How To Value ( And Finance ) A Company Business Acquisition In Canada

The Highs And Lows Of Acquisitions Financing


OVERVIEW – Information on how to value a business in Canada and issues that arise in financing a company acquisition





How to value a business when contemplating a company acquisition is one of the larger challenges in Acquisitions finance. The bottom line, as we maintain, is there are some real ' highs and lows ' when it comes to buying a business. Let's dig in.

Larger corporations use some very sophisticated methods of valuing a business. While small businesses and business in the SME sector don't have those same resources the good news is that the same fundamentals apply and they are easier to understand and more common sense than you think!

At he heart of the matter is the ability for you to understand the amount of profit and cash flow that any business acquisition can deliver. For smaller business acquisitions you want to ensure those profits are accompanied by your ability to take a reasonable salary or dividend out of the business if that is needed.

Remember also that if the acquisition has you taking on debt to complete the deal that debt must be retired in some manner. In many cases a solid company acquisition can be financed by monetizing the assets within the business - those assets typically might include receivables, inventory, and fixed assets such as equipment.

A very traditional way of valuing a business is the use of ' multiples'. That could be a multiple of sales, or cash flow.

Businesses that don't sell to clients on commercial credit terms have some unique challenges. Yes, cash is king, but only when it's reported and recorded properly! We encourage our clients as part of many types of financing to obtain 3 months of bank statements for any company in the financing ' cross hairs’.

That gives you a strong sense of inflows and outflows in the business you are looking at.

Murphy's Law (what can go wrong... will!) can play a key role when you want to know how to value a business and finance it. We suppose that's where some of the ' lows' come in that we've mentioned.

Current financing relationships with the business you are acquiring must be ' unwound' or redone in some manner. The same applies to key relationships that have been established with key suppliers/vendors.

In some cases business acquisition finance involves the purchase of an existing franchise. In that case you must understand how franchise terms and royalties will affect your operating capital.

One of the best ways you can turnaround a business after purchasing it is by better managing operating and capital assets. That might include better receivable turnover, better inventory turns, and refinancing existing assets via a sale leaseback.

Always seek some professional help

when it comes to business valuation. That might include help from your lawyer, accountant, or an experienced, credible Canadian business financing advisor; it’s all about reaching highs and avoiding the lows of company acquisitions in Canada.



Stan Prokop - founder of 7 Park Avenue Financial

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


7 PARK AVENUE FINANCIAL = BUSINESS FINANCING AND VALUATION EXPERTISE





CONTACT:

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
















Stan Prokop

Working Capital Management Is The Hidden Power Of Cash Flow And Growth Financing Solutions

Ready To Pull The ‘ Delever’ Stick Via Asset Monetization?


OVERVIEW – Information on working capital management solutions. Cash Flow and Growth isn’t necessarily funded by taking on debt load




Working capital management solutions in Canada. When it comes to cash flow and growth plans for your company it’s not always about the concern of taking on more debt for your company. Let's dig in on that one.

The other day we were listening to the radio as we drove along the Malibu highway in L.A. heading towards Napa... Oh sorry, I think we were actually dreaming and we were stuck in traffic on the Gardiner Expressway in Toronto right near the CNE exit... but we digress...

The radio offered a news story about how Americans are back to ' leveraging up on debt ' after some really tough years. Canadians in turn were ' De- Levering '.. We were a bit better off post 2008 worldwide debacle... and were in fact lowering debt loads after some higher spending years.

That got us to thinking that companies, when they are in survival and growth mode don't necessarily have to take on more debt if they are planning for sales growth. And no prudent Canadian business owner or financial manager will in fact want to take on more debt at the expense of Return on Equity. That's naturally a tough decision for the business owner/manager to take on when the natural tendency is that if you're not getting bigger or growing your company won't survive.


The key point here is that the sales revenue growth you will take on with additional sales causes and increase in your current and fixed assets. Almost no firm, except that of a firm that has no receivables or inventory could achieve profits and sales success without investing in receivables, inventory, equipment and technology

In fact most firms that take on a lot of new debt are immediately suspect with their bankers, who prefer the standard 2:1 debt to equity ratio that comes within their lending guidelines.

