A number of business owners will face a time when the cash flow of their business is not sufficient to cover their expenses.
One of the biggest assets to a business and their cash flow is a strong philosophy on their accounts payable and receivable management. The focus should be on trying to bring their money in (receivables) quicker than paying their money out (payables). CIBC offers innovative strategies and solutions to help manage the process for their clients, focusing on effective collection methods and strategic payment options to maximize the business owner’s return on every dollar. This allows the health of working capital within the business – vital to keeping the business afloat and allowing business growth or expansion to happen. Cash is king!
Shelves stacking up? Try a leaner approach.
A common conception is that the best way to make money on a product is buying in larger quantities at a discount or, having an abundance on hand to be ready for every sale. The reality is selling out of a product or service is not a bad thing nor is buying your product at full price. This is because buying a discounted product comes at a price. When a business buys large quantities of inventory to obtain a reduced price, they are essentially stacking cash on their shelves. This doesn’t mean holding inventory is bad but holding too much can be. It is very important to understand how long you hold inventory on average, what the impact is for each piece of inventory you hold and how lean can your inventory be without running out. These are items that a business advisor can help to review with business owners and show the impact this has on cash flow.
Business owners have a great idea of what sells and what doesn’t. The trick is to have enough to sell to clients but not so much that cash is tied up.
With access to credit, businesses can get more done, faster.
A business line of credit can be useful for business owners. As a pre-arranged amount of money that can be used when you need it, a line of credit can be a useful tool to meet cash flow challenges and lean on when there is an opportunity for growth. With access to extra funds, business owners can get more done, faster.
“Many business owners look for credit to help with cash flow, expand their business or bring a new product or service to market,” says Raymond Stultz, Business Development Manager, CIBC, in Guelph. Some of the ways a line of credit can contribute to the growth of your business are:
- Hire more employees to meet your business demands
- A business line of credit can help a business access funds to support their hiring plans and meet the demands of an expanding business.
- Improve your marketing strategies
- Investing in effective marketing strategies is crucial to reaching your target market and retaining clients. A line of credit can allow you to expand your marketing options such as hiring a digital marketing agency to boost online presence, enlist a content marketer to create new and engaging content, or contract a social media specialist to help grow the business’ followers.
- Create a safety net to make payroll
- Seasonal businesses are not uncommon in Ontario. Diverse changing weather and cyclical tourist seasons can result in slowdowns and challenges in meeting payroll needs. A line of credit can give a business owner the flexibility to meet short-term payroll needs while retaining experienced employees for busier times.
- Increase inventory
- A business line of credit is an ideal solution for overcoming short-term needs for inventory purchases. This could mean the difference between whether the business or the competition can satisfy the needs of a client.
What is needed to get a business line of credit?
“Your first step is to chat with a business banking advisor like myself to go thru the goals and needs of your business in order to ensure that this [line of credit] is a tool that can help your business,” says Stultz, who has experience providing business banking advice to businesses in Guelph. “We can then bring in experts such as an accountant, lawyer, financial planner, realtor or mortgage broker to help with a comprehensive, holistic solution that will take your business to the level you want.”
For existing businesses, financial statements will show your business banking advisor important information like:
- The current trends of your business (revenue, net profit, operating expenses, assets, liabilities and equity in the business).
- The time it takes to convert inventory or accounts receivable into cash.
- The amount of current debt the business has in relation to business equity.
New businesses or start-ups will need to work on a business plan to help provide a roadmap as to what the business will do and what the cash flow of the business will be approximately – usually the plan is at least two years but this is your plan and you should look at a reasonable outlook (3-5 years) to help track the growth while fine-tuning the direction the business will go.
Here is a planning guide to get you started.
Stultz says you will need to present to your business banking advisor some personal information to ensure you have the net worth to manage your personal obligations while getting the business off the ground. “A start-up company, for example, will rely on the business owner’s personal assets to assist with the business’ growth in a greater fashion than a corporation that has been in business for 20 years.”
Here are some items you should be prepared to bring to help start the line of credit discussion:
- Personal tax returns
- Personal notices of assessment
- Most recent investment statements
- Most recent municipal property assessment and/or annual mortgage statement
- Three to six months’ of business deposit statements
As a business owner, you want the right borrowing solutions to help run, develop and nurture your business. Having an expert to prepare and connect you to the right advisor at the right time can be a crucial step in your success. With over twenty years in the financial services industry, Raymond Stultz can help you navigate the process of obtaining a business line of credit and finding the best financial solutions to help you meet your goals. For more information call Raymond at 226-979-5659 or email [email protected].
Raymond Stultz, Business Development Manager, CIBC