Improve your working capital: the lifeblood of your business

In a constantly changing market, businesses must quickly shift gears so they can leap opportunities as they arise.

Entrepreneurship is not without its ups and downs. Can you grow your business without too much stress? How do you stay on solid ground when faced with the challenges and business fluctuations that are inherent to your market?

You don't have to go it alone. There are lots of tools for entrepreneurs who want to increase their working capital. Our two experts have some advice for you.

Keep moving forward 
In this digital age, when things are moving at an ever-accelerating pace, everyone's talking about agility as a way to improve business performance. In a constantly changing market, businesses must quickly shift gears so they can leap opportunities as they arise. "Having good working capital provides critical financial leeway here," says Pierre Tessier, Vice-President, Investments, for the Quebec City regions and for Central and Eastern Quebec at Desjardins Capital. 

Having immediate access to cash helps weather economic upheavals, which frees up your energy to invest in the right places. "It's less stressful for business owners, who can focus more on strategy, and less on day-to-day management," says Sami Ben Nasr, Director, Major Accounts, for Desjardins Business. 

Even in good times, when your business is in a growth stage, there are still hurdles to overcome. Entering other markets, developing new niches or acquiring another business are all major challenges. If you don't have sufficient working capital, it will be much harder to achieve these goals. 

When there's lots of money in the bank, you'll be able to pay bills faster, and you'll have a better chance of getting discounts from suppliers. And, in the event of acquisition by another company, having good working capital will help increase the value of your business. 

Improve your working capital with financing 

"Traditional" financing
To give their business clients more latitude, financial institutions may offer them a line of credit. "It's the most popular tool," says Ben Nasr. The business can use this line of credit for various needs; the amount is calculated by the financial institution. 

Another solution: take out a secured term loan. "This will allow you to finance short-term needs, like a big contract," he says.

Financial institutions may also offer a moratorium on principal repayment. For a few months or longer, the business only pays interest on the loan. "This helps them get back on financial track," says Ben Nasr. 

Take out an unsecured loan 
Some business owners may be wary of traditional financing. Desjardins Capital offers additional solutions, like unsecured loans, also known as subordinated loans. Unlike secured term loans, they don't require you to provide any form of collateral. Paying off this debt isn't as important as reimbursing a term loan. Result: the interest rates are higher, because the lender carries a greater risk. 

Use equity financing 
You can also increase your working capital without taking on debt. That's where Desjardins Capital comes in. They offer equity financing, with a funding partner who injects capital in the business and, in exchange, becomes one of the shareholders. 

Which option is right for you? 
You should consider a number of factors, including the funds needed to improve your cash flow and how much risk you're willing to take on. Your decisions should be aligned with your short- and long-term vision. 

Traditional financing is faster to secure than an unsecured loan and costs less, and the terms and conditions are generally well-known. The terms for unsecured loans tend to be more flexible. 

Equity financing usually takes longer to process. There are more legal documents involved, and the transaction also entails a dilution of ownership. However, sharing ownership of your business can be a smart strategy. 

"The business gets a long-term partner who adopts an investor approach, not a lender approach," says Tessier. "An ally who will help them define a game plan for success and that will put their financial network and directors to work for the business." And the entrepreneur might prefer to "own a smaller share of a business with a higher value than 100% of a business with a lower value, because of the limited growth potential," he says. 

There are many tools available to help entrepreneurs overcome hurdles, and businesses usually combine different types of financing. "Each one has a role to play, and the products complement one another," says Ben Nasr. "When liquidity needs increase, there are solutions beyond traditional financing." Improving your working capital is a must, and cooperation can be a game changer. 

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