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					                                                              critical FactOrS FOr BUSineSS SUcceSS
                                                                                              By Uwe Manski

                 ow much time, effort and         securing loans at affordable rates.          meet your current and future needs.
                 resources does your company      At the same time, they require invest-            Institutional lenders such as banks
                 devote to customer relation-     ment capital in order to be – and stay       and trust companies, usually offer
                 ships? For many manufactur-      – competitive.                               slightly better rates for commercial
     ers and exporters, customer acquisition           Many manufacturers face several         loans than other types of lenders. The
     and satisfaction is one of the company’s     key challenges when it comes to secur-       larger banks also offer alternatives to
     most significant investments.                ing loans: lack of sufficient collateral,    traditional loans such as asset-based
                                                  inadequate cash flow to service debts,       loans and mezzanine financing. Institu-
     what about lending relationships?            being considered too small or in a           tional lenders, however, are more selec-
     Despite the fact that the risk of losing     risky industry.                              tive about borrowers, often declining
     a lender may have more serious conse-             So, what’s a manufacturer or            loans to companies that have been in
     quences for the survival of a business       exporter to do to get the capital needed     business for a short time and don’t have
     than losing a customer, many companies       survive and grow?                            stable earnings. These lenders typically
     simply aren’t investing enough in these                                                   require more collateral, lower debt-to-
     crucial relationships.                       research the lending market                  equity ratios, and more proof of busi-
          No matter what the prevailing           Just as your company conducts research       ness success than others.
     economic conditions, small and mid-          about prospective customers, you should           Asset-based lenders will fund busi-
     size manufacturers often have difficulty     identify prospective lenders who may         nesses that are considered too risky by

6       Canada’s Industry Association Magazine
traditional banks. They secure loans by      accounts receivable                          Move to larger premises
taking a first priority security interest    Old receivables signal possible issues       A move is a high-risk venture for any
in a company’s accounts receivables,         related to product quality, customer         company, as you will operate at a higher
inventory, equipment, and/or real estate.    disputes or other collection problems        level of costs, yet may lose staff and cus-
They generally charge more interest and      – none of which lenders wish to deal with.   tomers and potentially incur significant
have higher fees than banks. These lend-     As well, lenders don’t like to see complex   losses. Before deciding to move, explore
ers also have more stringent reporting       customer programs and the right to           other options such as renting additional
requirements since their lending model       return goods. Thus, it’s important for a     warehousing, running another shift
is based on understanding their collat-      company to clean up accounts receivable.     or evaluating your customer base to
eral – the more comfort they have about                                                   determine whether you can eliminate
a borrower’s collateral, the more willing    obsolescent inventory                        non-profitable accounts. If you require
they are to advance higher amounts.          Lenders will assess inventory for obso-      financing to support a move, you will
      Venture capital lenders invest in      lescence and will analyze how you value      need a strong case before a lender will
early stage fast-growth companies in         and write off inventory. A perpetual         finance the costs.
return for some equity. For start-up         inventory system is a necessity; without
businesses, venture capital is often the     one, many lenders may choose to pass         Make a good first impression
only type of financing available.            on providing financing.                      First impressions are critical; lend-
      Strategic investors such as suppli-                                                 ers expect timely and comprehensive
ers, customers and competitors can be        Customer concentration                       reporting on how their funds are being
a source of financing, risk sharing and      Lenders don’t like to see a company that     used. Thus, when approaching any
growth opportunities. Often, when a          is highly dependent on a few custom-         lender, along with your business plan,
smaller company is struggling, these         ers, especially in industries such as        be prepared with timely, comprehensive
investors are the best solution because      automotive. If more than 25 per cent         information, including the following:
they have a stake in the company and         of your sales are concentrated on one        • five years of financial statements,
understand the industry.                     account, available advances against these    • current interim statements,
                                             accounts may be capped. Lenders are          • description of accounting system,
Know what each lender requires from          concerned that suppliers can be replaced     • tax returns for the previous three years,
you as a prospective borrower                and lines may be discontinued.               • cash flow projections
Each lender has its own assessment                                                          (for more than one year),
criteria and it’s important to know these.   Low capitalization                           • detailed aged accounts receivable
If you have ambitious growth plans for       Lenders are important stakeholders in          and payable listings,
your company, for example, you are more      the businesses they support and want         • current inventory listing,
likely to persuade an equity investor to     to see a healthy level of capitalization.    • recent valuations on building or
provide financing. A bank, on the other      Should borrowers experience several            equipment,
hand, is a conservative lender looking for   slow months, they want to be confident       • details of key contracts,
stable growth, earnings, and security.       that covenants won’t be breached. Own-       • current insurance,
                                             er-managers often have high earnings         • list of customers with commentary
eliminate “red flags”                        expectations, and can strip a company          on each dealing with future prospects,
Along with evaluating a company’s fit        of its working capital. Before taking cash     programs, payment terms, risks, etc
with its lending criteria, prospective       from the company, it’s important to          • current business plan, and
lenders will also be alert for “red flags”   know how your bank will react and to         • organization chart with profiles of
that may signal high risk.                   review your lending covenants.                 key executives.

