Big Business Financing. Presented to:

Transcription

1 Big Business Financing Presented to: Calgary February 9, 2017

2 Agenda I. Corporate finance overview II. How to prepare a bankable business plan III. Factors specific to financing aboriginal projects and organizations IV. A banker s perspective - BMO V. Practical example Membertou 1

3 I. Corporate finance overview

4 What is financing? Financing is a basic requirement of ANY business It is considered the lifeblood of a business CASH IS KING! It is the amount of money, funds or capital required for the smooth operations of any business It is required at every stage of a business life cycle 3

5 When do businesses need financing? 7 Stages of the Business Life Cycle 4

6 When do businesses need financing? From Seed to Start-up Research and Development Business Acquisition Capital Investments (buildings, machinery and equipment) Working Capital Growth and Expansion Capital Investment Growth and/or Efficiencies Increasing Working Capital Needs Mature Operations Financing Day-to-Day Working Capital Replacement Capital Expenditures Safety Net for Unforeseen Events 5

7 Timeframe matters Short-term Financing Needed for the day-to-day running of the business / Liquidity Period: up to 3 years Medium-term Financing Purpose may be for expansion or replacement of capital assets (equipment), convert persistent overdraft into medium term loan, etc. Period: normally thought of as 3 to 7-10 years Long-term Financing Generally related to initial capitalization of the business, securing resources for long-term growth and financing long-term assets (buildings) Period: usually for periods in excess of 7 to 10 years 6

8 Sources of finance Short-term Medium-term Long-term Internal Trade credit Consignment Customer deposits Invoice discounting Retained earnings Retained earnings Sale / leaseback Sale of redundant assets Bank financing Bank financing Equity External Credit cards Factoring Leasing Leasing Debentures Government Assistance Bank financing Debentures 7

9 Sources of equity financing Capital Investment of Owners / Project Proponents Individual entrepreneurs Band councils / economic development corporations Government grants / programs External Investors Individual investors Private companies Venture capital Business angels Public Markets Shares issuances Convertible debentures Government Financing Grants, contributions, financial assistance Equity investments Loans and cash advances Loan guarantees Tax refunds and credits Wage subsidies 8

10 Main types of bank financing Lines of credit / Operating loans and overdrafts Commercial term loans Credit cards Equipment financing Asset based loans Mortgage loans Traditional Commercial Lending Secured by assets (collateral) and supported by cash flow Asset Based Lending Typically secured by current assets only (A/R, inventory) Entails close monitoring of asset positions on a regular basis Appropriate for working capital financing when assets are available as collateral, but cash flow may be more uncertain 9

11 Factors influencing a bank s decision to lend Current Financial Position? Track Record of Principles? Purpose of Financing? Financial Projections? Nature of Project / Product? Business Plan? Market / Industry Factors? 10

12 Which source of finance is appropriate? Different sources of finance have different implications for a business, so it is important that the most appropriate method of finance is chosen for the purpose that the business has in mind. Factors influencing the choice of financing: Type of business Length of time Level of control Availability of internal vs. external sources Cash flow Security / Collateral Existing debt / Capital structure Cost 11

13 II. How to prepare a bankable business plan

14 Why do you need a business plan? Business plan = SALES DOCUMENT You must convince the reader that your business venture has the potential to be successful Outlines the company s direction and strategy What is your roadmap to success? Critical document to secure financing from lenders or investors It is essentially your answers to a comprehensive list of questions any party will need before investing in your business 13

15 Characteristics of a good business plan Clear and concise presentation Realistic and supportable assumptions Specific and measurable goals Complete and integrated analysis Allows for flexibility Conveys the proponent s passion for the project Document should be error-free 14

16 Contents of a good business plan Company Profile Executive Summary Marketing Plan Financial Projections Industry / Market Analysis Project Description Operations Plan Management Team 15

17 III. Factors specific to financing aboriginal projects and organizations

18 Financing considerations Aboriginal businesses On reserve assets eligible collateral? Alternative security required: pledge of discretionary revenue streams Gaming, IBA proceeds, taxes, trust distributions, etc. Approach to measuring financial health of community / guarantor Cash flow requirements to support community vs. availability to service debt and/or return to investors Motivations: purely profit driven vs. social and community building Considerations if a community is under RMP/MAP 17

19 Financing resources specific to Aboriginal businesses Government Programs Aboriginal Business and Entrepreneurship Development Aboriginal Economic Development Fund (Ontario) Aboriginal Initiatives Fund II (Quebec) Aboriginal Business Investment Fund (Alberta) First Nations Infrastructure Fund Lending Institutions First Nations Bank of Canada Native Commercial Credit Corporation Indian Business Corporation Canadian chartered banks have developed programs specific to aboriginal businesses and projects BDC Aboriginal Business Development Fund Aboriginal Financial Institutions Aboriginal Capital Corporations Aboriginal Business Development Corporations Aboriginal Developmental Lenders National Aboriginal Capital Corporation Association (NACCA) 18

