Say Yes to Canadian Working Capital Solutions and No to Financing Cash Flow Obstacles!

Today, the goal is fairly simple. We'll identify some of the obstacles encountered by Canadian business when it comes to financing cash flow, and, as importantly, we'll demonstrate some traditional as well as new forms of working capital solutions for the Canadian business owner and financial manager.

One of the reasons we like talking to clients on this subject is simply for the fact that certain terms in financing, i.e. "working capital" and "cash flow," are often overworked and not properly understood.

Let's look at working capital as an example. Your accountant will talk about the difference between current assets and current liabilities. We think a more clear way to understand that concept, and certainly a more "real world" one, is to think of your business having hundreds of daily, weekly or monthly incidents.

Incidents? Yes, incidents such as making a sale, recording a receivable, buying inventory, shipping inventory, finally collecting that receivable, etc. Those tens, hundreds or thousands of incidents change your balance sheet accounts every time, and their year end summary of activity reflects sources and uses of cash flow - i.e. where it came, where it went!

Your ability to understand the turnover in your accounts will ultimately reflect your ability to address and understand cash flow challenges, and our proposed fix re: solutions.

For a manufacturing company, the process is, for example, well defined. Buy inventory ... make products, sell and invoice those products and collect your funds. It's a simple three-step process right?

But what happens when your cycle of operations is long or complicated. That's when financing challenges occur. Canadian business owners must be in a position to understand where profits went, why A/R and inventory might be down but not profits up, and where funds will be found to purchase new assets.

Misunderstanding of cash flow is rampant we feel. We read about it being a yardstick measure of success in investments. We note our financials have a cash flow statement. Our accountant gave us a discounted cash flow analysis, and we're working on a cash flow budget. Talk about a very convenient catch phrase!

So once we finally get a handle on understanding and addressing working capital solutions, the financing of cash flow becomes a lot easier.

So what about those working capital solutions we spoke of, traditional and otherwise. Options to enhance your cash flow needs are available to the Canadian business owner.

They include bank lines of credit, government SBL loans for new assets, which in turn save cash outflows for new assets. And don't forget equipment leasing as a solid asset finance vehicle.

Receivables and inventory can be financed via one working capital or asset-based lending facility, or separately via boutique offerings through specialized commercial finance firms. More esoteric financing, yet 100 percent viable and effective are the monetizing of SR&ED claims, as well as purchase order financing.

So what's our bottom line? Simply that there are achievable goals in addressing working capital expectations, but those goals must be appropriate to the specific cash flow challenge in terms of structure and rates. Make a commitment to address financing cash flow.