An important element of business money management is controlling costs. I know there are times when we’re going to have to spend money in our businesses. I also understand that at times those purchases are planned and then there are times when they are not. However, there are also those moments when we spend our money in the wrong places or we just go on a spending spree, with no method to our spending!
Unfortunately, the result is negative cash flow or barely breaking even. Typically the number one question asked of women entrepreneurs by small business finance coaches is “What is the number one finance or money challenge you face in your business”? About 95% report some sort of cash flow challenge or not having enough income to meet their needs. Through further evaluation I usually find that, those cash flow issues are often a by-product of improper spending habits. Now, I don’t want you to think that you can’t do any spending in your business, that’s definitely not the point I’m making here. I do though want you to be aware of your spending and take control of your business by telling your money where it needs to go. I also want you to alter the way you think and the way you spend “your business’s” money.
Here’s how to spend the right way:
Think investment and/or increase to the bottom line – any expenditure that is outside of normal business operations expenses should be a cost that will provide a return on investment. Before making a purchase always consider if what you’re about to spend money on is expedient, necessary for business operations, or if the benefit of the purchase will add to your bottom line over time.
Put your money in areas that will improve you and/or add to your bottom line – simply put make wise investments in yourself and in your business. Some examples are business coaching, financial consulting, certain marketing and advertising costs, putting a certain percentage of your business income in savings, seminars/training which provide strategies that will help add more cash to your business, etc.
Always know where you’re going to put your money, how you’re going to spend it, and when you’re going to spend it. You do this by planning how you’re going to generate revenue and how you’re going to allocate that income to ensure that you hit your profit and cash goals. Remembering that every dollar in your business should be accounted for – create a budget and create a spending plan.
If you’re not experiencing the level of income you desire in your business, it’s not always about getting more clients or selling more products. Simple changes to how you spend the money in your business can prove to infuse more cash in your business. Spend the right way and you’ll be able to keep more of the money that you earn!
When you need asset finance and a business loan in the 2010 economic environment alternatives are great. One of those solid alternatives is an asset based lending arrangement which focuses on what counts, your assets!
As a business owner and/or financial manager you are looking for business financing that makes sense. ABL is the acronym for one of the more exciting business financing alternatives that is growing in popularity every year in Canada. Are we actually saying that asset finance via an asset based line of credit is ‘ exciting ‘? We will let you decide that, but if this financing is easier to achieve than bank financing, is cost effective, and provides you with unlimited capital… well our clients are excited… you make your own thoughts on that!
Asset based lines of credit simply are drawn down by your firm based on the value of ongoing assets. The assets that are always there are inventory, A/R, and to some degree your fixed assets that aren’t already financed. By collateralizing your assets, and, most importantly, leveraging them to the max if you need to, you are creating available working capital.
We are always explaining to clients that this leverage of assets is not taking on debt, you are not borrowing on a long term basis, and you are simply monetizing current and fixed assets based on current values. What are those values, typically they are 90-100% of receivables under 90 days, 40-75% of your inventory, and a liquidation type value on any equipment you want to temporarily monetize. Clients always ask – ‘ Do you mean that we can borrow, if we need to, on a temporary but ongoing basis on our fixed assets?”. The answer is yes, if you are considering this type of financing strategy.
Let’s cover off the two key points clients always tend to focus on when they are investigating this unique business loan strategy- namely costs, and timelines to get the working capital facility in place.
In some ways cost is the most difficult area of explanation and investigation in an asset finance working capital facility. Putting aside the normal due diligence or commitment fee required to get a facility in place the reality is that there are a couple of key drivers that affect pricing. Asset finance revolvers can be just as competitive as a Canadian chartered bank financing (and less onerous to get approved) but prices varies all over the board in Canada because of the fragmented and specialized nature of this type of financing.
Typically we see rates as low as 9% per annum and as high as 1.5% per month. That’s a big spread and ultimately it depends on the size of the facility, the mix of your current assets, as well as any perceived industry or business risk associated with your firm. But again, we remind the reader, what price would you pay for unlimited working capital?
Typically it takes 2-4 weeks to close such a facility. In Canada as we noted the market is fragmented and these lenders are very focused, specialized, and by nature experienced in what they do, which is value your assets and finance them!
