Therapy For Business Cash Flow Problems ? Working Capital Financing Solutions And Alternatives

Business Cash Flow Problems? Maybe some working capital therapy in order. Therapy - it's what they call a ' curative power ' , so let's examine some curative powers around one of the biggest challenges Canadian business financing, working capital and cash flow needs.

We're all familiar with the old phrase ' you need money to make money ‘; well scratch that, we have re-written that one for today and we'll offer up ' you need working capital to make more money '!

The unfortunate part of talking to many entrepreneur and business owners in many cases is that there seems to be a common belief that sales growth will take care of all your business problems ; the reality is that it will take care of things for awhile, but trust us, not for long.

Profits do fund growth for an interim period, but in the end you need to address some very basic issues. An example? Your valued vendors and suppliers want to be paid before you get paid from your own customers!

So what’s the solution? Most business owners and financial managers would offer up ' go to the bank ' or ' put in some more owner equity ‘. That's works of course, if that’s in fact possible - key word ' IF '!

What those sales have done is create a gap... for some clients we meet it’s a rather big chasm or canyon!

Naturally some firms need more working capital than others to address the business cash flow problems we are talking about. That’s because something known as the ' cash conversion cycle ' varies from industry to industry and probably even business to business within that industry.

The cash conversion cycle can be easily calculated by any business owner. The formula? Take your days sales outstanding, add your inventory on hand days, and subtract your payables. That number essentially gives you a very basic ' known ‘. It tells you how long it takes a dollar to travel through your company. And trust us, sometimes that ' travel ' seems to look like a slow meander!

As we said some firms require more cash flow than others - an example might be a large pharma firm who invests tons of money in advance of even bringing a product to market - assuming it’s approved by the government for use! On the other hand a large retailer doesnt sell on credit, they only take cash and credit cards, so their conversion cycle might be a lot less.

So, our take away today? The shorter you can control you cash conversion cycle, the better! And you can accelerate cash flow by bank lines of credit, receivable financing, and inventory financing, monetizing tax credits, or securitizing your receivables if you're a larger firm.

Speak to a trusted, credible and experienced Canadian business financing advisor to assist you with your business cash flow problems and working capital solutions to accelerate your cycle of cash.