Business ownership and financial concerns will always go hand in hand, but the COVID-19 crisis has put an even greater spotlight on the challenges entrepreneurs can face. Even with emergency government assistance, many small business owners have found their finances stretched. Here are some of the biggest financing issues businesses are dealing with today – and what they’re doing about it.
Cash flow troubles
It’s hard enough to keep bank accounts flush with cash, but it’s become that much more difficult to do during the pandemic. A recent survey by the Canadian Federation for Independent Business (CFIB) found that 74% of small business owners list the increasing cost of doing business as a top challenge, while 53% are also worried about inflation. Both issues, coupled with emergency supports ending, could put even more pressure on company cash flows.
Tightening supplier terms
Whether it’s a good thing or not, Canada’s small- and medium-sized businesses often rely on supplier credit to get them through their days. When COVID-19 disrupted cash flows across the board, many organizations reined in the relatively generous terms they previously offered their clients. In the most threatened industries and among companies with a history of bad debt, suppliers resorted to asking for cash on delivery. This has forced businesses to pull money out of bank accounts sooner than expected or switch suppliers, which comes with its own challenges.
Limited access to growth capital
The pandemic made many enterprises tinker with their business models. Some have also had to pivot into entirely different directions and pursue new markets or develop novel products. At the same time, many companies have continued to thrive and have growth plans they want to execute on. Unfortunately, it’s not always easy for businesses to find the capital they need to evolve or expand. Some lenders have gotten skittish about loaning money to riskier small businesses during a pandemic, while venture capitalists tend to focus on high-growth technology firms. Finding the right financing partner is key – but not always easy to do.
Lack of financial data
Financing isn’t just about having money to pay for things – it’s also about ensuring the cash you do have is spent wisely. Many companies continue to use Excel sheets to track cash flows or organize their balance sheets, which is prone to errors and difficult to analyze. While more are adopting cloud-based financial solutions to help keep track of their expanding businesses, it’s still important to make sure you’re scrutinizing your data properly. The more insight you can get into your business, the better financial decisions you can ultimately make.
Rising debt loads
According to CFIB, the average business in Canada owes nearly $177,000 in debt. Many entrepreneurs are using high-interest credit cards or lines of credit to keep their operations running – debt that could potentially climb when interest rates eventually rise. As government support stops, there’s a good chance that some companies will see their debt loads increase. While insolvencies are at a 35-year low in Canada, there is concern from experts that bankruptcies will rise in the coming months.
Work with a financing partner
Business owners will never fully get over their money-related fears, but many of these challenges can be overcome by working with a financing partner. One such partner, the Fonds de solidarité FTQ, a Montreal-based financial institution with net assets of $17.2 billion as at May 2021, has injected an average of more than $1 billion per year into local Quebec economies through loans to businesses and other financing solutions.
It funds Quebec-based businesses through venture capital, private equity and structuring capital, but it also provides private funds, which involves investing indirectly in various companies through specialized funds, such as Novacap Investments Inc., iNovia Capital, Lumira Capital Investment Management Inc. and CTI Life Sciences Fund.
Fonds also has a network of 87 local funds and 17 regional funds that offer financing from the thousands into the millions of dollars. During the pandemic, it worked with its partner companies to deal with a variety of financing issues, such as related to disrupted supply chains and remote work solutions. The business is now putting a greater focus on funding environmental, social and governance (ESG)-focused companies. Fonds isn’t just there to provide capital, though. With its motto, “we do more than invest, we get invested,” it’s also offering advice, expertise and other kinds of support to the businesses its funds.
If the pandemic has taught us anything it’s just how important money is to a business – if you don’t have enough cash you simply can’t operate. As the world slowly starts to put the COVID-19 crisis behind it, now’s the time to tackle your financing challenges and set yourself up to grow again.