20 IV. A banker s perspective - BMO

21 A banker s perspective Mark Shadeed Director Aboriginal Banking Quebec & Atlantic BMO Bank of Montreal 20

22 Aboriginal Banking AFOA National Financial solutions for the growth, prosperity and economic self-sufficiency of Aboriginal communities Mark Shadeed Director, Aboriginal Banking February 9, 2017

23 What we do Aboriginal Banking Financial Solutions for the growth & prosperity of Aboriginal communities Personal Banking 13 On Reserve Branches and 1 Community Banking Outlet Staff include members of the local community Offers Full Banking services Additional service by 70 off reserve branches near large Aboriginal populations Commercial Banking Innovative Financing Solutions to overcome regulatory restrictions Dedicated in-field resources they are accessible, familiar, and make decisions locally Cash Management Solutions BMO Corporate Prepaid Card program BMO Corporate MasterCard program for Not-For-Profit organizations Group Banking Plan Complementary suite of preferred personal banking products, services and rates for members of Bands Private Banking Trust Services Advisory Services Capital Markets Investment Management Services Debt Financing 22

24 Aboriginal Banking at BMO Aboriginal Banking Golf Courses Medical Facilities Administrative Buildings Casinos On Reserve Homes 23 Fisheries

25 Types of Financing Aboriginal Banking Infrastructure Education/Employment/Training Centres Administration Buildings Health Care Centres Social Service Buildings Sports/Recreational Facilities Elders Lodges Ambulance/Fire Stations/Police Services Building Sewer/Water projects Roads/Bridges Schools Competitive amortization periods available Housing On Reserve Housing Loan Program On Reserve Renovation loans First Nations Market Housing Fund Project Financing Solar Farms Wind Energy Casinos Economic Development ( samples ) Winery Conference & Golf Resorts Fishing Operations Industrial Parks 24

26 General factors influencing the ability to obtain financing Aboriginal Banking Key requirements: a) Detailed and well-reasoned cash flow, balance sheet and income statement projections that have been stress tested..because at the end the day, cash pays loans. b) Banks/lenders require a secondary source of repayment in many cases. This is achieved most often by a band guarantee supported by a direction of discretionary revenue streams such as but not limited to gaming, taxes, trust, IBAs etc. c) If the community is under a RMP/MAP, care must be taken to ensure the band guarantee is not in violation of any conditions or any other commitments of discretionary funds, including those allocated to the community at large. 25

27 General factors influencing the ability to obtain financing Aboriginal Banking Key requirements: d) Strength of Management is demonstrated by the courage to hire outside expertise when this is not present in the community. e) Does management have the ability to think both in tactical terms ( short term ), and strategic terms ( longer term )? This is critical to the sustainability of the operation. f) Is the right balance struck between the beneficial owner ( the community represented by Chief and Council ), and the ADEC? 26

28 Factors Specific to financing Aboriginal AEDC s Aboriginal Banking An AEDC s primary motivation is both for profit and betterment of the community vs purely profit in the case of a non-aboriginal business. Often times a balance is struck between revenue generation and job creation for community members. The revenue streams from an AEDC may not be as readily available for debt service as community members may expect investment of some profits back to the First Nation. When analyzing the financial health of the guarantor, one must be familiar with how to gauge a First Nation, i.e. key INAC ratios, tenure of leadership etc. which may be totally different from the analysis of a non-aboriginal guarantor. 27

29 V. Practical example Membertou

30 Practical example Membertou Mike McIntyre Chief Financial Officer Membertou 29

31 Membertou Sport & Wellness Centre 30

32 Membertou Sport & Wellness Centre 140,000 sq. ft. facility with two NHL size ice surfaces, indoor walking track, full service YMCA Fitness Centre Total cost $22 million: tough to finance as these projects are to satisfy a social need, rather than a profit motive We needed to make a business case, as most arenas have none Leveraged Federal and Provincial Programs to secure $12 million in funding, debt financed $10 million (20 year term) Took advantage of Geothermal Energy, this lowers annual energy costs by 65% from traditional arenas (essence of business case) 31

33 Membertou Sport & Wellness Centre Constructed two ice surfaces to maximize revenues, while geothermal energy costs stay constant. Designed to be expandable to 3 pads To ensure cost certainty, we proceeded on a design build format. Contractors were given the budget and a spec sheet of our wants The design build format saved us $$$ and time We did our research, and we knew what we wanted We were able to make this project near cash flow neutral after debt payment, but we kept our projections conservative, below feasibility study Proper due diligence and creditability with your banker is essential to finance a project of this magnitude The more your banker knows, the more they can help! 32

34 Questions 33

35 Eric Barbieri, CPA, CA, CTP Phone: Richter Advisory Group Inc McGill College Mtl (Qc) H3A 0G6 If you d like to receive a copy of this presentation by , please leave us your business card.