Financial Fundamentals Workshop Part Two

Invest Insight
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So, good morning, bonjour, and my name is Taryn Basson.
I'm the Marketing and Communications Coordinator
for the Northern Ontario Angels.
We will begin this workshop by acknowledging
that we're meeting virtually on Indigenous lands
that has been inhabited by Indigenous peoples.
We acknowledge all of the treaties
and traditional territories
on which all of you gathered today.
So, thank you so much for joining us
for part two of Financial Fundamentals.
Just a small recap on the Investor Ready program
since there's some new faces here.
It's an entrepreneurial training program
designed to equip participants
with the skills, knowledge, and tools
required to create compelling business propositions
and attract potential investors.
And this program is a joint effort
between Link North and the Northern Ontario Angels.
I'm going to go ahead and introduce Ian Lane,
Executive Director of Northern Ontario Angels.
Morning. Thanks, Taryn.
Yeah, so as Taryn mentioned,
Ian Lane, Executive Director with NOAA
and Northern Ontario Angels.
I'm in Sudbury.
Taryn, our good friend, is in Timmins.
And our other colleague, Kimberly Wahama Deshane,
is on the call here as well based in Sudbury.
So, those are two of our chapter communities.
We have six others across the region.
So, we are a pan-Northern Ontario organization
and we're really meant to foster connections
between entrepreneurs and businesses
that are looking to scale with accredited investors
predominantly in Northern Ontario,
but many of them live outside of the region as well too.
And so, we connect with partners like Ross and Al
with Link North in Timmins
and help provide complimentary services
to folks that are looking to grow their business.
So, I'm thankful for this partnership
and looking forward to hearing from Al within today.
Awesome. Thanks, Ian.
Now I'm going to hand it over to Ross McDonald,
Business Development Specialist at Link North.
Thanks, Taryn.
So, welcome everyone to our final workshop
of our final Financial Fundamentals series
and also our final workshop
providing you with the information and guidance
that you need to develop your business model in Canvas.
So, I just want to remind participants
and maybe the new ones that are here,
as participants in our Investor Ready program,
you can access Link North's free business advisory services
to help you understand
and develop your business model in Canvas.
I'll provide our contact information
and a little bit more info on Link North
in the client chat box.
Finally, I hope to see those of you
who live in and around Timmins
at our Investor Ready networking event
to close off our program.
That'll be at Full Beard Brewing
the evening of Thursday, November 23rd,
three weeks from now.
I think this event will give, you know,
feature a lot of great food, entertainment,
and provide you with some opportunities
to network with like-minded entrepreneurs,
organizations, and investors.
Thank you.
Amazing. Thanks, Ross.
So, just some webinar disclaimer and etiquette.
If you haven't done so already,
if you could please mute your audio channels
to avoid interference unless you have a question.
And this presentation is being recorded
and it will be available after the call.
Now I'm going to hand it over to Al Paquette.
Excellent.
Thank you, Taryn, Ian, Ross, for the introductions.
So, this is part two, part two of Financial Fundamentals.
So again, we do have some new people on the call,
so I'm going to give you a little bit of a spiel
on our expert, which is myself for today.
So just to give you a bit of background on myself,
as you may be thinking, you know,
why is a business advisor an expert
in Financial Fundamentals?
Well, prior to joining the Link North team,
I was a small business banker as well.
As a commercial banker for nearly seven years.
So over the years, I've reviewed my fair share
of financial statements and I've dealt
with various sizes of businesses.
So whether it was your small kind of mom and pop shops
or your large scale manufacturing companies,
I really had a chance to see a lot
of different types of businesses.
So financial literacy is important
and I've come across businesses
that think they have it all on track,
but on paper, they may need some help.
So this particular session,
we'll review some of the items I've seen,
I've come across regularly, some small,
but some helpful tips that my customers have appreciated.
One thing that I'd like to note,
so I'm not an accountant, I'm not a bookkeeper.
So please keep, you know, your bookkeepers,
your accountants and your bankers
are people that you want on your side
and they work for you.
So at the end of the day, you pay them for these services.
So don't be shy to ask them questions.
So again, just a brief recap on the program schedule.
So you can see that today we are going
into workshop number six.
So after today's session,
there are still two workshops that you're able to attend
and of course, our exciting closing networking event.
So today, as previously mentioned,
is financial fundamentals part two.
Starting next Thursday, we will begin
our intellectual property and trademark workshops
where you'll get two angles on intellectual property,
one from a lawyer's perspective
and then one from our Canadian intellectual property office.
So be sure to register for those upcoming workshops as well
and of course, the Investor Ready closing event.