So do you absolutely have to plan for new debt load to success in profits and cash flow and growth? Not necessarily! One method to avoid high debt levels is the financing of assets already in place, in both traditional and alternative asset monetization mechanisms.

What are these mechanisms?

They include:

Receivable financing/ invoice finance
Non bank commercial lines of credit for receivables, inventory/equipment
Operating leases for fixed assets
Tax credit monetization
Unsecured cash flow loans
P.O. Finance/Supply chain financing

Naturally not all business debt load is ' bad debt '... If your firm can in fact maintain generally satisfactory debt to equity relationships , while achieving profits, decent return on equity, and respectable interest rates on term debt your firm can of course maintain a ' CAPITAL STRUCTURE' that is a win win for owners, lenders, and management.

Our bottom line today? Working capital management and cash flow and growth scenarios can be achieved by solid asset monetization. Term debt solutions might make sense, but are not mandatory.

If you want to ensure you have working capital management solutions in place to limit debt and still achieve growth seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in your business financing needs.


Stan Prokop - founder of 7 Park Avenue Financial

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


7 PARK AVENUE FINANCIAL = WORKING CAPITAL FINANCING SOLUTIONS FOR CANADIAN BUSINESS







CONTACT:

7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
















Stan Prokop

Business Factor Funding . Recycling A Centuries Old Financing Solution Via AR Finance

Looking For A Recent ( 4000 Year Old ) Business Financing Solution?


OVERVIEW – Information on business factor funding in Canada . Solving cash flow challenges via AR is a time honored financing strategy





Business factor funding in Canada. When it comes to cash flow financing strategies we're often quoted as proponents of new and alternative working capital strategies. But truth be told (similar to fashion!) there's one AR Finance strategy that seems new, but apparently is about 4000 years old . Recycling is hotter than ever... so let's dig in!


Are you aware that business factoring - aka ' receivable finance ' is ONLY about 4000 years old, supposedly starting during the reign of King Hammurabi of Mesopotamia. From that it grew even faster in medieval times as it helps growing garment and textile industries in Europe and North America.


So that quick history tour brings us up to today, where thousands of Canadian business owners and financial managers find themselves in what we can only often describe as challenging times in business finance. So cash flowing your invoices via AR finance, previously deemed as ' alternative' in nature is now simply one of the fastest growing business finance methods

We often find ourselves almost ' over explaining '

why and how factoring works. A simple explanation is to simply say that it's not ' borrowing ‘... it's ' selling'. The paper work around the accounts receivable financing solutions is the mechanism that allows you, at your will and choice, to generate immediate cash by invoking the AR finance mechanism ' factoring'.

So while many business owners/managers find themselves thinking of ' borrowing ' for business finance, they might just want to think more of ' Selling'. As they generate those sales they get immediate SAME DAY advance on the revenue they generate. By the way, the right A/R financing solutions allows to you sell invoices when you want, and certainly not all the time - only when you need the cash. Typically business owners tend to utilize the power of Factoring at key cash flow disbursement times approach - that might be payroll, term loan obligations, CRA payments, etc.



It's important to understand the concept of advance rate within this financing mechanism. Typically, more often than not, that advance rate will be 90%. That is to say if you have a 100k sale, which has been in fact ' earned' by shipping your product, or providing your service, you would receive that same invoice day, if you choose, 90k as immediate cash flow funding . The 10% is a holdback and that’s remitted to you as soon as your client pays. That hold back, in the case of our 100,000.00 invoice will typically have a 2k financing charge attached to it if your client honors typical 30 day terms.


If your firm has significant amounts of capital tied up in current asset accounts such as inventory and receivables you will clearly benefit from immediate same day cash flow received from your business factor funding solution. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in your working capital solutions.

P.S By the way, 4000 years ago CONFIDENTIAL RECEIVABLE FINANCING did not exist - today it does. That allows you to bill collect and finance your cash flow under total control of your own management. Check it out.




Stan Prokop - founder of 7 Park Avenue Financial


http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.

