Financing steps for business in this crisis

Here are some financing action steps we recommend for small and medium size businesses (SMEs) during this economic crisis:

1. Proactively talk to your banker about the near-term impacts on your cash flow.  To be clear, there is capital in the system to lend to SMEs (particularly with BDC and EDC, given the govt announcements), but no banker wants to hear ‘silence’ from you the SME business owner.  Start the conversation now!
2. If you don’t have one, immediately start on a weekly cash flow forecast, particularly around working capital (receivables versus payables).  You (and your banker) need visibility as to short term cash flow needs, including when (and how much) of an increase in your operating line you may need.
3. Talk to your insurance broker (and an accountant experienced in this topic) about your business interruption (BI) insurance coverage.  BI is much more complex than compensating you for lost sales, so get advice on what is covered (and when an advance could be possible).
4. Explore non-borrowing cash flow resources.  For example, the federal govt just announced that you can immediately reduce your payroll remittances for the 10% “wage subsidy” if you pay employees during a shutdown (subject to limits per employee and per business).  Also, you can now delay income tax payments and instalments until September (without interest or penalty).

Be proactive and your business will survive.  Be safe.

Do you want to be an owner? Buying a business 101

http://www.profitguide.com/manage-grow/strategy-operations/acquisitions-buying-a-business-30314

Check out this article on Profitguide.com about buying a business.  Some good ideas, suggestions and reminders here, particularly the one about not letting a vendor walk away after the transaction.  For risk-mitigation reasons, it is critical that the vendor be motivated to assist in both the transition and medium-term future success of the newly-acquired business, especially for a small business.

The article doesn’t discuss that, in my experience, many lenders will also insist that the vendor be contractually obligated to remain in some (limited) way post-transaction, to assist the buyer in maintaining customer and employee relationships.  The details of how long and how much they get paid are, of course, open for negotiation.  Just makes good business sense for the acquirer to insist the vendor be involved post-transaction (but not full-time employment, in many cases), particularly for small business transactions (where the owner is often the key manager).

If you want more information on the entire process of acquiring a business, check out the ‘Buying a Business’ section of our website:  http://www.raymondyuill.ca/buying.html

Vendor financing

http://www.divestopedia.com/2/1134/sale-process/vendor-take-backs/vendor-financing-in-business-sales

Good article on why vendor financing (in various forms) is so common in small business sales.  However, while I don’t disagree with the author that there is plenty of bank/other financing out there so why should vendors finance deals at all, I believe he is missing the point … the market (i.e. buyers) are often in a position to dictate the terms of many transactions, and just because we (or our vendor clients) don’t think there should be vendor financing, does not necessarily make it so.  As he writes in his article, there are plenty of reasons why buyers want/need to mitigate their risk in small business acquisitions.

It is our job as M&A advisors to design a competitive sale process in which multiple bidders for a successful business can be convinced to minimize their demands for vendor financing (because if they don’t, another buyer will).  Having said that, the reality is that the majority of small businesses (where the owner is key to the business)  have some form of vendor financing in sale transactions … although the degree of financing (historically 25-30% of the price) has come down over the last decade or so, in most cases.

Finance knowledge online

http://www.financelearningacademy.com/financethis.html

If you’re looking for good online content on financing a business, check out this new course offering from Blair Cook’s Finance Learning Academy, a series of courses designed for the needs of CFOs.