So if you haven't seen yet,
we recently confirmed Paul Sebalge,
local musician as live entertainment,
as well as we've hired the services of Fusion Grill
that will be catering our event.
So make sure to sign up for a fun and free evening
of networking at Fullbeard Brewing
as we wrap up our Investor Ready program.
All right, so the agenda for today.
So what is the purpose of part two
of financial fundamentals?
So this week's purpose will go into what the banks
or investors are looking for
from a business financial statement.
So a financial statement shows a lot of useful information
that can really paint a picture of a business.
So last week, we went over the definition of cash flows
and provided some key tips
that would help you manage your financial statements
and also some items to watch out for.
Again, with keeping the purpose
of the Investor Ready program at the forefront,
which is to get entrepreneurs ready for investment,
I thought it would be good to review
what the investors are looking for
in your financial statements,
provide some key tips on some credit application processes
and provide a quick and brief overview
on some financial products that might be important
for your specific business.
So close your browsers, I don't want anybody cheating
as I'd like this to be as interactive as we did last week.
So last week, the level of engagement was really great.
So again, we'll be asking you for your thoughts.
I don't know why I put certain slides up
and would love to get your feedback.
So please get ready to chat in the chat box,
make sure you have your chat box open.
So let's get started.
So what does a bank slash investor look for?
So what is the bank looking for?
So I won't get any feedback here,
but if you have any comments,
feel free to put them in the chat as we move along here.
But when it comes to running a business,
the bank or your investor should be a partner
or even considered an extension of the business.
So when you look at the success stories
of businesses that are on Shark Tank or the Dragon's Den,
or even when you watch the show,
you can see that the investors
normally want to invest their money,
but they are likely to have a good say
on how the business moves forward.
Why?
Well, odds are because they have the experience,
the network and the contacts to get those businesses
to the next level.
And they are more than willing to help
because this will only help them,
only help their investment in the long run.
So when it comes to growing your business
or just running the day-to-day operation of your business,
it's great to have a great working relationship
with your bank slash investor.
I know sometimes dealing with banks or investors
can be scary, even frustrating at times,
but I can assure you that they want to work with you
because at the end of the day,
that's how they make their money as well.
They each have their own products and services,
so it's really up to the individual business owners
to find what suits them best
and that can serve as the type of,
or that can serve as their particular type of business
the best.
So that being said,
what do they look at when they get approached by a business?
So I've outlined three key items that I think
are real important when approaching banks or investors.
So I'll open it up for a minute here
before moving on to the next slide.
So if you don't mind typing in the chat,
what do you think the next three items would be?
So what are the three key things that you think
that I might've put up there
or even that you think might be the most important things
that banks or investors look for
when you approach them for investment or for a loan
or for whatever, you can put as many ideas as you want.
So Cody's got comments there.
So a bank investor will try to invest resources
in order to get their own return on investment.
They will be looking to ensure that their investment
is for something that is profitable
or there are assets that can be used as backup.
Excellent, excellent comment, Cody.
Being reliable from justice, absolutely.
It's definitely kind of goes in hand
and we'll definitely see that kind of come up
as we move along in the presentation.
Suit, shoes and smile.
You know what?
Suits are so overrated nowadays.
I was mandated to wear suits
back in the day in my banking days and I just hated it.
Now it's gone a little bit more casual.
So the ties at least seem to be going away a little bit.
And that was always one thing as well.
It's kind of know to your audience.
So when I was in the banking world,
you go see a farmer, you go see something.
If you were to show up in your shoes and your pretty shoes,
you might as well just say goodbye to the business.
So you'd actually show up in work boots and jeans
and know to your audience.
Value proposition, definitely.
Business plan, cashflow, who you are, what project,
how much funding needed, can you repay it?
Oh, Jason, character, capacity,
collateral trading and worthiness.
All right, so lots of good comments there.
So thank you again for participating and being engaged.
So obviously the first one
we're going to pull up is cashflow.
Obviously this ties in directly
with the presentation last week,
which was strictly on cashflow and cashflow management.
So obviously the investor's first train of thought
when they're doing any loan or any investments
is to ensure that the people or business can repay them.
So how do they get repaid?
Well, they're going to look at how they're going to get
repaid and of course, that's via the business's cashflow.
So can the business make the payments?
Does the business have a strong understanding
of their cashflow?
Is the business managing their cashflow properly
to service the additional debt requested?
Those are several examples or a couple of examples
that they'll be asking themselves.
So it's important for the business to be able to show
to them that they are ready.
They will review year-over-year comparables,
hence why banks will usually request,
banks or investors will probably request
two to five years of financial history.
They will ask you about any drastic changes
on your financial statements.