                                                                          plan long term and continually look
                                                                          for financing
           If you find that you are not being well received by a          Financing should be a regular discussion
     variety of lenders, it may be time to take more aggressive           among the members of your manage-
                                                                          ment team. Since it will take many
               steps to make your business more attractive.               months to get a new banking relation-
                                                                          ship underway, you need to know your
                                                                          options and the steps needed to ensure
                                                                          that your business qualifies for funding.
                                                                               Consult with professionals who deal
                                                                          with lenders every day. If there isn’t an
          In custom manufacturing                                         appropriate person in your company,
          some things should always be standard                           seek external assistance. An advisor,
                                                                          who is knowledgeable about and has
                                                                          established relationships with lenders,
                                                                          can help you identify the appropriate
                                                                          sources of capital and help you ap-
                                                                          proach them properly.
                                                                               If you find that you are not being
                                                                          well received by a variety of lenders, it
                                                                          may be time to take more aggressive
                                                                          steps to make your business more at-
                                                                          tractive. In such cases, it’s worthwhile to
                                                                          consult with restructuring professionals
                                                                          who can conduct an objective assess-
                                                                          ment, identify key problems and advise
                                  Like Profit and Productivity            of optimal solutions, such as strengthen-
      No matter what else your engineer-to-order projects                 ing the business, securing bridge financ-
      may call for, productivity and profitability have to be built in.   ing, or exploring strategic options such
                                                                          as a merger, acquisition, sale of assets, or
                                                                          a formal restructuring.
                                                                               When it comes to ensuring that
                                                                          your manufacturing or exporting com-
      With one powerful tool, you can manage all aspects                  pany thrives and grows, it’s vital to keep
      of a project and maximize use of time, manpower and                 your lending relationships as healthy as
      materials. Estimate accurately and reconcile purchase               your customer relationships.
      orders and invoices, in less time. Manage scheduling,
      shipping and job costing. Access real-time data from
      the shop floor or from the field with GPS technology.
                                                                          Uwe Manski, FCA, FCIRP, is president of
      Improve accuracy and efficiency for greater customer                BDO Dunwoody Limited (
      satisfaction, more repeat business, and more profit.                Financial Recovery Services and Clark
                                                                          McKeown, CA, CIRP, CFE, is a vice-
      Trakware helps you build on every success – you can plan on it.
                                                                          president with BDO’s Transaction Advisory
                                                                          Services. They provide a wide range of
      Contact us for more information or to arrange an online demo.       services to help underperforming compa-
      1-800-370-1849 or                                 nies restructure, recapitalize and recover.
                                                                          You can reach Uwe at (416) 369-3072

                                                or and Clark at
                                                                          (416) 369-6126 or

    Canada’s Industry Association Magazine
                                                                                                  MEMBEr profILEs

effective help for financially distressed manufacturers:
introducing BdO dunwoody’s Financial recovery Services team
A    t some point in time, most
                       full service firm
     businesses face difficult financial
challenges. Our experienced Financial       From starting up or going
                                            With over 600 offices in 105 countries,
Recovery Services (FRS) team can help
you develop and implement a plan
                                            and 95 offices across Canada, BDO
                                            Dunwoody is one of the largest
                                                                                      public, to selling or winding
that suits your needs and helps you         accounting and advisory firms world-      down, BdO advisors offer
restructure, recapitalize and recover.      wide. From starting up or going public,   practical, sound advice to help
Our comprehensive range of
                                            to selling or winding down, BDO
                                            offers a range of services to help        you reach your objectives
Financial Recovery Services includes:
                                            manufacturers at any stage of the
• Reorganization and debt                   business life cycle. Our advisors offer   Financial advisory services
  restructuring                             practical, sound advice to help you       Whether it’s time to sell, expand or
• Business viability, operational and       reach your business objectives.           review your business, BDO helps you
  loan security reviews                                                               develop and execute the appropriate
• Transaction Advisory Services for         Our core services include:
                                            • Assurance & Accounting                  strategies to meet your business goals.
  divestitures, mergers, acquisitions and
  refinancing                               • Taxation                                Risk advisory services
• Pre-lending reviews and due               • Financial Advisory Services             Our team works closely with clients to
  diligence                                 • Risk Advisory Services                  assist with the management of risk and
• Liquidity investigations and cash         • Financial Recovery Services             the achievement of strategic business
  crisis management                                                                   objectives through proper internal con-
                                            Assurance and Accounting
• Expert testimony on insolvency                                                      trol systems. We provide value-added
                                            Backed by the trust, experience
  issues, financial damages, and                                                      risk management capabilities needed
                                            and reputation our name carries,
  valuations                                                                          to mitigate business risk, support your
                                            stakeholders know that your financial
• Full forensic investigations for                                                    business strategy and continuously
                                            statements are credible.
  commercial fraud and asset tracing, as                                              improve your operational performance.
  well as hidden assets location            Taxation
                                                                                      Financial Recovery Services
• Formal insolvency and restructuring       From corporate income tax and
                                                                                      Each year we help Canadian businesses
  appointments                              commodity tax to SR&ED and interna-
                                                                                      recover from serious financial challenges
                                            tional tax – we know the intricacies of
• Corporate wind-ups                                                                  and find new paths toward success.
                                            tax laws. We’ll work with you to comply
For more information on                     with the rules, minimize your taxes,      For more information, contact
our FRS practice call                       and provide flexible solutions for your   Email: Web:
Uwe Manski at 416-369-3072                  growing business needs.                   Phone: 1-800-805-9544
or email

                                                                  Helping Canadian Manufacturers for 75 Years