Business Acquisition Financing Shouldn't Be Harrowing. When Buyout Finance Works Properly

Here’s Your Storyboard For Buying A Business

OVERVIEW – Information on business acquisition financing in Canada . What info and analysis makes a good buyout finance strategy successful






Business acquisition financing in Canada needs a better storyboard. Buyout finance opportunities exist all the time in the Canadian business landscape .Certainly buying a business and either growing it or turning it around is an exhilarating experience. What works and what doesnt for the would be buyer/owner? Let's dig in.

Proper acquisition finance should be done strategically - making sure the right tools and agendas are in place to make the new business work.

If you're either an entrepreneur looking to buy a business or a current business owner looking for diversification and non organic growth that typically is driven by sales and profit motives. When you enhance the value of another business both revenues and profits will grow if managed properly.

Numerous clients come to us with what they feel are ' undervalued' situations. Some of those can become overvalued if not dissected properly. Most businesses in the SME sector in Canada tend to be purchased or bought in a somewhat ' friendly ' negotiation. SME is rarely the hostile takeover environment.

A lot of the focus on your initial pricing and value of the business you are looking at will always come back to cash flow. That cash flow is going to come out of how you will mange the business relative to current assets (inventory and A/R) as well as the financing you need for current and future investment.

How then does the purchaser/buyer create that ' storyboard' we've been talking about? It's done by taking a close look at finance operations - that includes gross margins on sales, expenses, and the turnover of assets.

Business purchasers often go wrong when they don’t spend enough time on the required investment in new asset needed. That could be technology, plant equipment, vehicles, etc. All of those will require financing, which can typically be properly funded via equipment finance. The cash flow required to make those payments must be taken into account in your cash flow analysis of the acquisition.

Sales in most companies always comes back to a working capital requirement. This is the balance that comes from managing your payables and vendors as well as collecting receivables and purchasing inventory / goods.

Here's a quick way to look at that. Let’s say a company has 100,000 dollars in current assets and 80,000 dollars in current liabilities. That business has a working capital position of 20,000 dollars. Bottom line? For every dollar of sales your business needs 20 cents of working capital. You need to project that out into your future sales growth. Keep your ' capital turnover cycle' top of mind.

What are those key storyboard questions you should be asking yourself? They include:

What debt levels are in place or needed?

What amount of owner equity needs to be in the business at the time of purchase?

Are short term solvency issues a critical item? What type of financing can be put in place to solve those?


They might include:

RECEIVABLE FINANCING
INVENTORY FINANCE
BANK OR NON BAN LINES OF COMMERCIAL CREDIT

Remember the maxim ' Growth penalizes Cash ' when you're planning an acquisition for growth. That punishment can be brutal.

Methods of acquiring a business in Canada through finance include_

GOVERNMENT SBL LOANS
BRIDGE LOANS
ASSET BASED LINES OF CREDIT
BANK TERM LOANS

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your buyout finance 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 = Acquisition And Buyout Financing Expertise





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 Financing In Canada. Are You Addressing Banking And Credit Needs Incorrectly?

Business Finance Alternatives – Use As Directed


OVERVIEW – Information on business financing . How does management choose the right credit and banking alternatives that are available




Business financing choices in Canada. To many business owners and financial managers it must seem like they spend a tremendous... aka ' too much' time searching for the credit and banking alternatives they need to run and grow business.

What then are some of those decision points when your business is looking for capital of any type? Let's dig in.

Easy to say, but fundamentally it's all about finding the right financing in the amount that you need that carries an acceptable level of risk and cost. As we said, easier talked about than done.

More often than not it's about taking on the wrong kind, or too much debt and therefore risking business failure.

There are a number of ways in which business finances itself. They include:

Vendor / Supplier credit

Lease Finance

Bank Financing

Asset monetization

New equity

Many business owners often underestimate the power of supplier finance. The terms and credit needs you're able to negotiate contribute greatly to business cash flow. Supplier credit stems the outflows of cash. The bad news here is that everybody's in the same boat at the end of the day, as everyone, including your clients attempt to stretch payment terms.