And the more details you can provide on those changes,
it would instill confidence and show that the investors
are, that you are on top of things
and that you have a proper understanding
of your cashflow needs for your business.
So again, to recap, cashflow,
investors are going to want to see
that you can pay your debts.
So make sure that you have a good understanding
and there's going to be changes every year
on your financial statement.
There's going to be some increased expenses.
It could be a decrease in expenses as well.
And a decrease is just as important as an increase
when you're looking at your expenses.
So make sure you have a good understanding
because banks are going to look at it,
investors are going to look at it
and they'll probably question you on it.
So if you can answer those questions,
it just shows that your business aptitude is there
and you have a really good understanding on your business.
So next up, the levels of existing debt.
So no one really mentioned their debts there
in the comments section.
So whether you have an existing relationship
with a financial institution
or if it's your first appointment with the investor
or a bank or financial institution,
they're going to want to review your existing debts.
So your debts are usually outlined
in the notes section of your financial statements.
So your notes are important to the investor
as they will outline the terms of each debt that you have.
So from your vehicle loans, from your mortgages,
from your equipment financing.
So this way it allows the investors
to have an accurate calculation
when they're analyzing the risk.
And we'll go through a few of the ratios
and the calculations in a few slides.
So there are many instances.
So if you do have a business and you're starting up
and you're just getting an accountant involved,
most of the time or lately,
we've seen a lot of notice to reader financial statements.
So notice to reader financial statements
are basically a balance sheet
and an income statement with no notes.
So it becomes a guessing game
and a lot of work for the business owner
to find all their contracts for each of their debts
so that their investors can calculate the proper figures.
So one of the first questions that'll be
when you approach an investor
is that did you approach your current financial institution
for these funds?
Because odds are, if you have a business,
you already have a relationship
with the financial institution.
Sometimes the businesses just want a change of scenery
or maybe they have some servicing issues
or maybe they were declined
from their existing financial institution.
So that one question will really give them
a lot of answers moving forward.
Obviously, the less debt is always better,
but sometimes there are ways to consolidate debt
or to manage the debt with other products
to potentially help with the cash flow of the business.
So the important part investors are really looking for here
is to see that the businesses aren't leveraged in debt.
Pretty straightforward.
So another important part of analyzing
the level of existing debt
is that this gives the investor a good understanding
of what they can secure themselves to
if they were to move forward with financing.
If all your assets have a lien on them,
then this may affect the level of security
that potential investors might want to secure themselves to.
So investors tend to want to be first in line
and not second or even third position
to realize on their security.
So again, just to brief overview on first, second,
and third in line kind of thing.
So let's say you have a vehicle,
it's secured through the bank.
You've paid it off, you've paid it down for three years,
so then you want to use kind of the equity as security
so somebody else goes second in line.
So what that means is that
all of a sudden you stop making your payments,
the bank takes possession of your vehicle,
they sell it for X amount,
but they're going to pay whoever's first in line first,
so pay off that debt,
and then whatever is left over for the second in line,
they'll get their remainder.
So sometimes there's not any left,
so being second in line is basically useless.
So that's why everybody tends to want to be first in line
and they won't take a second
or even a third position on security.
Good there?
All right, so on to the next.
I really like this one.
Skin in the game.
So what do I mean by skin in the game?
Well, it's pretty much right there
in the slide in the graphic there.
So a good definition of having skin in the game
is to have a personal stake in a desired outcome.
So this means that the business owners
have invested some of their own money into the company.
When businesses approach investors
and have no skin in the game,
they're basically saying that they want the investor
to take on all the risk.
But when a business can show
that they've invested in themselves,
take some of that risk away from the potential investor.
This shows a commitment from the business owner
in their own business
that they are willing to risk their personal funds
to make this a successful business.
Investors are meant to be a partner in the business,
not holding 100% of the risk.
So again, if you show up to an investor
and you say, hey, I need X amount,
and then you have no personal stake in it and no risk,
if you've taken no personal risk in your own business idea,
how would that make the investor
or potentially the bank think?
You know, if they're not willing
to take a shot on their own,
why would I take a shot on you kind of thing, right?
It's definitely something to keep in mind on,
and you can definitely find out
how much skin in the game you have,
and we'll go over some of these calculations very shortly.
But you can see that from your financial statement.
So next up, this is how I personally kind of learned credit
or the ins and the outs of credit.
And it's kind of the easy way to remember three key factors
when it comes to credit.
So I'm going to ask,
can anybody tell me what the three Cs of credit?
So again, the three Cs of credit,
three words that start with C.
And maybe somebody did some research
after my teaser at the end of last week's presentation,
but if anybody can chime into the chat there
and see capacity, collateral, character,
see Norbert did his homework.
