Corporate Finance in Atlantic Canada

Commentary on corporate finance issues for small- & mid-market private companies in Atlantic Canada

Archive for March 2017

The Six Components of an LOI

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From this Divestopedia article, here are the six components of a letter of intent (LOI) when selling your business:

  1. Identifies the buyer
  2. States the type of transaction
  3. Documents price and consideration
  4. Describes the conditions of the offer
  5. Outlines the buyer’s plans for due diligence
  6. Specifies the timing and closing steps.

Remember that most LOIs are non-binding, so the deal is not done just because you’ve signed an LOI.

Written by Dan Jennings

March 14, 2017 at 8:39 am

Posted in CF Musings

Cash conversion cycle

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Above is an interesting article from Liquid Capital on working capital, specifically how to calculate the number of days it takes your business to turn inventory into cash (“cash conversion cycle”), which can be used as a key performance indicator in your business.  Essentially, the number of days you hold inventory (on average), plus the number of days it takes you to get paid by your customers, less the number of days it takes you to pay your suppliers.  You’ll be surprised at how many days is in your cash conversion cycle.

In my experience, this is a big issue in Atlantic Canadian small businesses, i.e. businesses have far too much of their cash tied up in working capital.   Did you know that we have one database that says the average receivable collection period (across all industries) in Atlantic Canada is 93 days?!

It takes discipline to get working capital investment down, but it can be done (over time and hard work).  And it is a way to get more cash out of your business, plus it will make your business more valuable when you want to sell it.

Written by Dan Jennings

March 7, 2017 at 11:29 am

Posted in Uncategorized