Understanding the multiple sources of Financing for your Business

Acquiring a business often requires multiple sources of financing. This can be a complex undertaking, especially in cases when more than $500,000 is needed. In most cases, there are four types of lenders and investors willing to finance an acquisition.

Lenders interested in fixed assets

Acquiring a business often involves the purchase of buildings or equipment. Your tax advisor might suggest you take out a separate bank loan for this part of the project, either from your bank or jointly with other financial institutions.

The Canada Small Business Financing Program makes it easier for small businesses to obtain financing from banks up to a maximum value of $500,000, of which $350,000 can be used to finance the purchase or improvement of equipment and the purchase of leasehold improvements.

Lenders interested in the whole package

BDC often supports expansion projects with term financing. Unlike conventional bank loans, this formula allows flexible repayment terms. Another advantage is that a BDC loan will not be called without a valid reason.

Companies that have a competitive advantage in a fast-growing industry should consider subordinate financing. Under this formula, financial institutions lend higher amounts than they would under other circumstances and accept subordinate security in return. But such arrangements will always require a higher return for the lender, who may also ask for royalties on future sales or stock options.

Equity investors

Depending on your situation and the amount you need to raise, you can seek out venture capital from investment banks, institutional investors and mutual or labour-sponsored funds. Your new financier will become a major financial partner, taking an ownership stake in your company and the right to name some members of your board in exchange for a significant injection of capital. Industry Canada's web site has more information on this subject.

Venture capital firms invest across all sectors of the economy but target only businesses with excellent growth potential. Sometimes technology-oriented venture capital companies also consider outright acquisitions. For example, they will look favorably on buying a leading-edge business with products almost ready to put to market that would complement a more mature company's product line.

Strategic investors

These investors focus on certain types of businesses and are often faster than others to grasp developments within a particular industry. These are often groups of professionals from the same industry who keep close tabs on their market and are therefore quicker to recognize risks and opportunities. Major corporations also sometimes acquire equity in companies whose growth they believe it is in their interest to support. The goal can be to exploit a promising niche in their industry, for example, or to improve their firms' technological know-how. Regardless of the type of financing you have in mind, management consulting companies and accounting firms specializing in acquisitions can provide invaluable outside advice. Their contacts with investors and financial institutions often help them quickly identify people who are interested playing a role in an acquisition. Getting specialists involved at the outset also greatly simplifies tax reporting.

For more information on the above, call/email our Founder & CEO + Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

Business Owners: Why you MUST have a business lawyer on your side.

Legal issues for business owners and entrepreneurs.

 As a business owner, you may think that you don't need the additional cost of hiring a lawyer. That may be a big mistake. Read this document to understand why consulting a lawyer is essential for any small business start-up. Lawyers are trained to interpret the law and those who specialize in business law can be worth their weight in gold. It is less expensive to retain a lawyer up front and have your legal work done properly than trying to hire a lawyer later on to fix problems that may have arisen from lack of legal knowledge. Sometimes procedures and forms for businesses look simple, but legal transactions are often more complex than they seem.

When do you need a lawyer? There are a number of situations where you should strongly consider consulting a lawyer.

Business Structure

One of the first things you will need to do is to decide on the business structure that best suits your needs. Your options can range from sole proprietorship, partnerships, limited or incorporated companies to co-operatives. A lawyer can help you choose the correct form of business structure, based on factors such as the number of people involved, the type of business, tax issues, liability concerns and financial requirements of the firm. Your lawyer can also help you draw up the necessary legal documents that set out the terms of any partnership or other shared ownership, ensure that all parties will be treated fairly and that there is a mechanism for handling any disputes or disagreements. Forms of business organization Find out which type of business structure is right for your business. Buying an existing business If you wish to buy an existing business, you may have to decide whether to buy only the assets of the business or, in the case of an incorporated company, the shares of that company. With any business purchase, you should have a buy and sell agreement, signed by both parties, that spells out the demands and obligations of each, as well as the terms of the agreement (for example, non-competition provision). Buying a business What you need to know before purchasing an existing business. Leasing Requirements Most small businesses will start by taking out a lease for their business premises. However, leases can be one of your largest expenses. Make sure that your lease will be suitable to your business needs, in case you wish to break your lease or expand your business.

A lawyer can give you advice on any pitfalls or costs that may be incurred, before you sign on the dotted line. Choosing and setting up a location Trying to decide where to locate your business and how to arrange it once you get there? Review the following resources and consider your options.

Contracts

When you are drawing up legal contracts, you should get the advice of a lawyer.  Some examples of contracts that you should get a lawyer's help with include:

•Licensing agreements

•Franchise agreements

•Employment contracts

•Subcontractor agreements

•Partnership, incorporation or shareholder agreements

•Lease agreements

•Mortgage, purchase agreements

This is not a comprehensive list. Above all, make sure you contact a lawyer before you sign any contract. Equity Financing If you plan to seek equity financing for your business, it is important to contact a lawyer to help you draw up the terms of the shareholder agreement and/or to review the legal documents provided by a potential investor. Your lawyer can also help you assess the impact of any new shareholder agreement on other obligations and existing contracts with employees, suppliers or financial institutions. Steps to Growth Capital Learn how to develop the plan, the materials and the confidence to go after the equity financing for your business opportunity. Other issues requiring legal advice

There may be other issues where you need to seek the advice of a lawyer in order to determine the best course of action.