There you go.
We have it there anyway, so congrats, Norbert.
Bonus points for you, gold star.
So the three Cs of credit.
So pretty straightforward.
But again, it's just something simple to keep in mind
when you're looking at your financial statement
and you're getting ready for an appointment
with an investor or with a bank.
So again, capacity.
Does the business have the capacity to repay the loan?
Again, this ties into cash flow that we reviewed last week
and that I even mentioned earlier.
They're going to review your financial statements
and do their analysis to see if you can afford
to repay the loan or the ask that you have
from either the bank or from your investor.
So what do they analyze?
Well, there is probably 13 or 14 different ratios
that they calculate.
I'm not going to go through every single one of them,
but two that are fairly easy for you guys to calculate
from your own financial statements
or even your projections.
I will go through two of them.
So they are aligned in this tab here or in this slide.
So you can see on the left,
we have the debt-to-equity ratio.
So again, the debt-to-equity ratio is calculated
by dividing the company's total debt
by the equity of its shareholders.
Again, going back to skin in the game.
So an idea of a good debt-to-equity ratio
is usually between one and one and a half to one.
You tend to not want to be over two to one.
So if you are one to one for debt-to-equity,
this means the company's total liabilities
are equal to the shareholder's equity.
If you are at one and a half to one for debt-to-equity,
that means that the company is using
one and a half dollars of debt for every dollar of equity.
And when banks or investors are looking at that,
they technically want to probably be
between one and one and a half to one
when it comes to your debt-to-equity.
As soon as you start getting into the two to one,
then you might be a little bit over leverage
or they tend to shy away a little bit.
Again, every lender is different,
but this is kind of a standard kind of rule of thumb.
Can you please list all 14 ratios?
I didn't get that ready, but if you'd like,
I do have your email and I can forward that off
to everybody as well.
There is probably even more than 14 to be honest,
but there is a lot of different ratios that are calculated.
And from my experience in business banking
and commercial banking, a credit application
can probably be 20 to 25 pages.
It's a very long application.
There's so many different ratios,
liquidity ratios, current ratios, so many of them
that it would take probably a course on its own
to go over them.
But like I said, we're trying to keep this kind of basic,
but I can definitely provide that to you on a one-off
if you want or if anybody wants it,
we can definitely go over that.
The second one that I wanted to bring up
is your debt service ratios.
So this is calculated by taking your net operating income
and dividing it by your total debt service.
So your total debt service is your annualized
debt obligation, which means all of your monthly payments
added together.
So if you have five car loans or whatever,
you basically add up your five monthly payments
and you would annualize that amount.
So a debt service ratio of one to one,
so meaning that your net income on your financial statement
is basically equal to your annual debt obligation
and indicates that the business exactly has it
or has exactly enough operating income to pay off its debt.
A debt service ratio of two to one
is considered very strong ratio
and it shows the business can cover two times its debt.
Banks minimum and debt service ratios
tend to be in the 1.15 to 1.25 range.
So that's usually what the banks like to see.
So you don't have to be at that two to one,
but you have to show that you have obviously
enough income to meet your annual debt obligations.
So another item that they'll calculate
that I kind of put in the slide here as well
is that when they're doing their analysis is EBITDA.
So can anybody tell me what EBITDA stands for?
EBITDA, EBITDA, EBITDA, EBITDA.
Earnings before interest, taxes, depreciation
and amortization.
Jason's got it.
Jason's got the experience in the banking industry as well.
So that's exactly what it means.
So EBITDA there, so earnings before interest,
taxes, depreciation and amortization.
So that's a financial metric
that some financial institutions use
to measure a company's operating performance
and cashflow generation capability.
So EBITDA is calculated by adding back interest,
taxes, depreciation and amortization to that net income.
So if you have your net income,
you can basically add back a lot of those expenses
that are on your financial statement
to give you an actual idea of what your real cashflow is.
They use that a lot
when it comes to debt consolidations and stuff
because it's kind of shown there twice.
So by calculating the EBITDA gives them a good idea
as to the business's cashflow capability.
So again, a little bit of an overview on capacity.
So again, capacity meaning can the client repay the debt?
The next one is collateral.
So as previously mentioned,
so a quick definition of collateral.
So a collateral is the asset with a value
that a borrower can pledge to the lender
as security for the loan.
So that the loan agreement is not followed,
this allows the lender or the investor
to take possession of the collateral
in hopes of recuperating the funds to pay off the loan.
So the collateral really reduces the risk for the investors.
So collateral can be held as real estate, equipment,
or in some cases, cash can even be used.
So at the end of the day, it's all about risk.