Info re: Canadian business financing & contact details :



7 PARK AVENUE FINANCIAL = CANADIAN A/R FINANCING AND FACTORING EXPERTISE







CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com

























Stan Prokop

Sred Tax Credit Loan Financing Needed? Here’s Precisely How SR ED Financing Works

A Financial Spoiler Alert ? SR&ED Financing Pays Off !

OVERVIEW – Information on how to obtain a SRED Tax Credit Loan . Sred Financing is a valuable cash flow tool to maximize research and development Credits for Canadian Companies .


The SRED Tax credit loan in Canada .Not all Canadian business owners and financial managers are aware of one of the greatest government programs still currently in existence at both the federal and provincial level. The formal name for the program is Scientific Research and Experimental Development program. Most people call it simply the SRED (SR &ED) program; we have also heard many people pronounce it as 'SHRED 'also!


We put Canadian businesses into two categories when we discuss the program - those that don't know about the program period, and those that know about the program but are not aware that their claims can be financed.
SR ED financing is an excellent source of short term cash flow, and allows a company to reap the benefits, in cash of funds that they have put into R&D.


It is probably useful to do a short overview - let's call it a SR ED primer!


The program is administered at the federal and provincial levels of the Canadian government. It is very important to note that the SR ED grant (yes it's non-repayable) is for Canadian private firms only - it does not apply to public corporations the program is applicable literally to almost every type of firm and industry in Canada. A company files it's claim at the same time it files it's year end tax return.


In our experience the majority, we feel almost 95%+ of claims are prepared by an independent third party. They have expertise, credibility, and have a strong knowledge of the program and the government requirements. We would further point out that if a claim is not prepared by a qualified third party then there may be an issue in financing the claim - not always, but sometimes.


Claims can be expensive to process and prepare, and in general the industry has evolved into two types of costs associated with the claim. What are those two cost scenarios?


1. Customer pays a third party in full for time and preparation involved in the claim. The customer reaps the full benefits of the claim when it is processed

2. Customer signs an agreement on a contingency basis, and pays the preparer of the SR ED a portion of the claim when it is approved - bottom line he has no cash outlay and the SR ED consultant is at risk re time and preparation involved in the claim.
Let's now focus on financing of the claim. The financing of the claim is somewhat of a boutique industry in Canada, and requires specialized knowledge around the quality and collateralization of the claim. The Canadian banks, as a rule, with only minor exceptions, do not make SR ED loans.



Claims are financed at approximated 70% of loan to value. What do we mean by that? We mean that loans on SR ED are made to 70% of their combined federal and provincial amount. Example - Customer files a claim for $ 300.000.00. The SR ED loan would be for 70% of that amount: = $210,000.00.


Claims can be financed relatively quickly when working with a qualified financing expert in this area. It certainly is possible to complete a transaction in a couple of weeks, from initial discussions.


Naturally some level of due diligence is required on the firm, and we point out that many firms are in fact total start ups and are filing their claim for the first time. An additional financing note is that first time claims are scrutinized more closely as the customer at that point does not have a track record in this area. Track records help the financing.


There our some other relevant aspects of SR ED financing but our key take away points here are that the SR ED program is a very viable program and source of cash for Canadian business. Claims can be financed, and are a valuable source of working capital. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with SR&ED financing needs.





Stan Prokop - founder of 7 Park Avenue Financial


http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :

7 PARKAVENUE FINANCIAL = CANADIAN SRED (SR&ED ) TAX CREDIT FINANCING EXPERTISE







CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com












Stan Prokop

The Business Credit Line . Visualizing The Perfect ABL Or Bank Facility

Business Credit Lines Shouldn’t Be An Ancient Art

OVERVIEW – Information on the business credit line in Canada. The right facility should be a combination of access to working capital and flexibility




The business credit line in Canada. Clients we meet can visualize it...

they sometimes just can't access it - it' almost as if it’s an ancient art they haven’t quite perfected. As a result... cash flow and working capital challenges. Does it have to be that way... we think you know the answer already... it doesn't and here's why. Let's dig in.

Part of the challenge of those biz credit lines is simply the fact that the majority of business owners and financial managers are fairly focused only on one solution - which is of course the commercial bank line of credit.

