In Part II of this two-part series where members of our CWB teams offer their two cents on how to keep the dollars flowing, we look at some common potential impacts to cash flow as well as food for thought on how to approach them.
It all comes down to knowing and anticipating your obstacles and risks – and putting yourself into a position to strategically outwit them.
Equipped to do the job
Having the right equipment to produce your product can be a big factor in your cash flow situation and equipment debt can get a lot of agriculture businesses in trouble, say Trevor Sproule and Georgina Knitel of CWB’s Agriculture team.
That’s why they examine how their clients’ banking is structured and whether it’s working as well as it could be to support their current and longer-term cash flow needs.
“If you’re paying back $800,000 for a tractor over five years it’s such a high hit – there goes your cash flow right there. But that tractor is essential for creating revenue,” says Sproule, Assistant Vice President and Head of CWB Agriculture Banking.
“So we look at, are their principle and interest payments too high? Would a longer amortization period help with getting payments down? Would an interest-only option be better? We consider how all of this is lining up against their business operations and what the best options are.”
While both leasing and loans can help preserve your cash flow when it comes to equipment, Miles Macdonell, Vice President, Vendor and Partner Services at CWB National Leasing, says that bank loans can require large down payments – whereas in most cases you can lease equipment with zero down.
“A real benefit with leasing is that it lets you get the right piece of equipment when you need it, not just the one you have the cash for right now,” he says, noting that your business’ financial situation and equipment needs will determine which choice is right for you.
“We consider whether a client has recently acquired equipment or is planning to do so. We want them to know they have options – you don’t need to tie up your cash in equipment. It can be more strategic to put your cash where it’ll provide more value rather than sinking it into depreciating assets.”
Macdonell adds that lease financing can help if a client is on the fence about buying equipment because the lease terms can be structured to match their revenue and expenses – including aligning payment schedules with the seasonality of their business.
“If you’re a golf course maybe you’re paying six months on and six months off. If you’re a commercial business maybe you’re paying monthly. If you’re a farm, maybe you’re paying annually or semi-annually,” he says. “At the end of the day there are ways to spread out the payments so clients can preserve their cash and lines of credit.”
In many instances, leasing can also provide a business with income tax benefits by allowing you to expense lease payments rather than depreciating the capital cost of equipment.
Outside factors…and those closer to home
Sometimes you see it coming, sometimes you don’t. Cash flow management can help you plan for the storms you know are inevitable, but sometimes can’t quite spot on the horizon – the variable and the unexpected. Things like supply chain issues, fluctuation in commodity prices, transportation challenges, and (literally) even the weather.
Dave Ylagan, Senior Relationship Manager, Commercial, emphasizes that knowing what factors are beyond your control but have the potential to blow your business off course (and by how much) can help you figure out how to best leverage your cash flow to regain command of your ship in stormy seas.
“Those who have a good understanding of variable factors and intentionally build up a bit a of a war chest to use when times get tough put themselves in a good position to weather the storm,” he says.
It’s not just the threat of external influences to cash flow that business owners should be aware of – for family-run businesses, unexpected risks can sometimes emerge from within your own four walls, says Knitel, who is also a chartered mediator and family enterprise advisor.
“Family businesses working together tend to be the most successful on almost every measure – they also tend to be some of the most complex to keep together,” she says. “It’s the soft factors that can hit really hard, both emotionally and financially – divorce, kids leaving or coming back to the business, family dynamics, land sales, succession planning – so there’s huge merit in planning and preparation.”
Communication is key
While there are numerous considerations to weigh when it comes to your cash flow strategy, at the end of the day, regardless of the industry or sector you’re in, a common thread that can support all of them is good communication – in fact, this is especially true in business where there are so many different relationships at play.
That’s why it’s crucial to have an open and honest line of communication with your banking partner, which means releasing any pressure you might be placing on yourself to be an expert in everything.
Because while cash is king, your banking partner should be in your court, right there with you, rooting for you to succeed.
“Really, there’s not much that can surprise us, we’re here to help not to judge,” says Sproule. “If you have a problem, don’t try to hide it. Let us know early and let’s tackle this thing together. “
Have more questions about cash flow? Reach out here.