So this will, so the banks will want
to reduce their expenses or their exposure, sorry,
to a certain extent.
So depending on the type of loan,
the percentage of collateral can be different.
So when it comes to inventory,
usually it's about a 50% threshold.
Equipment, you can potentially get up to 100% value
on your collateral.
Real estate, you can potentially get up to 100%,
depending on the risk.
But all have different values depending on the investors
and several different factors are involved
which we'll go over at the end.
Jason, with regards to your question,
do you have any info around the add backs?
Basically, you know, on your expense,
on your, in your expenses on your financial statements,
you'll basically see a line for interest,
you'll see a line for amortization,
you'll see a line for depreciation.
So whatever those amounts that have been allocated
for that specific year, you can just add them back
to the net income and that'll give you
your M&A calculation.
If that's clear, let me know.
If not, then we can talk about it offline.
But basically, yeah, so your interest here,
your interest, your taxes and all that
is all on your financial statement.
So you just take your net income and you add them back in.
And last but not least, so the third C
in this three Cs of character,
or the three Cs of credit is your character.
So again, last but not least, character.
So who is the bank lending to?
So this really goes back to the individual ownership
of the business.
So who are the owners?
They will, so most likely, the investors or the banks
will research who you are.
Likely, they'll want a personal net worth statement,
which will be requested to review the ownership's
personal financial situation.
So they'll review the individual's personal credit history.
So they will ask questions about your experience
in the industry, your background.
Sometimes a resume is always handy to show
that you have the experience necessary
to get into this type of business.
And it also gives them comfort in your business acumen.
So you really have to sell yourself as well
because you are the person that they're relying on
lending that money to.
You are the leader of that business.
So if your personal credit history is not good,
then it tends to show the inability to manage money
and that could carry over to the business side of things.
My question to you guys is that would you lend money
to someone that's been bankrupt three times,
that hasn't made a payment on time in three years,
or has nine personal credit cards that are all maxed out?
So again, you just got to put yourself from the lenders
or the investors side of things and understand that
your personal credit history is a good indication
of the type of person that you are.
And sometimes, don't get me wrong,
there's nasty divorces that happen,
there's different things that happen as well.
You just never know, right?
So there's always different situations,
but it's a good reflection on that character piece
when it comes to the credit writing.
So now that you have a little bit of an idea
on some tips and tricks to be ready for
for that investor meeting,
let's have a look at a few options as well
for financing products that are available
for businesses out there.
So again, financial products or mortgages.
So obviously, when a mortgage is on,
odds are the most expensive kind of purchase
a business does, especially if they have a storefront
or if they even have an office or something like that.
It's usually one of the highest expenses
on a financial statement.
So a mortgage is obviously a good way to protect
that cash and finance a really big project.
So business mortgages or commercial mortgages
are different from your standard personal
or residential mortgage.
So commercial mortgages tend to be riskier
for both the borrower and the lenders.
So this usually results in higher interest rates and fees.
The main reason for the additional risk
is that commercial property tends to be harder to liquidate.
So the loan to value on commercial property
tends to be much lower
than your standard residential mortgage.
If you didn't know, so commercial lenders or investors
usually will vary from a 65 to 75% in loan to value.
Some may go higher, if it makes sense.
But this basically means that if your building
is valued at a million dollars,
so they will finance 650 to 750,000,
meaning that the difference you have to come up with
as your down payment.
So again, this is a million bucks,
so it might be a little bit less
for a little bit smaller scale business,
but it's still a large 25 to 35% down payment
that you'd have to come up with.
So that being said, some lenders can be creative
depending on the strength of the business
and the real estate.
So make sure to shop around and look at all of your options.
And another thing to keep in mind as well
when it comes to a commercial mortgage or business mortgage,
there are several fees that are involved
that some people are sometimes unaware of.
So for a business mortgage,
one of the fees is an application.
So the application fee can vary from 0.5% to 1%
of the total borrowing.
So again, if you're looking at a million dollar mortgage,
you can be looking at a 1% fee of that.
So you have $10,000 application
just to get an application
with the potential investor or bank.
Appraisal costs.
A commercial appraisal is far more complex
than a residential appraisal.
A commercial appraisal, for example,
can be over 100 pages long.
A commercial appraisal can vary from $2,000 to $5,000
depending on the type of property.
So a lot different than your standard residential mortgage
where you'd be looking at 400 or 500 bucks kind of thing
can be done in a couple of days.
So a commercial appraisal, you have to be AACI,
I don't want to say approved or designated,
designated AACI.
And I believe we only have one locally here in Timmins.
And she is just recently AACI approved
for the long, long, long time.
Timmins didn't have anybody.
