GE Finance

Archive for the ‘Capital Finance’ Category

Just picture your firm having access to all the working capital you need. Seem impossible? Not really… if you have a solid understanding of your options and your firms capability of qualifying or executing on those options.

Whether you’re the largest corporation in Canada or a small new start up (and everything in between) your business needs working capital. In Canada small business financing loans and financing arraignments for working capital are limited to a handful of possibilities – but being aware of what they are and qualifying for them could be the solution to your constant focus on cash flow via some sort of working capital loan.

It is probably easier than you think to ensure you are addressing the cash flow challenge correctly – where it gets somewhat ‘ thorny ‘ is matching a solution to the problem or locating an expert that can provide you with the business financing assistance you need.

Two key elements of your first step working capital assessment are your gross margins and your turnover. That’s the big problem we have with text book / academic solutions to working capital – they point you to the text book calculation – give you a formula which essentially has you subtracting current liabilities form current assets, and voila! the inference is you have working capital. However, our clients have never paid a supplier or completed a company payroll with a ratio!

To properly assess your working capital needs focus on understanding your turnover – how much inventory do you carry, what are the days outstanding in inventory, and as importantly, or more importantly, are your receivables turning over. Have you realized that for many firms 80% or so of the total of all the business assets you have are tied up in A/R, inventory, and, on the other size of the balance sheet let’s not forget payables.

So can you have financial success based on your new found knowledge and analysis of your cash flow and asset turnover. We think you can.

Canadian business financing solutions to small business finance loans really revolve around a couple viable solutions. Typically, in our experience Canadian chartered banks cant satisfy your business working capital needs – if only for the reason that they rarely finance inventory and require significant merit in your overall financials, profitability, external collateral, personal credit worthiness, etc.

So, where do you go from there? The other solutions are very viable and can take you to a potential 100% turn around in cash flow – they include working capital financing as a bundled line of credit on a/r and inventory via an independent finance company. For firms that are larger we believe the ultimate tool is an asset based line o f credit that provides high leverage margining on all you business assets. Other more esoteric solutions, but still very viable although somewhat misunderstood are securitization, and purchase order financing of new contracts and orders. (Your suppliers are paid directly for the orders you have in hand – what could be better than that?)

Finally, coming up the road at lightening speed is factoring and invoice discounting. We mention them lastly but they are probably the most popular method, gaining traction everyday. Our favorite is confidential invoice financing, allowing you to control your financing.

So there you have it. You have identified new ways to determine the need; we have outlined 4 or 5 solutions that will take the guess work out of working capital. These loan and financing options are available with a bit of research, and, if you choose, speak to a Canadian business financing advisor who can provide you with timely and valuable assistance in your cash flow needs.

Capital is essential to carry out any sort of corporate objective. Capital can come from any source. It is mainly made up of debt and equity. Debt is generally referred to the burrowed money from financial institutes on the other hand equity is the shareholders’ money known as equity capital.
Debt holders have no share in the profit but are concerned about the return of burrowed money with interest. If the debt raises the capital rise as a result of this the rate of interest rises along with risk of capital. Now let us discuss different tactics that can help in proper management of corporate finance.

Ways to Corporate Finance Management

The corporate finance should have the right mix of debt and equity which is popularly know as capital structure. But before formulating the strategy of proper finance management it is important to identify the factors on which the business risk mainly depended.
• Instable demand can increase the business risk
• Varying sale price
• Difference in input cost and skills required to control price successfully in the market
• Capital required to carry out normal functioning along with rising input cost and lower sale price
• Fall in the demand of product without fall in high fixed cost

Apart from these new cost effective production ideas, fluctuating exchange rate etc can also increase the business risk. The business risk will be higher if the fixed cost is high. Along with that higher leverage will increase the business risk. For proper management it is important to find out lowest investment on fixed asset with lowest operational cost.

Lower debt finance should be used while to avoid facing threat of bankruptcy. The use of debt finance must be based on earning in terms of present value. It is important to analyze the past and present record of the firm with accurate finance resources. The capital structure must focus on market values. With the help of an effective capital structure it is possible to maximize the market value of the firm. The credibility of the firm mainly depends on the market value. With proper capital management it is possible to use the resources effectively to yield better return on investment.

Those of us in corporate finance and venture funding can easily forget what we are there for.

We can easily see that it does not matter how the money is raised; there must be a fair exchange for the team, for the technology, and for the money.

The real goal of corporate finance is to see that the company has more than enough money to achieve its goals.

Now that we say it, we know it could not be anything else. What else could it be?

In seeing this, we know immediately what venture funding is not.

Real venture capital does not deprive the company of funds so it can be bought for a song later on, taking the work of the team for little or nothing.

Venture capital is not loading the entrepreneurial team down with straight jacket agreements.

It is not setting a cheap value on the company so you can make a huge gain out of a share of the company that should belong to the people that daily contribute their sweat.

True capital would not keep control of the company to wrest control from those executives who know best how to manage. Capital is not there to know better than management. Management, not capital, is on the firing line and best knows how to achieve the goals of the company.

True corporate finance is seeing that the company has more money than it needs. True venture capital motivates and encourages the team. True venture funding values the team and acts accordingly. True venture capital is part of the team.

True venture capital is more than capital. It is a partnership of equals; it is support that is more than financial; it is part of the team that fights its way forward through the perils and battles that are business.

Only true venture capital is entitled to share in the rewards of the team.

When a company is adequately financed, the entrepreneurs and their team are not deprived of enough pay to support themselves and their families. They are well rewarded for their work by industry standards. They are not paid little or nothing so the investors can live high.

When a company is adequately financed, it has enough reserves to give it confidence to face any contingency.

When a company is adequately financed, it has the money to acquire the resources it needs to win in a competitive marketplace.

Real finance gives these things to the company.

The real goal of any venture capital is to see that the company has more than enough money to achieve its goals.