This interview originally appeared as a virtual fireside chat on CB Insider at www.canadianbusiness.com.
As a business owner, you have dozens of questions to think about every day. In a recent discussion with Canadian Business, CWB’s Stephen Murphy, Group Head, Commercial Personal & Wealth – who himself has decades of experience advising businesses – answered many that are top-of-mind for the entrepreneurs who bank with CWB. Please note this transcript has been edited for clarity and length.
- What are the most common cash flow challenges that small business owners face today, and how can they address them effectively?
- What financial metrics should business owners monitor to ensure they maintain a healthy cash flow?
- What’s the best way to balance short-term cash flow needs with investing in strategy for business growth?
- How have digital tools transformed the way businesses manage cash flow, and what innovations are on the horizon?
- What does the rise of fintech solutions mean for traditional banking?
- Given the challenges many businesses faced during the pandemic and the subsequent financial impact, how can business owners regain confidence and secure capital for growth?
What are the most common cash flow challenges that small business owners face today, and how can they address them effectively?
Managing cash flow has become more challenging than ever for small business owners. Today, they have to deal with a range of complex factors, including geopolitical and economic uncertainty, an unstable interest rate environment, inflation, and rapid digital transformation. Emerging technologies, while offering opportunities, also introduce new risks, such as cybercrime and fraud.
On top of this, business owners must balance the need to optimize their operations, remain profitable, and manage cash flow effectively. Given these pressures, simply making money is an increasing challenge.
The key to addressing these difficulties is understanding that a well-managed cash flow strategy—rooted in awareness and planning—is essential for sustaining long-term business health.
What financial metrics should business owners monitor to ensure they maintain healthy cash flow?
Most business owners are deeply passionate about delivering value to their customers and growing their business. Whatever their area of expertise is, it is rarely accounting or financial management, so very often monitoring metrics is the last thing they want to do. Still, staying on top of them is crucial to assess the health of your business, and understanding how your cash is moving around is a fundamental that every business owner should master.
To make sure that you’re making money, keep track of your cash conversion. Key questions to consider include:
- How quickly are you receiving payments from vendors and customers?
- How timely are your payments to vendors?
- Are there any delays or inefficiencies that could impact your liquidity?
It’s also essential to have a clear plan for cash flow, as even a profitable business can suddenly struggle if cash isn’t managed properly.
What’s the best way to balance short-term cash flow needs with investing in strategy for business growth?
It all starts with a plan – you need to have a solid plan and make sure that all the moving pieces of your operations stay aligned. It’s hard to underestimate the importance of cash, so a plan will also help you ensure that you have the resources you need to pay your people and bills while also keeping an eye on the future. Many financial tools are available now to help business owners aggregate information and find insights to support decision-making. When you combine those insights with the power of knowledgeable partners – like your accountant or banker – it is way easier to steer a company in the right direction.
Many things are out of a business owner’s control, so it’s very important to focus on the things you can control, and that includes leveraging the tools and partners that give you a better line of sight. This way, you can continue to focus on delivering value to your customers, ensure the business is still delivering on the financial side and continue to look toward achieving your long-term goals.
How have digital tools transformed the way businesses manage their cash flow, and what innovations are on the horizon?
Most businesses should be using some kind of accounting software. Most options cover the basics, providing owners the ability to keep track of the money flowing into and out of the business. Good ones will give you access to information that will still require interpretation, but also the opportunity make proactive decisions. Look for tools that help you identify trends or send alerts when a cash-flow issue is on the horizon. More real-time data means you can plan for potential challenges, instead of reacting to reports that are several weeks old.
As these tools evolve, we’re seeing new ways that accounting software is helping business owners interpret the numbers. These new layers can bring tremendous value, but for a small business owner it can also be overwhelming.
Focus on the challenge you’re trying to solve, not the solution someone might be selling you.
For example, you might be thinking about exiting your business, and naturally you want to know what it’s worth. CWB offers a free business valuation tool that helps you get a sense of its value, and all you need are details from your financial statements.
What does the rise of fintech solutions mean for traditional banking?
The main focus for the business owner in this case should be on driving value out of the tools that are available to them. For example, you might have dozens of apps on your phone, but how many do you actually use? It’s the same with fintech solutions. If they are easy-to-use and can sync together seamlessly to provide you with the insights you need, they can bring tangible value to business owners. For example, most business owners will have a business credit card, and CWB’s partner, Brim, offers a great digital toolbox that can be integrated with the wider ways in which we support businesses.
At CWB, it’s important that integrating traditional banking tools with new fintech solutions create a simple toolkit. And regardless of how many innovations are out there, we know that relationships still matter. You might be able to print out all financial statements over the last year in just a few clicks, but asking your accountant for advice will help you understand what they mean so you can make better decisions.
Ensure you have people in your network who know your business, industry and what it takes to navigate every new opportunity or challenge that comes your way.
There’s no fintech today that can replace the value of a good financial partner.
Given the challenges many businesses faced during the pandemic and the subsequent financial impact, how can business owners regain confidence and secure capital for growth?
The pandemic has certainly left many businesses with bruised financial histories, making it harder for them to access capital. However, having a clear, well-structured plan is key. Business owners need to demonstrate that they understand their financial situation and have a solid path forward. If you can show a strong grasp of how your business makes money, how you plan to grow, and the math behind it, financial partners are more likely to have the confidence to provide support. With a detailed, actionable plan that proves you can deliver on their growth objectives, it’s more likely that we can say ‘yes’ to your deal.