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.!br>
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 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.
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.
The key point here is that the sales revenue growth you will take on with additional sales causes and increase in your current and fixed assets. 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
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 success 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.
What are these mechanisms? They include:
Receivable financing/ invoice finance
Non bank commercial lines of credit for receivables, inventory/equipment
Operating leases for fixed assets
Tax credit monetization
Unsecured cash flow loans
P.O. Finance/Supply chain financing
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, 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.
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.
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.
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Stan Prokop - founder of 7 Park Avenue Financial – www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info re: Canadian business financing & contact details :
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