That is definitely one solution. The other (What? There's Another?!) Is a non bank asset based credit line facility. Both facilities monetize your receivables and inventory... the difference then? ... The Asset based credit line often monetizes and equipment and real estate also; as part of your overall borrowing power. The big difference is the real key point here - lending is more generous in a non bank asset credit line. Receivables and inventory are margined more aggressively, and in bank scenarios rarely are your unencumbered fixed assets monetized into credit lines.

The use of your business credit line in Canada, whether it's a bank line of non bank in nature can be viewed as a ' replenishment ' of cash from funds your firm has invested in working capital and fixed asset accounts. That need becomes even more acute when your business is growing. The simple reason - you've got more sales tied up in still uncollected receivables, inventory, and the need for some fixed asset or technology replacement here and there!


Whether you disagree or not, all banks have very specific rules in Canada around business credit lines. Bank credit lines for start up or very new businesses in Canada essentially... Don't exist! That’s because our strong banking system in Canada places a large emphasis on historical strong financial history, solid profits, and squeaky clean balance sheets.

If your firm is offside on banking requirements it's still exceptionally very safe to say that you qualify for an asset based credit line from a non bank commercial finance firm. And that higher leverage and borrowing power is still there of course - it’s the appeal of the ABL (Asset based Line)

By the way, if you are in fact ' off side' with your bank on their key metrics, ratios, covenants, and collateral issues the ABL line rides to the rescue more time than you think . So while your busines may have temporarily stumbled the non bank asset based line of credit steps in to keep cash flowing and working capital working!

It's not pure roses and sunshine all the time with your busines credit line. You should always be prepared to supply proper reporting and updates on your busines assets, even more so with ABL type facilities which in some cases might even require due diligence visits, appraisals, etc.

If there is a bottom line here its that the business owner/financial manager needs to understand both the alternative to credit lines, as well as the nuts and bolts of how and why they work best.

P.S. If you want to consider new, replacement , or alternative credit facilities seek out and speak to a trusted, credible and experienced Canadian business financing advisor .




Stan Prokop - founder of 7 Park Avenue Financial

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS CREDIT LINE EXPERTISE





CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com

Stan Prokop

Working Capital Line Of Credit Should Not Be A Blue Moon Event

Beat Rejection And Tragedy With Cash Flow Solutions That Work



OVERVIEW – Information on achieving a working capital solution and the right type of business line of credit in Canada




Working Capital , in our humble opinion, shouldn’t be a ' Blue Moon ' event.

That's of course a term used to mean a ‘rare event ‘, and unfortunately a lot of Canadian businesses view their search for a line of business line of credit as somewhat of a search for that ' rare event '. We don't think it has to be that way, so let's dig in.


Not a lot of people disagree with Warren Buffett; one of his many favourite sayings is simply that ' it's all about the cash '. So when we sit down with a lot of clients for an initial conversation we find it interesting that a lot of the talk seems to revolve around sales, profits, debt, equity, etc, but not always about cash flow and working capital. Therein lies the problem.

So while others, including the business owner and financial manager themselves measure their competitiveness and success by sales, profits, etc let's not forget Mr. Buffett’s

focus - cash flow.

Companies such as yours generate cash by asset turnover, and the way you measure, finance and manage and analyze that cash turnover will ultimately be your success.

What are the ways that companies in Canada finance receivables?

The best and most common solutions are as follows:

Canadian commercial bank lines of credit

Receivable financing non bank facilities - aka ' factoring' 'invoice discounting ' ' Confidential receivable non bank financing ' (the latter being our favourite for clients unable to access bank finance)

Asset based lines of credit

Tax credit financing (SR&ED, etc)

Securitization

So what in fact are those ' cash flow drivers’? One of them is of course accounts receivable. Not necessarily the amount of investment you have in A/R, (although that’s important also) but the timing of those inflows of customer receipts.

