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Financial Statements: Not Just for the Canada Revenue Agency
With the start of the New Year, regardless of your
financial position, you are a busy person. You are dealing with
customers and suppliers whose business philosophies range from
desperately clinging onto market share to those who see opportunity
in the current economy.
If your outlook is that of the former, you're in for a rough period.
A solely defensive attitude without any plans for moving forward
can only lead to an eventual decline. I hope the following may
change your perspective.
For those who do not believe that this is the end of the economic
world, I bring you good news. Timidly led, poorly structured competitors
will fall by the wayside, and if prepared, you will be the one
to pick up the slack in the market.
Whatever your industry, or opportunity, one thing is constant:
you will need cash to finance your increased capacity. The bank
and your suppliers are the quickest ways to acquire funds without
starting new relationships that that will take a great deal of
time to cultivate. In order for any supplier to allow you extra
credit or extended terms, or a bank granting loans, they will
want credible financial statements. The 10-month-old statements
that were compiled by your public accountant that conform to income
reporting standards of the Canada Revenue Agency will simply not
do. Creditors want to know that you have an intimate knowledge
of cash flows surging through your business.
If you are a BusinessVision user, a module called F9
may be an inexpensive Excel-based tool that you may wish to use
in providing financial reporting that is meaningful from the bank's
perspective (Sage PFW and Epicor users would use FRx).
With a professional presentation and drill-down capabilities,
F9 gives you the ability to provide lenders with the information
that they require to monitor and measure your progress on an annual,
quarterly or monthly basis. Products like F9 and FRx provide you
with ratios and metrics for an online, real-time environment.
Lenders appreciate that they are dealing with data and financial
position facts that are days old rather than months old.
Remember that nothing motivates the closing of a deal faster than
someone ready to write a cheque and commit themselves financially.
If you acquire credit by using financial tools properly, you will
be ready with financial that will enable your enterprise to grow.
-
Irwin Pinsky, B.Comm., CGA
Irwin Pinsky is the manager of our small business division and focuses
on our BusinessVision practice. Irwin's experience includes that
of a public practitioner focused on emerging companies, as well
as financial controllership.
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Keeping the Cash Flow Coming
Last month's article looked at leasing, and the importance
of your access to credit. This month we continue with the preservation
of capital, because as we all know -- cash is king!
Within
the next year as weaker companies fall away, there will be opportunities
for well-led, financially prepared enterprises to step into the
breech and acquire vacant market share.
The
question is: how does one finance daily cash flow without dipping
into cash reserves?
Here
are a few strategies to maximize working capital cash flow:
Fine
wine is the only inventory that I know of that appreciates with
age. If you deal in anything else, your inventory's value
will decline. If you have old inventory, move it. Don't fret over
what it could be worth, or will be worth, or should be worth.
It is worth what you can get for it, that's all. With the cash
realized from the sale of inventory, you will be able to purchase
product that will move and produce margin. In addition, the old
inventory will cease to take up valuable space and the time you
waste trying to move it. The same decision applies to other surplus
assets. If you can convert them to cash, do it.
Speed
up your internal systems. The quicker you get the invoices
to you customer, the sooner the clock starts ticking. If you use
a real time posting system, make sure staff complete transactions.
If you use a batch processing system, and post transactions weekly,
start posting daily or twice a day. If you mail invoices, review
the e-mailing of invoices option. The invoices are received immediately,
and you even save the time and the cost of postage.
Keep
your receivables in check. Getting more business from customers
is wonderful, but not if they are dealing with you because they
are cut off everywhere else. Your competitors are just as busy
as you are. They don't have the time, may not wish to, or may
not be capable of sharing timely receivable information with you.
You may have to rely on your own data to make decisions. The traditional,
aging Accounts Receivable report just doesn't cut it any more.
You need a greater amount of information, you need it daily, and
in most cases, you need it right now. To get a report in a few
days puts you behind the speed of business. If you need new reports
created for you, the cost of creating them will be justified the
first time that you avoid a bad debt.