Instead of paying with cash for equipment and technology assets business can choose to lease those assets on a lease or rental basis. Terms of anywhere from 2-7 years, sometimes longer, are available to leases assets such as rolling stock, computers, heavy equipment, production machinery, etc. Bottom line... any asset can be financed.

Canadian commercial banks offer significant financing choices when your firm seeks business credit. The most desirable bank facility is typically the ' revolver' allowing you to draw daily against the cash you need up to a set limit. The danger of breaking a bank arrangement often leads many businesses into a death spiral.

While in many cases it's desirable to get new equity into your company the challenge here is that it dilutes ownership at the expense of current owners.

Many owners and finance managers who focus on getting new equity don't fully realize that numerous ASSET MONETIZATION strategies exist as an alternative to equity in many cases.

They include-

Receivable financing
Inventory Financing
Tax Credit Financing
Royalty financing
SR&ED Tax credit monetization
Non bank asset based lines of credit
Sale leaseback
Bridge loans

4 or 5 key issues typically should come up in your overall financing decision. They include:

Flexibility of the financial offering
Risk
Cash flow and profit concerns
Control exerted by the lender based on the finance offer
Timing

At certain times in any company’s history it can't always get the financing it needs. Issues such as your overall leverage and your capital structure need to be addressed carefully. Growth, while always desired by almost all firms requires proper assessment of your financing needs.


Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with business credit and banking decisions that make sense today and tomorrow.



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 Financing And Credit Banking Expertise


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 Software Leasing . Here’s The Rules Around Technology Financing Options. Now You Know

Know What You’re Doing When It Comes To Financing Computers , Software And Other Technology?

OVERVIEW – Information on technology financing in Canada . Business software leasing is a viable way of acquiring your tech needs in a way that matches benefits to cash outflows





Business software leasing and technology financing in general often seem like ' uncharted territory' when it comes to Canadian business financing. The truth is there are some striking differences in tech finance, and, as our lawyer would say ' on the other hand'

there are quite a number of similarities. Let's dig in.











Don't think that because software is an ' intangible asset ' that it can't be financed. One study by top experts revealed that over 1/3 of business owners have never considered this method of financing technology. The reality is that Canadian business owners, from small business to our largest corporations have been financing software and tech assets for 20-30 years. While the lease and financing documents are essentially the same it's important to understand certain elements that are specifically related to the tech world.

Part of the confusion around software financing revolves around the simple fact that you're licensing, or using software, your firm doesnt own it per se. Given that most computer hardware is really a commodity these days the actual value of application software is much more significant.

From the lessors point of view they disclaim the warranty in the software and hardware they finance, that’s between you and your vendor.

And the bare facts are simply that as long as you are making payments under your lease you have the right to use the software in a nonexclusive manner. Most software lease financing in Canada is done under a capital, or ' lease to own' document.

We can get really technical and also offer up the fact that when you are financing / leasing software you don't own the IP (Intellectual property) around the software in question - you can use it, but you can't resell it! Today Canadian lessors also register their interest in the same manner that they register any lease document.

We've already said that a strong case can be made for software being more valuable than hardware, as it most cases its running your business and providing you with a competitive edge. These days it runs a company financials, manages customers, controls inventories, etc. That's why it makes sense to consider leasing/financing this valuable asset to your business.

For credit worthy companies all software can be financed, so that is all the way from MS Word to aircraft scheduling systems. It's a fundamental concept of lease financing that you should match the cash outflow of a purchase with the benefits. Since the useful life of the software will often be several years it makes sense to consider a 2-5 year lease term for tech financing scenarios.

Custom software in general cannot be leased or financed, except when there is investment grade credit quality backing up the transaction. But in Canada the lease finance industry has embraced software financing , so whether your finance need is 5k or 5 Million $ consider such a strategy. And if by chance you're a software company you should definitely consider offering customized financing to your client base.

It's no secret that more and more everyday we're living in a knowledge economy, so don’t forget the financing opportunities your firm has in financing hardware, software and other services to achieve your competitive position in your industry.

