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Advice & Tips Ask an Expert July/August 2020

Q: Beyond traditional loans and cashflow, how can I improve my liquidity?

A: Liquidity is essential for maintaining and growing your operations, particularly during periods of change and uncertainty. More than ever, it’s important to understand the various ways to leverage your balance sheet, tap into additional financing, or access cash inside your business through savings and other efficiencies. Here are a few creative ways to access the cash your business needs to thrive.

  • Lease equipment. Instead of purchasing all of your equipment at once, consider leasing some or all of it. In addition to providing the equipment you need today, leasing allows you to acquire higher-capacity (and typically higher-cost) equipment as your business and its requirements grow. Because leasing involves both flexible payment terms and a lower capital investment compared to buying, it can also free up working capital for other business purposes.
  • Inventory financing. Inventory financing is an asset-backed line of credit or a short-term loan you can use to purchase supplies. Those supplies, which form part of your inventory, serve as collateral to secure funding. This type of financing is especially useful for franchisees that must pay their suppliers in a shorter time frame than it takes to make and sell the products they produce. It’s also a good way to help manage fluctuating operational demands by allowing you to acquire extra inventory required to meet demand during busier times of the year.
  • Cash management solutions. Reviewing your cash management needs and comparing cash management solutions can result in significant savings.

For starters, look at your day-to-day cash management for ways to save money. Reducing costs in a number of small ways can positively affect the bottom line as much as making a single major reduction. Compare the terms—payments, fees, and amortization—of all your capital, including lines of credit, credit cards, and everyday banking transactions. You can also consider potentially consolidating debt, or at least refinancing to tap into lower-cost options.

Digital payment solutions also offer opportunities for savings and increased efficiencies. Online business banking portals provide a one-window view into all of your banking and are a convenient and cost-effective way to pay suppliers and track payments, providing sharper cash management control – whether that’s through wire payments, electronic fund transfers, or other payment tools.

If you have a cash-based business, maybe it’s worth looking at a smart safe? This technology not only securely stores and tracks your cash, but can also automatically convert cash into a bank deposit, saving you the time, cost, and worry of using couriers or staff to make deposits.

  • Staff-related expenses can positively or negatively impact cash resources for any franchisee. Consulting with an HR expert can help ensure you optimize your staff levels. You might also ask your financial institution whether it offers a more cost-efficient payroll service than you currently use.

Ultimately, it’s worth sitting down with your banker to discuss your capital and cash-flow requirements within a context of your overall business needs and goals. By having a complete picture of your business, your banker can help you make financing and cash management decisions to meet your unique needs and support you at every stage of your franchise journey.

Tom de Larzac
Head of Franchise Banking
HSBC Bank Canada
tom.delarzac@hsbc.ca

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