So it'd be outsourced to other areas
like Cochrane or Sudbury,
which would in turn create delays in getting deals done
because we had nobody to do the appraisals.
Another thing to keep in mind as well
is for environmental reports,
especially when it comes to mortgages.
So these reports are also rather expensive.
These can vary in the thousands of dollars as well,
but the borrower is on the hook for these costs.
So again, these can vary
depending on the type of reports needed,
but standard is a phase one.
And then sometimes the banks or investors
might look for a phase two.
And again, that is just to protect their collateral
because they need to ensure
that there is no environmental concerns.
And we know what the government is,
is very tidy when it comes to ensuring that the grounds
and stuff like that are clean.
So that's very important.
So again, between the environmental reports,
the appraisals and the application fees,
you could be looking at several thousands of dollars.
So again, just a reminder to keep that in mind
and put that in your financial predictions
if that's a goal that you want
moving forward for your business.
Some people just don't realize
that there's these kind of hidden costs there.
So we want to make sure that again,
that we're letting people know that that's what's out there.
And make sure you have a discussion paper in hand
with set terms prior to ordering these reports.
So a discussion paper is basically a document
which outlines the investor's commitment to you
and outlines the fees, the conditions
and the terms of the credit product.
Some of the conditions will be a satisfactory appraisal
or an environmental report, as we've previously said.
But at least if you have a discussion paper in hand
and you bring forward
the appropriate satisfactory information
and you satisfy the conditions that are outlined,
they shouldn't be able to go back on their deal
assuming that you meet the terms of the discussion paper.
So again, instead of getting your appraisal,
because sometimes you can order appraisal for yourself,
great, but then you need a letter of reliance
or a letter of, yeah, I believe it's a letter of reliance
in order for the appraisal to be issued to the bank,
which is again, another couple hundred bucks
just for them to issue a letter.
So before ordering and spending thousands and thousands
of dollars on these reports,
make sure that you have a commitment from the bank saying,
hey, yeah, you know what, we'll advance you this mortgage
or we'll get you these funds for this mortgage,
assuming that you have a proper appraisal
that comes in at X value
and that the environmental report is clean.
And obviously you want to do that
to protect yourself as well.
You want to protect yourself to ensure
that your property is clean
and that your building is worth what you think it's worth.
And again, just for timing purposes,
a standard turnaround time for a commercial
or a business mortgage can vary from four to eight weeks,
sometimes even more,
but that's usually coincides with the availability
of getting an appraisal or an environmental report done.
Because like I said, those are really long reports,
especially environmental,
so there's a lot of samples tested and stuff like that.
So it could take some time.
So if you have an offer on a building
and you're expecting to get your conditions waived
in five days, likely not going to happen.
So again, something just to keep in mind
when you're planning things out
and approaching your investors.
So next up is our lines of credit.
So obviously a line of credit
is probably the most valuable tool in my opinion.
Again, if used properly to ensure
that the business has access to resources
to meet their day-to-day capital obligations.
So again, a line of credit is very similar
to a credit card,
but tends to offer a lower interest rate.
So the purpose of a line of credit
is not to finance large expenditures
like equipment purchases or mortgage
or large asset purchases.
It's meant to be used to manage your day-to-day operations.
So for example, you have your accounts receivables
and your accounts receivables is very high
and you might not see payments for 30 to 60 days.
Well, if you have your line of credit as a backup,
this will help you cover your payroll,
make your other overhead payments as needed
as you wait for your payments.
Again, line of credit is meant to fluctuate.
So there's a good opportunity.
So there also might be a good opportunity
to purchase potentially some additional inventory
at a low cost.
And of course, that has to make sense.
But you're waiting on payments
because your accounts receivable is so high.
Well, you have your line of credit
to help you take advantage of that.
So again, if you're going through a slow time,
the line of credit can help bridge that gap
until things pick back up.
A lot of businesses are kind of seasonal
and stuff like that.
So you'll see those kind of peaks and valleys
as their line of credit goes up,
but then as it gets busy, then it'll go down
and then go back up and down.
But that's what it's meant to do.
It's not meant to be a loan that stays here
and then just kind of flat lines.
You obviously want to see it go up and down.
So a line of credit is not meant to be a loan.
It's meant to fluctuate up and down.
But the intent of a line of credit
is for the balance to revolve back to zero
every once in a while, usually twice a year.
Some banks will even monitor that
to make sure that it revolves back to zero
to ensure that there's proper fluctuation.
So if your line of credit doesn't fluctuate
or if it stays maxed out,
then that's a sign that things can be reviewed.
And another kind of good little tidbit here.