Seek out and speak to a trusted, credible and experienced Canadian business financing with a track record of success in tech financing. The bottom line, these days its' mission critical’!



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 = Candian Business Software Financing and Technology Finance Expertise





Have A Question Or Comment On Our Blog Or Canadian Business Financing Alternatives ?



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 Finance Options Harder To Find Than Atlantis? Alternative Financing Solutions Are The Answer

Solving The Fundamental Problem Of Business Financing Options . Hint .. It’s Alternative Finance Solutions


OVERVIEW – Information on business finance options in Canada. How alternative financing solutions via asset monetization and debt allow the business owner to avoid equity dilution




Business finance options seem harder to find these days than the lost continent of Atlantis.

So when clients say that traditional solutions are no long working or accessible by them our answer is simple - consider alternative financing scenarios. Let's dig in.

Part of the problem faced by many business owners is simply time... they know they need new or better... or even ' some' business financing... they just don't know where to look for it .

In a lot of cases the entrepreneur spends a lot of time searching for equity capital and are disheartened to find out that they were so not ready for that option. By the way, equity capital dilutes ownership of course, so giving away a large piece of the pie early in your business success reduces the chances of long term return on your investment.

Many top experts feel that the equity route though is in fact better than debt or asset monetization. We respectfully disagree, as no matter how costly these solutions are... properly structured they can still allow you to achieve sales growth and profits without giving up ownership. That's our story and we're sticking to it!

No discussion on Canadian business financing can take place without talking about ' WHEN THE BANK SAYS NO ‘. We don’t think it's that complex really.

As one expert puts it the business owner or financial manager fails to understand that the bank has a deal with its depositors... the money is safe and unavailable to risk start ups, early stage companies, or firms experiencing financial difficulties .

We're the first to point out that if your firm has profits, cash flow, and collateral, clean financials, etc you're 100% eligible for bank term loans and commercial revolving credit facilities.

So what are some of those alternative financing solutions that can still generate capital and cash flow for your business? They include:

SR&ED TAX CREDIT FINANCING - This financing funds your research and development
GOVERNMENT SBL LOANS
ASSET BASED NON BANK LINES OF CREDIT - (They finance inventory, receivables and equipt all in one borrowing facility
CONFIDENTIAL RECEIVABLE FINANCING
SALE LEASE BACK

What then is required to access these alternative financing solutions? In almost all cases just you’re current financials and a sales or cash flow forecast is a great start. You will not, we repeat NOT be successful if you, or your advisor can't articulate sales growth, receivable collections, gross margins, etc. That's just common sense by the way.

Asset monetization strategies will focus on your balance sheet. Hard assets can be refinanced through bridge loans or sale leaseback strategies.

Receivables of any type can easily be financed in Canada. This even includes contract monetization scenarios. And by the way, service companies can easily cash flow their A/R... your firm doesn't necessarily have to sell a hard asset product.

Yes, its true that we’ve spend hundreds of years searching for the continent of ATLANTIS. Our point - Alternative financing solutions can be found today, they are here, or just around the corner via the assistance of 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 – Business Finance Options Expertise

Stan Prokop

Benefits Of A Sale Leaseback Strategy In Canada. How A Bridge Loan Or Asset Finance Lease Back Works

Deconstructing The Sale Leaseback Solution In Canada


OVERVIEW – Information on the sale leaseback strategy . How does an asset lease back work and why does this type of lease or bridge loan benefit the business owner




A Sale leaseback strategy, if executed properly, is a classic refinancing scenario. How does the lease back work, and whether it’s a bridge loan or finance lease what are the key benefits and mechanics of this financing solution. Let's dig in.

Sale leasebacks are typically utilized when a firm such as yours is looking to generate cash flow and working capital from unencumbered assets. These assets on the balance sheet can be almost any type of tangible asset - that might include trucks / vehicles, real estate, technology, shop floor equipment etc. They still have operating value to the firm.

The legalities of the transaction are simply. As the owner of the asset your firm simply sells it back to a leasing company. That creates a lease financing (or in some cases a bridge loan) which not makes your company the lessee or borrower in the transaction.