Limit
your accounts payable liability. It is imperative in these
times that you have accurate and timely inventory reporting. The
difference between gut reaction guessing, and accurate reporting,
is the same as the difference between thriving in the future or
fading. The old rule that 20 percent of your inventory items are
responsible for 80 percent of your sales still holds, and has
been proven time and time again. You must know what your key items
are at all times. Last years annual reports are not good enough.
You need the trends as quickly as they occur. Once you know your
key numbers, those 20 percent should always be in stock. Items
that are close, and are inexpensive, should be stocked in small
quantities. Customers will purchase slow moving items from your
competitors or others who are willing to drop their margins. By
definition anyone who mistakenly has many slow moving items in
stock will (in times of little sales) give a customer a terrific
deal on them. To stock a slow moving item indefinatly only to
sell it at low margin sometime in the future is simply not good
business.
If your supplier is sure that you should stock slow moving items
because as a distributor you "have to have them," then
test his conviction by proposing a consignment deal. If he agrees,
then accept the items as consignment goods. If he declines, then
he never had the confidence in the first place. In any event,
if you are not getting the turns from your inventory don't stock
them. Save your cash for items that will speed up the flow --
not slow it down.
Your
system is putting you at a competitive disadvantage if you are
not immediately informed about the following:
* Stagnant inventory and fixed assets;
* The status of sales orders, and invoices;
* Who is paying, who is slowing down, combined with the most recent
ordering fluctuations;
* Your inventory turns, suggested stock levels, and re-order points.
If your resources planning system cannot provide you with the
critical information that you are relying on to bring your business
to the next level, then a review of that system is most certainly
in order.
On behalf of myself, my family, and all the staff that I am privileged
to work with at Evron, I would like to wish you a happy holiday
season.
-
Irwin Pinsky, B.Comm., CGA
Irwin Pinsky is the manager of our small business division and our
BusinessVision practice. Irwin's experience includes that of a
public practitioner focused on emerging companies, as well as
financial controllership.
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How
Lease Financing Can Work For You
The future has always been a place full of uncertainties. One
absolute, is that in uncertain times cash, and more importantly,
cash flow is king. Once the decision to go ahead is made, you
may be facing the big question:
Where
do I get the cash to finance the deal?
Lease
financing may be an option worth considering for many reasons.
Cash Flow. It is a monthly payment that can be scheduled.
It is a constant non-fluctuating disbursement with a fixed interest
rate.
Conservation of your accessibility to funds. Unlike a one
time payment in full, a lease requires only first and last payment,
thus conserving your access to your line of credit for other projects
or for daily financing of an expanding operation. Thus without
going back to your bank for an increase in your line of credit
(and all the accounting fees, as well as your time related to
such an undertaking), you will be able to acquire addition financing.
Balance Sheet presentation. Unlike "Bank Loan Payable"
which is listed as a current liability, only the current (upcoming
twelve month period) capital repayment portion of a lease is disclosed
on your Balance Sheet as a current liability. The remainder is
classified as Long Term Liabilities.
This classification conformity will favorably enhance your "quick
ratio", as well as many other measuring barometers that lending
institutions use to judge your companies financial position, as
well as your credit worthiness.
Tax
Shield. If your lease meets the requirements to qualify as
an operating lease, then payments can be treated as a current
expense written off during the current year. No need to capitalize
the asset and take Capital Cost Allowance as per Canada Revenue
estimates of an asset's useful life. You will therefore be matching
your actual expense within the actual time in which you are disbursing
the funds.
Balance
Sheet enhancement. If you are in an industry where prospects
(be they customers, lending institutions, or suppliers), will
look unfavorably at a "Lite" Balance Sheet (one that
does not show long term capital assets), then obtain a lease that
qualifies as a capital lease. You get the same benefits as in
point three, but now the asset is shown on you Balance Sheet.
You assume all the rights as an asset owner, including reporting
to your prospects that your Balance Sheet as well as your company,
fit their criteria as an organization that should be taken seriously.
-
Irwin Pinsky, B.Comm., CGA
Irwin
Pinsky is the manager of our small business division and our BusinessVision
practice. His experience includes that of a public practitioner
focused on emerging companies, as well as financial controllership.
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