So a good indicator or a little rule of thumb
is that a business should be able to operate
with a line of credit of approximately 15 to 20%
of their total revenue.
So let's say you have $100,000 in sales,
15 to 20% would give you a 15 to $20,000 limit
on your line of credit,
should be sufficient to manage your day-to-day operations.
Again, depending on the potential seasonality
and stuff like that of your business,
it might be different.
But again, general rule of thumb
is 15 to 20% of your total revenues.
I think this is an important one as well
because some people don't know
that this product is out there,
but I think it's a very good product
for a lot of businesses.
And that's obviously the equipment financing.
So other than a mortgage,
so the purchase of equipment
can be some of the biggest purchases in your business.
So ideally, we'd all like to pay everything in cash,
but as previously discussed,
why tie up your cash
when you can finance these large purchases?
So equipment financing can be
for various types of equipment,
from tractors, kitchen equipment,
technology, software, office equipment,
medical equipment, construction equipment, et cetera.
Financing these large purchases
over their life expectancy
can be a useful tool to ensure the business's success.
So similar to mortgages we discussed earlier,
a down payment can be standard.
However, the loan to value
tends to be a little bit higher
and can potentially be up to 100%.
So if you have a $100,000 piece of equipment,
odds are that they can potentially,
or odds are that they can potentially finance
up to 100% so you can get the full $100,000
minus any taxes,
because unfortunately they don't finance the taxes.
To finance equipment,
you basically just need an invoice or a quote
along with your financial information,
so your financial statements,
to review your capacity
as discussed in the previous slides.
So some banks may be able
to offer revolving equipment financing,
meaning it's a limit that stays on your business.
So as you pay it down or you pay it off,
the available limit goes back to the original limit,
meaning you don't have to do another credit application
on your next purchase,
so which makes it a lot more easy and flexible.
Basically, you would just show up to your bank
and you provide them with an invoice or a quote.
You basically set the terms and off you go,
so it offers a much quicker turnaround time.
So again, from my experience in the business world
and the banking world,
those are kind of the three most common
financial products you'll see.
You can obviously add credit cards in there as well,
but with the high interest rates,
I would try and stick with the lines of credit.
That being said, a credit card with a rewards program
or even a cashback program and used properly
can be a very good tool as well.
So yeah, so have a look at the cashback rewards
and if you can use it properly,
it may be worth it as well.
So chiming back to Jason,
I see his crazy appraisal costs on commercial properties.
Yeah, so minimum 2,000 bucks.
And when we used to bring them in from out of town,
you'd be looking at four or 5,000 bucks.
You'd be looking at four week waiting periods,
plus an additional four weeks
for them to actually do the report.
So it's very, very, very cumbersome as well.
Well, this one took a little bit shorter
than the previous one.
So we're about 10 minutes ahead of time here.
So that was basically a wrap
on part two of financial fundamentals.
So again, the purpose of these presentations
is to be as broad as possible.
But as always, if anybody would like to sit down
and take advantage of our business advisory services,
please don't hesitate to reach out to myself
or to Ross McDonald,
who you heard from earlier in this presentation.
So next week is the start of our two-part series
where we shift our focus
to intellectual property and trademarks.
This is something that is becoming more and more relevant
in our day and age,
and having Bearskin Park provide your knowledge
on how to protect yourself and your business
will be a huge asset to your business.
So be sure to register.
So other than that, everybody, that's it from me.
So I'll field any questions.
If anybody has any questions,
feel free to unmute yourself or jump into the chat.
I know one takeaway is I'll review some of those interests,
or not those interests, those ratios.
Maybe I'll prepare a little document for everybody
to kind of look at the key ratios as well.
So we'll make sure to send that off to all the participants.
You're welcome, Dean.
If there's any questions, feel free to unmute
or get into the chat.
Can I ask one?
Yeah, go ahead.
So we're clarity counseling services,
and we deal with mental health.
And some of the, following up, I guess,
on our conversation from last week about cash flow,
with some of our providers through,
like, let's say, Jordan's Principle,
and we're starting to build some new service agreements
as well, but we have concerns about their own payment terms
that we're hearing sometimes that it takes like six months
to get payment from them for our services.
When you have a government organization,
how can you negotiate,
let's say, a more attractive payment terms?
How do we keep them accountable for that?
My gut tells me you're gonna say,
do your own risk assessment,
and then do it or don't do it.
But I'm interested to hear that from you.
Yeah, obviously, you can get into a contract
or an understanding or an agreement
with a government agency.
It's obviously a good source of revenue,
because odds are they're gonna send
a lot of people your way.
That being said, their terms,
when it comes to government,
are very, very kind of cut and dry.
It's the government, right?