Naturally the key benefit of the deal is your ability to generate cash from the deal, while at the same time using the asset to hopefully generate profits and operational efficiencies within your firm.

A key factor in the whole transaction is of course the value of the asset. As we've experienced over the year’s business owners tend to place a higher value on the asset or assets in question as opposed to the lender! So how then is this problem or challenge addressed?

Typically the answer is a third party appraisal. It's very rare that larger sale leasebacks are consummated without and appraisal. In years gone by lenders were skeptical of this method of refinancing simply because they viewed it as a ' cash grab ' by the customer. These days, when properly structured and valued it’s a solid mechanism of refinancing that more often than not makes a lot of sense.

A common mistake many business owners and financial managers make is to solicit an appraisal on their own. That problem complicates two main things -

Lenders like their own appraisers, not yours!

Dollars can be spent on the wrong type of appraisal (there are three types)

Obviously the best solution is when you and your lessor or lender agrees on who will be performing the appraisal, and what type is mandated. The three types of appraisals include

FAIR MARKET VALUE
ORDERLY LIQUIDIATION
FORCED VALUE LIQUIDATION

Lenders and lessors will more often than not ' go conservative ' on the asset and focus on the dollar value of the orderly and FLV asset liquidation prices. Because most (not all) lessors and lenders don't have significant asset expertise in diverse industries they want to know they can disposed of an asset quickly in a worst case scenario. That worst case is of course a business failure.

It's important to note that a lease back or bridge loan has some tax and accounting implications, so they should be reviewed with your accountant. In some cases book values of assets will come into accounting play.

There are two types of leases in Canada - capital and operating. Operating leases are less in vogue these days due to international accounting standards being re written .So most often the sale leaseback / bridge loan is constructed as a full payout capital lease with fixed interest rates and monthly payments . The bottom line is still the same - new cash on your balance sheet.

In a small number of cases equipment already under lease can be refinanced also, although this is not really a classic leaseback... it’s just a refinancing of an unencumbered asset. In some cases an alternative to the lease back is to simply pledge the asset or asset in question under another type of financing arrangement.

Our bottom line? Let this method of refinancing existing assets make sense for your firm when the planets align relative to asset value, cash needs, and accounting sense. Seek out and speak to a trusted credible and experienced Canadian business financing advisor who can assist you with your refinancing 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 = Sale Leaseback And Bridge Loan Financing Expertise



Have A Question Or Comment On Our Blog Or Canadian Business Financing Alternatives ?


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

Buying A Business In Canada And How To Eliminate 4 Risk Elements

Assessing Patient Health ( When You’ re Buying A Business In Canada )

OVERVIEW – Information on buying a business in Canada . How to analyze the risk that comes with any company purchase




Buying a business in Canada involves (some) risk, so is there a HOW TO when it comes to eliminating some of that risk? We think there is... so let's dig in.

Have we got a story for you? Yesterday, scouts honor, we got a call from a client of ours 15 years ago. He wanted some advice on how to buy a business and whats involved... including the proverbial question “how much money do I have to come up with in addition to the financing?

While we are still getting over a client remembering our services for 15 years it got us to thinking on ways to provide him with solid clarity around the risk inherent in any business purchase. We think there are probably 4 key areas you have to focus on when looking for financing on your business buy.

In effect we’re talking abut the health of the patient. So when you understand how healthy or unhealthy that patient is you can address the issues of profitability and financing that are key to overall success in any venture. Interpreting that overall ' business health' is critical.

To asses risk you really have to put yourself in the exact same position as those smart Bay Street guys. They also look at 4 key areas:

Debt - Present and future

Liquidity and Cash Flow

Profit

Asset turnover


While the Bay street gang

focuses on words such as ' financial ratios' we've always preferred to call them ' relationships'. And once you understand those relationships you're in a position to make an informed business decision. In many cases you can draw on your own past business experience to wade through and understand some of these finance and number relationships.

It's also important to look at our 4 criteria over time, not just as the moment, as a business changes its balance sheet and income statement literally every minute as you sell and collect , utilize assets, etc.

