Carrying On Without Cash Flow Is Not An Option ! Analysis and Solutions For Canadian Business

Carry on? Without business cash flow? That's not an option for Canadian business owners and financial managers. That's why the analysis of their cash and working capital needs, in the context of solutions available is so critical in today’s business environment.

So are we all in agreement? We mean of course that no company has the ability to on a long term basis operate successfully without cash. That shortage is often the reasons why many companies fail.

However, the balance sheet and the income statement, as we always preach, dont necessarily tell you the full story of your company's goings on! A cash flow statement, that’s the third part of every financial statement package will, however, truth be told you can perform a fair bit of solid analysis way before your accountant or your accounting system delivers that document to you.

So why do you want to be so attuned to that cash flow anyway. Simply because whether it’s the short, intermediate or long term it’s a true measure of your solvency. And that solvency is what keeps your creditors and lenders and suppliers either happy or dissatisfied with your payment ability.

In more sophisticated firms a real measure of cash flow is often ' free cash flow '. Simply speaking it’s the true cash flow calc which then subtracts your capital expenditures to come up with that ' free cash flow '. Investors in public companies look at that one a lot, and quite frankly since the small to medium sized business in Canada doesn’t pay dividends or have to report earnings and cash flow we dont really consider that one quite relevant in the context of today’s discussion .

So what is important then? Several other great tools area available. Just one of those is the cash return on sales analysis tool. Take your cash flow from operations and divide that by your net sales over that same time period. Let's say the number works out to 10%. What does that mean? Simply that 10% of the sales you generate provide cash to the company. At the end of the day the number is relative to your company because it tells you how efficient you are in turning sales into cash.

Another great tool to check out is current cash debt coverage, which we'll leave for another day’s discussion.

At the end of the day there are ultimately 5 reasons why companies fair - they have too much debt, they are caught in a vicious cash flow cycle, they have current assets that aren’t turning, or fixed assets and too little capital come into play.

To solve these challenges Canadian firms have a variety of solutions - they include bank lines, asset based lines of credit, receivable and inventory financing facilities, tax credit monetization, and securitization. Oh and dont forget the proper use of equipment finance.

Speak to a trusted, credible an experienced Canadian business financing advisor on business cash flow analysis and solutions available to your firm today.