blessing, if in fact they can get a business line of credit from a
Canadian chartered bank. This facility allows you to borrow against
receivables and sometimes inventory based on pre established margins.
The quick example is that 99% of eligible business can borrow against
75% of their total under 90 day receivables.
Operating lines of
credit work great if you are growing !We can say that for both
traditional bank financing and non traditional solutions such as
receivable financing, inventory finance, tax credit finance and
monetization, etc.
A real danger sign though is when your
business has stopped growing and credit facilities, both short term and
long term are in place. An even worse danger sign is when Canadian
business owners and financial managers use the line of credit to
unwittingly mask some other problems such as issues in their
organization, financial or operational mistakes, or being at the mercy
of some external event - i.e. the loss of a key supplier or client.
In
general if you are operating at a loss and your balance sheet accounts
aren't really changing cash flow should be viewed as trending down, and
that's a danger signal.
What about the issue that we have
referenced a couple times already, strong growth? There isn't a more
classic good news/ bad news scenario. Sales are great, inventories and
receivables are up, and cash is down. In fact any expert will tell you
strong long term growth is better when its planned, not just happening .
There are numerous danger signs as we have noted when it comes
to cash flow solutions for working capital financing shortages. In
Canada these solutions include asset based lending, invoice financing ,
sale leaseback of long term unencumbered assets, tax credit
monetization, and purchase order and inventory finance .
