Working Capital Financing is forever a major challenge for small and medium sized businesses. And that is certainly not to say that larger corporations don't have that challenge, it's simply a case of having more assets and resources to deal with the same challenge.
As a business owner or financial manager the level of funding that you need, and the method in which you achieve that financing is really what drives the solution to your challenge. It is important, in understanding your cash flow needs and solutions, to determine if you’re working capital financing is required due to the capital intensive nature of your business - or if you in fact simply need to ' monetize', or 'cash flow ' your assets in an effort to generate more working capital and faster turnover of those funds. Your focus on cash and business financing becomes even greater if your sales and profits are increasing. However, at the same time the ability to obtain business credit remains a challenge. Bank financing has become more difficult to acquire, and many firms are looking at non traditional or alternative sources of financing to secure the funds they need for working capital. Another hard reality of working capital financing is that most small and mediums sized business are searching for more cash flow on an unsecured basis. This type of financing is very difficult to achieve in the Canadian marketplace, certainly in the Chartered bank environment. So what are the sources of financial capital that Canadian business owners and financial managers can investigate and potentially utilize? Let's cover off some of the basic options - These include:
When you are looking for working capital financing one of the key areas you can start with is your own key financial metrics. You don't need to be a seasoned financial analyst to determine at what rate your receivables are turning over. The bottom line if you haven't realized it yet (we are sure you have) is that receivables and inventory 'eat' cash. One key point needs to be made here, if your sales are growing at 15% and your receivables are growing at 15% that's not a bad thing. (To calculate simply measure the ratio of these two data points) However, if your sales are growing at 15% and receivables are growing at 30% your cash flow and working capital is being consumed by the investment you have made in A/R and inventory that is not turning over. Collections and inventory turnover are a key aspect of working capital financing. Commercial financing from a bank is the optimal solution for small and medium sized business - as have noted that is difficult to achieve. Funding a business can be complex and we urge clients to seek the advice and guidance of a respected, trusted and experienced commercial financing firm like CL King and Associates to ensure they pick the right tools to solve working capital challenges. Also read: The Meaning of A Credit Score
2 Comments
8/30/2022 08:10:09 am
Thanks for sharing such a informative blog! Cashflow-based business acquisition loans require reliable, consistent and growing operational cashflow. This type of acquisition finance is based on an EBITDA multiple and is likely to be secured by the lender with a 1st charge over the business.
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9/5/2022 09:33:02 am
Thanks for sharing such a informative blog! ANNA free invoice app is a better alternative to spreadsheets. With ANNA Money, you can skip the manual work of creating, chasing and sending invoices. Just chat us the details or take a picture of your old invoice and we will generate a new one automatically.
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