Help a startup manage cash flow

The situation

Your client’s clothing startup is facing a cash crunch as a result of too much inventory and too few sales. He owes $100,000 in the next six months. What steps should he take?

The specialist

• 

  Rudy Fischer,

  Partner at business consulting firm RK Fischer & Associates, Sarnia, Ont.

First, put together a budget and cash-flow statement, explains Rudy Fischer, partner at business consulting firm RK Fischer & Associates in Sarnia. “Inventory is an asset and, if he’s already paid for it, it’s [considered] sunk money. He can reduce pricing to liquidate some of his inventory to get cash. He can also scale back by selling his non-core, revenue-generating assets.”

For instance, if he bought fancy equipment, he could sell it. Another option: borrow money against the inventory. Business Development Bank of Canada is an example of a lender who specializes in this type of funding. “You won’t get the full value. You might get [a loan against] up to 80% of inventory that’s recent,” warns Fischer.

As a last resort, your client could restructure his debt. “He’ll need to work with his suppliers to consolidate his debts and get a payment solution that’s more palatable.” For instance, he can ask for his debt to be repaid over two years instead of in the next six months, even though he’ll pay more interest.

Suzanne Yar Khan

Suzanne has worked with the Advisor.ca team since 2012. She was a staff editor until 2017 and has since worked as a freelance financial editor and reporter.