Most Canadian owners and business managers wouldn’t think of always paying cash for equipment and other capital acquisition needs. They also can’t imagine, in the current economic climate, paying cash for everything. Whether you are in an industry that is highly capital intensive, or if you simply on occasion need to upgrade or purchase new equipment the leasing of equipment should be considered as an effective overall financing strategy for your company
Naturally no form of business financing in Canada could be considered perfect and met absolutely every one of your needs, but let’s examine what are considered to be normally the top four benefits of equipment leasing. Naturally you want to ensure you are dealing with the right type of lease firm and you have also carefully examined your rights and obligations under the business lease.
Anyway, benefit 1. Flexibility. The reality is that working with the right lease partner firm should provide you with the flexibility you want in your transaction. Flexibility is of course a broad term, but we are basically referring to the type of lease that works best – for your firm! Not everyone else’s. That flexibility comes in the form of low or no down payment, monthly payment structuring options ( here are possibilities abound!), balance sheet optics around the amount of debt you can carry without getting your bank offside. Flexibility also comes in the form of the ability to return the equipment or extend the lease for a pre agreed period of time.
Benefit # 2 might well be called Cost efficient. The last thing you want to be doing is getting your firm locked into a long term lease on a depreciating asset – and the reason you lease financed the equipment in the first place is that you as a Canadian business owner and financial manager recognize that the equipment ultimately will probably have no value after its economic life is completed.
If the business world was slow moving and predicable you would never have to worry about competition, changing technology, etc- however things don’t work that way and as your needs change over time you can using equipment financing as the tool to address those needs.
Benefit 3- Tax benefits! We hate getting into long accounting and financial statement dissertations when we are lease financing info with clients, but the reality is that leasing of equipment as a business finance strategy has accounting and tax benefits re write off strategies around your payments.
Our final focused major benefit is simply Cash flow conservation. It’s tough enough in today’s business environment to achieve positive working capital and cash flow for daily and long term needs. Utilizing lease financing as a tool to minimize cash outlay and reduced down payment requirements makes total sense. Choosing an off balance sheet operating lease strategy will also ensure your ratios and debt covenants stay intact.
In summary, as we stated, no overall business financing strategy works perfectly for all companies in all industries. But leasing of equipment has significant benefits that clearly outweigh other options such as purchasing for cash, entering into long term loans, etc.
You can turn the gloomy times into profitable opportunities for yourself with the right leadership finance strategy, even during these times of the world economic setback. This involves nothing but being able to clearly understand the market and recognize the right opportunities to think about your investments.
Whether you are acting on behalf of a business, or you are an individual, the right leadership finance strategy can take you quite far, and show you success that most of us may have not hoped to see. Let us look at the most important points that play an important role in deciding how to emerge profitable during a financial crisis.
Recognizing the Opportunities
One of the things most of us fail to understand is that since the market is at its lowest, it is very clear that there will be a huge number of sectors that will only see the returns improve over time (as financial conditions pertaining to their business improves). If you can recognize such sectors, you can come across some very profitable opportunities and positive investment options.
Buying stocks or investment in businesses at the present may require much less from you, as the values are pretty low, but the returns that can be expected over time may be quite profitable. It all comes down to research and studying the market to come across the right investment plans.
Foreign investments can be another great factor towards successful leadership financial strategy. There are a number of countries that pose to offer very good opportunities for foreign investors, and can show very quick growth for your money. However, you should be aware of the associated risks, and also consider the right way to handle laws that govern such businesses and investments.
Long Term and Short Term
On top of the above options, you can also look into the various investment opportunities that offer to be pretty straightforward and risk free. Find out more about such long term investment schemes that will let you add money to it every month out of your savings. The idea is to have money set aside for your expenses, some money for liquid savings, and the rest towards the long term investment plan.
On the other hand, if you want a quick increase in your wealth, forex investments and stocks can also be a good option for you, provided you are experienced with such schemes and are aware of the risks involved. You can also opt for dealing with a good finance agency to advice you on such leadership finance strategy and show you the right way to approach your goals with the least number of associated risks!