Debt load is key to any business purchase and financing. Existing debt must be repaid or refinanced, and typically any business you buy should have no more than 2 or 3 times debt versus your owner equity. That number varies by type of industry and the ability of any company to generate cash flow. Ultimately you wish to ensure that the cash you can generate can repay fixed or operating debt.

We haven’t met anyone yet that disagrees with ' CASH IS KING '

so focus a lot of time on short term current assets - and understand how inventories and receivables turnover and how they can be monetized for more liquidity .

Every entrepreneur intuitively focuses on sales growth - a company is cheap when it’s for sale if it’s in a death spiral. So understanding sales growth potential, client payment terms, gross margins and net income potential is key.

We're big on item # 4 in our patient health scenario - Asset turnover. Just your ability to turn existing assets more efficiently - i.e. collect A/R faster, generate more inventory turns, dispose of unused assets, etc can help fix your ship without any external help and financing that is unneeded.

Once you’ve assessed the health of any company you wish to purchase it can be financed in several manners. They might include:

Government Business Loans (THE SBL)
Commercial bank facilities - term and operating
Non bank asset based lines of credit
Bridge loans
Vendor take back options

Looking for a ' how to ' when it comes to buying a business and financing it in Canada. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success who can assist you with your business purchase needs, and a lot of solid advice along the way!



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 Purchase Financing Expertise


Have A Question Or Comment On Our Blog Or Canadian Business Financing Alternatives ?


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

Commercial Lending In Canada . How To Address Secured Loan Covenants

The Yay And The Nay Of Securing Or Breaking Loan Covenants In Canada

OVERVIEW – Information on secured loan and commercial lending covenants in Canada . They both protect and destroy your business if not properly understood





Commercial lending in Canada, when it comes to a secured loan typically always involves ' COVENANTS '. What are they and how do you address the pitfalls and dangers of this method that lenders use to protect themselves (and you by the way) from business default and failure. Let's dig in.

When it comes to the agreements you make with any secured lender in Canada it basically comes down to the ' yay' and ' nay'. What we are talking about is known as ' affirmative' and ' negative’ scenarios. Affirmative actions are those you can take or do, sometimes with permission required. Negative ones are those which you are unable to take in the normal course of running your business.

What are the typical scenarios that the Canadian business owner or manager takes that might affect your loan agreement? They might include:

Raising more equity capital

Selling certain assets of the business

Taking on debt (that’s a big one with lenders!)

Draining cash flow in some manner


Remember always that the proactive thing to do is to discuss actions you wish to take that affect the lending agreement. When they are common sense business actions they will almost always be allowed by an (reasonable) lender. A good example might be taking on more debt by acquiring new production equip or technology that makes your business more profitable.

The thing about loan covenants that is often missed by the borrower are that while the loan covenants generate a lot of discussion and negotiation ( yes they can be negotiated!) at the start of loans they must in fact be maintained during the duration of the secured loan / commercial lending arrangement.

So what happens when you are those covenants is breached? The harsh reality is that you are in default of your commercial loan and typically all monies are due.

We point out to clients that many types of loans in Canada have no or very few loan covenants. Examples typically include asset based lines of credit, receivable financing, equipment finance, tax credit monetization. If there are any covenants in those type of arrangements it's typically because your overall balance sheet and income statement dictate that.

Remember also that all arrangements defined in your loan agreements are not necessarily negative. For example if you can negotiate pre payment arrangements in your favor that’s a good thing. Also, certain actions you take might make sense for you and the lender to pay down loans - for example new equity or sale leaseback scenarios with another lender.

The huge issue around commercial lending agreements with lenders in Canada is ' RATIOS '. Lenders have a lot of guys in the back room

constantly running liquidity, leverage and Operating ratios on your business. You can proactively manage these ratios in a positive manner by understanding what they are and calculating them yourself - Trust us it's not that hard .

When it comes to commercial lending and secured loans that make sense to you (and the bank or commercial lender) seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your secured loan 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 = Canadian Commercial Lending And Secured Loan Expertise





Have A Question Or Comment On Our Blog Or Canadian Business Financing Alternatives ?


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