In this uncertain economy companies that are refinancing or seeking new capital are facing an uphill battle to obtain the required funding to achieve their objectives. But the process does not have to be a challenge or diversion of resources. Organizations that plan well in advance are able to quickly conclude the process and minimize corporate finance costs. Please read on to find some ideas that can help you attract motivated lenders who will play an integral part in the future success of the company.
Focus on improving non-financial criteria – the potential deal breaker
The current credit markets have tightened considerably leaving many lenders to base decisions on additional criteria that are often non-financial and subjective in nature. Companies that ignore or underestimate these realities may be faced with a painful (and very expensive) lesson in the future. With a reduced pool of capital available from lenders, having strong EBITDA numbers is not necessarily a guarantee of a successful deal. Management that focuses on improving the non-financial criteria will be successful in receiving the funding to meet the business objectives.
What are these non-financial criteria and what can I do to increase the likelihood of receiving the capital I need?
Examples of Non-Financial Criteria
- Strong Management Team – Lenders often put a large emphasis on this element based on interaction with the management team that is often very subjective
- Accurate and Timely Information Flow – Quality information that is timely demonstrates good management and the ability to quickly respond to challenges that arise
- Efficient Organization Structure – An organization structure that clearly defines areas of responsibility/accountability is able to provide consistent service
- Ability to Innovate/Anticipate/Adapt to change – Such companies are attractive to lenders because they are less risk. Borrowers benefit from lower interest rates. See previous column on “Overworked accounting department? Transforming it into a Strategic Asset”
- Risk Management – Companies with formal plans in place to assess all risks and implement mitigation strategies demonstrate progressive management
Invest in Financial and Operational Infrastructure – Fund with cost savings
Companies looking to increase their bottom line want to reduce their departmental costs and rarely do they conceive of the notion of an investment in the accounting or any other department. Organizations are having difficulty avoiding the trend to outsourcing as the perceived cost savings appear to be significant. Often the reduction in cost is shifted to a different account on the income statement and in the case of accounting and legal fees rarely does the company realize any net savings.
When a company closes a financing or investing deal often a significant portion of the funds that are advanced go towards payment for outsourced accounting and legal fees. These costs are often incurred to quickly close the deal and since outside staff does most of the work the company does not benefit from the knowledge transfer that was generated. For organizations that have senior management that have the expertise and can manage the process, a huge opportunity exists to realize current and future savings from the knowledge transfer.
Lenders are attracted not only by the fact that more of the funds are available to be used by the company but most importantly the benefits of the knowledge transfer are retained in the business. The organization is aware of all the important factors that are composed in the lending agreement and as a result will implement specific controls and procedures to ensure compliance on a regular basis.
Many consulting organizations offer services to help organization realize these savings but few have the specific expertise. JRS Consulting Group is a firm of experienced executives with direct management expertise that provides specialized and “hands-on” services that can help you quickly implement your plan – and at a reasonable cost.
Plan and Implement Your Refinancing Strategy Now!
Much like the planning challenges presented by IFRS, your refinancing strategy must be commenced immediately. The lending landscape has changed considerably over the short term and all companies should be aware of the new challenges they may encounter when faced with a need for refinancing or new capital. Companies are wise to consider the larger influence non-financial factors have on the lending decision. A clear plan should be developed to address some of the non-financial criteria listed above that will not only increase the certainty of a successful deal but also result in a better managed company with bulging profits. More than likely you will have multiple lenders willing to meet your needs at rates that are the best you could have ever dreamed.
JSR Consulting Group would be pleased to assist you in any manner possible. With experience in CFO, VP Finance, Controllership and public accounting positions, we have the expertise to bring your company to the next level. For a free, no obligation consultation, please contact us as follows:
Joseph S. Raczka, B.A., CMA, CPA, CFP
Managing Partner
JSR Consulting Group
335 Centennial Rd.
Toronto, ON M1C2A4
Phone: (416) 283-6995
Email – JSRConsulting@sympatico.ca
