A lack of cash flow is the one component that can cripple a business no matter what size.  This is the great equalizer.  Find ways to survive your cash crunches and set plans to eliminate or at least reduce the impact of this serious business killer. 

 

Do you have options … you bet!  This seminar handout will explore 18 options.

 

Where do you look?

 

First, look at your receivables.  This is cash that you have already earned.  Do you let your customers string you out to 60 days of more?  Is it because you are driven by sales and do not like collections?

 

If your bank turns you down or they won’t help without personal guarantees take a look at your receivables.  Consider factoring your accounts receivables.  Factor your receivables only works if you are in a growth mode.

 

Second, investigate contract financing.  This option solves the dilemma of financing the performance of a contract.  This is another area where the banks will not usually help.

 

Lease backs on your existing capital investments can turn your assets into immediate cash. This could include anything from manufacturing equipment to company vehicles that your business currently owns outright.

 

Third, arrange for a line of credit at your bank.  Can you get access to this source of funds without committing your first borne?  Remember, banks do not take risks.  You will only get loans from them if they can establish your ability to pay back their funds.  Your business will have to be well established with a proven track record for sales, good receivables and tangible assets.

 

Get to know your bank manager not just the commercial business rep.  Do this in times when you don’t need money.  You might get lucky.  CIBC is currently one of the big five that have adopted a plan to attract smaller businesses.

 

Export Development Corporation – will guarantee lines of credit through your bank for invoices of finished domestic and export products on proof of delivery.

 

Canadian Commercial Corporation – will guarantee lines of credit for the production of products for export.  Currently products must fall within some very narrow parameters.  The CCC will provide contract financing if your product or service could be classified to fit within the aerospace, homeland security or biotech sectors.

 

 

 

Community Futures groups have access for funding as well.  These funds may only be available outside of the Lower Mainland.

 

Grants, subsidies and loans - Federal and Provincial governments offer a wide range of grants, subsidies and loans.  Many of these funds are in the form of bank guarantees.  They guarantee your loan which reduces the risk to your bank.  There are always strings … reporting requirements, royalties, time frame restrictions and many others.  Know exactly what these are before you agree.  It is not always your best choice.

 

Market Assessment of Research & Technology (MART) and Industrial Research and Assistance Programs (IRAP) provide grant funds for specific research and product development applications.  These and other government sources provide access to funding for selected types of business development investments. 

 

Tax Credits and Cash Refunds for Technical Research & Experimental Development- SR & ED Programs - The federal government will consider reimbursement for expenditures for specific R&D expenses already completed.  These funds come either in cash or in the form of tax credits.

 

Small Business Loans - From time to time, your bank may be interested in providing specific types of small businesses with funds.  This is not out of the goodness of their hearts.  They are usually government backed plans based on encouraging development in particular types of businesses.  Ask your bank if they have any of these types of loans available.  They will not volunteer these options.  You must take the initiative.

 

Employee Job Cost Sharing - As you build your business you may qualify for a number of different types of job cost sharing. Employment Insurance and the Western Diversification Fund are examples of this type of funding.  They will pay up to 50% of your new employee’s wages for specific period of time.  Once again there are restrictions such as recent graduates of computer certifications or retrained welfare recipients.  You have to dig for these sources.

 

Now let’s look at investment options:

 

The first is to identify exactly where your business is in terms of equity financing.  There are at least six critical categories:

 

1.                 Seed Funding – usually refers to a good business idea that has not yet started. 

2.                 Start-up Funding – the idea has been developed to an early stage of development but has not yet established sales revenues.

3.                 Early Stage Development – sales revenues have begun to be earned and the operations more fully established.

4.                 Growth Stage – the business is well on its way to success and is approaching breakeven status with excellent prospects for increased volume.

5.                 Mezzanine Stage – usually considered once sales revenues exceed one million dollars and investment is necessary to take the company to the next level (e.g. need a manufacturing plant or expand market presence in other Provinces or countries.

 

 

6.                 Venture Stage – a time when major investment is necessary to move forward.  Usually in the 5 million plus range which will enable the company to move sales revenues up to 100 million.

 

Investment is risk capital.  The investors take this risk into consideration and this risk is reflected on the interest or equity positions they require to satisfy their investment.   Let’s start with the least complicated option:

 

Find a working partner with money - A working partner is like a marriage.  Once you have agreed to work together and your new partner has advanced the investment you must work together – for better of for worse.  Be sure you get to know the person before you commit.  Does the individual share your passion for the business and is he or she willing to work as hard as you to ensure its success.  This is not always the end result.

 

Love Money – investment up to $200,000 to $300,000 - This source of funds is your family and friends that know and believe in you.  This group of investors will likely take a small equity position in your company just to help you get started.  Love money is probably the way most businesses get started.  It is a means to build your business beyond your own financial resources.

 

Angels - Angel investors provide funding usually limited to no more than $ 500,000.  In most cases these investors provide funds smaller portions of $ 20,000 to $ 50,000 each.  The Provincial government in BC provides exemptions for these types of investors of up to 50 including your love money investors without filing an investment prospectus that must be approved by the Securities Commission.

 

Venture Capital Corporations - VCC’s – $ 500,000 to $ 25,000,000 - The BC Government has provided an investment window for VCC’s which offer an incentive to investors which is hard to ignore.  An investor in a VCC can enjoy an immediate tax credit is up to $ 30,000 that he or she can apply in the current years income. 

 

For this incentive he or she must be willing to commit their funds for a period of not less than five years.  This gives you the opportunity to build your company without a need to pay back the investment for that term.  This source of funds is usually oversubscribed.

 

Merchant Banks - $ 1,000,000+ - Most of the major banks have a merchant bank division.  These investors are sophisticated lenders who do not take an equity position and therefore do not dilute your equity.  Their funds are loaned usually as debentures.  You must present a significant business case to attract this financing.  Usually, you have significant business assets, great sales and outstanding growth potential to qualify.

 

Venture Capital Companies - $ 5,000,000+  When your business is ready for this stage of financing you must be ready for the hoops that you will have to leap through.  VC will expect a significant equity position and will require a return on investment of up to 45% based on their assessment of the risk related to the investment.  There are a number of groups of players in this category:

 

 

 

 

1.                 Labour Sponsored VC – a fund which offers a partnership from the public in exchange for tax breaks.  The Working Opportunity Fund is an example.

2.                 Business Development Bank – provides venture capital funds and merchant bank funds

3.                 Provincial growth funds

4.                 Private venture capital funds

 

 

Presented by:     Kenneth Grant

                        Senior Partner

                        Trend Trek Strategic Marketing Consultants Inc.

       

                        Phone or Fax:  604 913 0075

                             Email:  strategicbusinesscoach@shaw.ca

 

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