Unfortunately, we've all dealt
with different levels of government.
They're very quick to take your money,
but sometimes they're a little slow
to give it back kind of thing, right?
So the terms, you know, it'll be tough.
It's funny you mentioned Jordan's Principle,
because literally my neighbor works for the CRA,
and her main project is Jordan's Principle.
So it's just super strange that you bring that up.
But yeah, if that's kind of your question, Cody,
is how do you negotiate with the government,
you know, when you're saying
that they can potentially take up to six months
to pay for some of these services
under Jordan's Principle,
then I would just reach out to your contact
that you have with Jordan's Principle
or with the Canadian government,
and just let them know your displeasure.
Just be like, hey, listen, why is it taking so long?
You know, just be on top of them, be annoying.
Sometimes it can be from a processing side
that they're just a little bit slow processing their invoices
and stuff like that.
So it makes, obviously, you guys wait
for your funds a lot longer.
It takes a lot longer for you guys to receive your funds,
but that could be a staffing issue.
That can be so many different factors.
But usually, if you have an understanding or an agreement,
I don't know what your agreement says with them,
for turnaround times.
But if it's taking longer than what's outlined in there,
then I would call them out on it for sure.
Sounds good.
Thank you.
You're welcome.
Yeah, the government's obviously a good asset, right?
They have a lot of different funding agencies
and stuff like that that can help your businesses.
So make sure to keep an eye on those out there.
You know, sometimes they're not easy to deal with,
but at the end of the day, they're there to help.
But yeah, we all know that it can be sometimes difficult,
but yeah, definitely a good asset to have.
That would be considered like a grade A,
because at the end of the day,
sometimes when you have receivables,
you have your kind of like your A or triple A
and your different kind of rated clients kind of thing.
So the government is obviously, you know, number one,
because you know you're gonna get your money from them.
Sometimes you have certain clients
that it could be like, you know, B rated
or C rated kind of thing,
because you just don't know if you'll ever get paid
from them.
But you know, government agencies, any big businesses,
you know, those are technically,
or tend to be your A listed kind of tables or receivables.
So they're good to have.
But yeah, it's a, yeah, the government's good.
Thoughts on presenting your loan requirements
to more than one bank at a time.
Absolutely.
Shop it around.
This way it'll set some fire underneath your banker as well,
or your potential investor as well to make a decision.
Because sometimes it can drag.
Seen it numerous times that it can drag.
So yeah, like approach different banks.
Absolutely.
Depending on your loyalties and your preference,
but I would definitely go to different
financial institutions or different investors
and say, hey, listen, this is what I would like.
Never say this is what you need,
because sometimes your needs and your wants
are a little bit different.
This is kind of what I would like to do.
I find approaching a bank or an investor with a plan
is a lot better than saying,
here, I need a million dollar loan for a mortgage,
or I need a million dollar line of credit,
or say, you know what, this is what I want to do.
Present your case as to why you want to do it.
And you can definitely make that presentation
to more than one person.
And then you'll probably get numerous phone calls
if you're prepared.
But yeah, thoughts on presenting your loan requirements
to more than one bank at a time.
Yeah, just make sure that you're not all
pulling your credit history and stuff like that
at the same time,
because then that can have a personal effect on,
or that can have an adverse effect
on your personal credit history.
But from a business standpoint, like, you know what,
if you want to print out a few copies
of your financial statements
and present your business case
to several financial institutions, absolutely.
Doesn't hurt to try.
And they all have different products
and they all have different services
and they all have different turnaround times.
So you'll be able to make your decision from there
on what you like best.
Awesome.
Did we have any other questions in the chat?
I guess we're good.
So thank you everybody for participating
in our Financial Fundamentals Workshop today.
So I'd like to thank our presenter, Al Paquette,
for sharing his financial knowledge with us.
Just a reminder, a link to this recording
will be available after this call.
And next week, we are diving into Intellectual Property 101
with our gold partners, Bearskin and Parr, LLP.
They're an IP firm operating out of Toronto.
So their main practice areas are patent prosecution,
trademarks, litigation, copyright,
and regulatory slash privacy law.
As mentioned, this will be next Thursday,
November 9th at 10 a.m.
The same Zoom link is being used for all webinars
and you should receive a reminder email
with this information as well.
And then also just a quick reminder,
our close event is on November 23rd
at Full Beard Brewing here in Timmins
to help celebrate the end of the program.
So it's free to register and we'll have live music
from Paul Sebalge and catering from the Fusion Girls.
So it's a great opportunity for those looking
to network fellow entrepreneurs
and we hope to see you there.
Thank you, merci, and miigwech.
Thanks everybody, have a great day.