When business owners, and dare say it, even financial managers review their accountant or internally prepared financials they always tend to focus on the balance sheet or income statement . The 3rd part of the financial statement is the cash flow statement, and because of its technical nature many owners /mangers fail to grasp how it measures your business success. ( It shows what funds came in, went out, as well as the changes in the working capital accounts of receivables and inventory )

Here's a tip on that cash flow statement. Believe it or not some of the smartest financial analysts around tend to read any financial statement by first reading the footnotes to the financials, and then looking at the cash flow statement. By that time they have figured out a lot more about your company than you'd be surprised!

The other key thing about cash flow that's worth discussing when it comes to a business line of credit is simply the fluctuations in cash flow and working capital needs. In some months collections are great, in some they are not, and in those same months you might have larger outflows to suppliers, etc. Sales revenue rarely go up in straight line. So it is often impossible unless you track your sales and A/R trends to anticipate perfect cash flow needs. But you should still try.

Don't underestimate the need for cash flow focus and the use of the right type of line of credit for your firm. That effort allows you to avoid the tragedy and rejection feeling that comes from working capital shortages. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in your working capital needs.







Stan Prokop - founder of 7 Park Avenue Financial
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


7 PAR AVENUE FINANCIAL = WORKING CAPITAL AND BUSINESS LINE OF CREDIT SOLUTIONS







7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com

Stan Prokop

Leasing Companies Save The Business World One Deal At A Time Via Creative Business Funding Solutions

Feeling Left Behind When It Comes To Asset Financing Solutions





OVERVIEW – Information on leasing companies in Canada . How does this method of business funding provide ultra creative solutions for asset finance needs


Leasing companies in Canada. When it comes to lining up all your firms’ asset financing choices do you sometimes feel a little left behind? That of course shouldn’t be the case - unfortunately it sometimes is.

Furthermore we maintain that there isn’t a more creative option when it comes to financing the asset or assets you need to run your business or take you to the head of the line in competitiveness. Let's dig in.


How then does the lease finance solution get truly creative when it comes to that ' one deal at a time ' finance solution? First of all let's make it clear that every asset category, even intangible assets such as computer software can be financed. Broadly speaking the asset categories that are financed everyday in Canada include manufacturing ' shop floor ' type assets, technology that includes computer, software and telecom assets, and rolling stock including trucks and fleets, etc. And we can put aircraft into that general category also.


When it comes to the right transaction for your firm it's all about credit/financing approval, rate, and structure. In Canada you can finance assets in 4 size categories - they include micro size, small, mid and large ticket lease. So whether it’s a laptop or fax machine ( is anyone still using faxes?!) or your newest corporate jet acquisition there is a finance solution for all.

Business owners like choices. There's no question about that, so when it comes to dealing with a lease finance partner you are comfortable with your choices are abundant. They include subsidiaries and divisions of Canadian banks, independent commercial finance firms, as well as captive finance companies associated with large manufacturers. Small transactions can be approved within hours, larger transactions due to size and credit approval issues take longer of course.

Although numerous benefits exist around the use of leasing companies for asset acquisition more often than not clients focus on working capital and cash flow issues they are challenged with - they want and need to acquire the assets in question - they are constrained by cost, budgets, access to business credit, etc.

The reality is that all credit quality issues can be addressed in lease business funding. Transactions that are related to your firm’s potential lack of credit quality are known as being ' structured' in nature. That simply means that you're still approved, however the rate or potential down payment might be higher.

Tremendous flexibility

exists around the actual payment structure of your transaction. Term sizes vary from 2 to 7 years, even longer for certain assets. Payments can be deferred for a reasonable period of time, or then can be either accelerated or ' step down' in nature... ie paying less during the initial asset acquisition period, and then ramping up as your firm generates the true benefits of the asset in question.

In certain cases operating leases can both enhance your balance sheet and reduce your payment and overall operating costs. ( Operating leases are ' leases to use ' as opposed to ' lease to own'.)

If your firm is looking for a quick way to both access and benefit from leasing companies and their solutions in Canada consider seeking and speaking to a trusted, credible and experienced Canadian business financing advisor who can ensure you're not ' left behind' when it comes to timely state of the art asset financing solutions.




Stan Prokop - founder of 7 Park Avenue Financial


http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.

Info re: Canadian business financing & contact details :


7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS LEASE FUNDING EXPERTISE







CONTACT:

7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com














Stan Prokop