 This can include:

 •Environmental complaints or concerns

•Employee problems or conflicts 

•Disagreements between business partners

•Closing your business

 •Protection of intellectual property

 Any time you are unsure of the legality of something or the legality of your business practices are questioned, you should be sure to get the advice of a lawyer. How should you choose a lawyer? If you have used a lawyer before for a real estate transaction or other personal issue, he/she may be able to refer you to a lawyer who specializes in small business start-ups or to a business lawyer. Ask your business associates, friends and family for references of law firms they have used and received satisfactory services from in the past. Make sure you have a comfort level with your lawyer, as you will be working closely for the life cycle of your business. Don't hire the first lawyer you speak to.

You will have to do some searching for the best expertise you need for your business. Make a list of potential lawyers you wish to meet. Many lawyers will meet you free of charge for the first time to establish expectations on both sides, as long as you don't try to get free legal advice while you are there. You will probably want to have a general business lawyer to handle your day-to-day affairs, but look for someone connected to specialists in specific areas of law who can refer you, as necessary, to someone with more expertise in areas like intellectual property, equity financing, and so on. Make sure you understand your lawyer's billing practices. If you think it may be a little while before revenue comes in to your business, you will have to make arrangements ahead of time with your lawyer, so you are both on the same page.

 For more information, call and/or email our Founder & Ceo and Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

Tapping into your “inner” entrepreneur

"Could I do it on my own out there?" is a question that many of us have asked ourselves in the course of our careers.

The answer to that question may be tied to whether or not we have a specific set of aptitudes and motivators that make us potential entrepreneurs, says Yvon Gasse, Professor and Director of the SME and Entrepreneurship Centre at Laval University. Gasse collaborated with BDC to develop the Entrepreneurial Self-Assessment Tool which helps people better measure their entrepreneurial potential.

"Although many factors come into play such as your personal circumstances and timing, research does show that business owners often share certain qualities that make up the entrepreneurial mindset," he emphasizes.

Key motivators

For example, Gasse points to 3 "motivating factors", among others, that attract people to the idea of becoming entrepreneurs in the first place.

1. Need for achievement

"The notion of challenge is an important one for entrepreneurs. They often have a strong need to set objectives and achieve specific goals. They will naturally take measures to meet these goals and will want rapid feedback on their achievements," he believes.

2. Need to influence

"Often entrepreneurial types want to influence people and the course of events. Making money may be one motivator but ultimately entrepreneurs want to make an impact on people through their businesses. They may also want to shape the course of events by, for example, buying another company or moving their business to China."

3. Autonomy

"Another motivator at the root of entrepreneurship is the desire to be independent," says Gasse. "You want to be your own boss and feel in control of your destiny. Independence is a strong driver for people who want to set up their own businesses and pursue their dreams."

Some key aptitudes that shape entrepreneurs

Along with these motivating factors, Gasse contends that entrepreneurs also have specific aptitudes that make them more likely candidates to set up their own businesses.

Among these are:

1. Perseverance

"Business owners are usually determined to get past obstacles and see a project through its completion despite setbacks. They will overcome their frustrations and problems and persevere," says Gasse. "Given the challenges of today's complex business environment, this aptitude is at the top of the list."

2. Self-assurance

"Entrepreneurs show self-confidence and trust their instincts. This self-assurance helps them through difficult times and pushes them to achieve tough goals," he says. Without that self-assurance, people hesitate and aren't so willing to take calculated risks, he adds.

3. Creativity

Another aptitude that Gasse emphasizes is creativity. "This is particularly true when it comes to the ability of an entrepreneur to creatively identify business opportunities. Entrepreneurs instinctively see gaps in the market and can find unique products and services that meet a demand," he emphasizes.

4. Tolerance for ambiguity

"Entrepreneurs are comfortable with ambiguity, and capable of making decisions even when they don't have all the information they need. For example, you might be selling products or services in a relatively unknown market. This level of uncertainty can be very stressful for most people but entrepreneurs learn how to work around it," he believes.

5. Attitude toward failure

"Many business owners have a long history of failures and accept these as part of the learning experience," says Gasse. "Rather than view failure as a catastrophe, an entrepreneur will learn from his or her mistakes and what to avoid the next time around. They'll pick themselves up after a failure and start over."

6. Action-oriented

"Entrepreneurs don't rest on their laurels and are driven to accomplish their objectives through concrete action," adds Gasse. "They want to get down to work and won't put off difficult tasks until later. That strong desire to tackle their objectives and see quick results often characterizes people who want to run their own companies."

Before you get going

If you see that you have the necessary motivators and aptitudes to become an entrepreneur, Gasse recommends that you first get a clear business plan in place. "It's important to not think of your business plan as simply a way to attract financing. It's much broader than that. Ideally, a business plan is a real roadmap that shows where you are going with your company. It should demonstrate that you've done your homework, understand your market and that you can actually generate business. Once you have that plan in place, you can move more confidently ahead."
 
For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or at hboisvert@hazlolaw.com

You made an acquisition. Now what?

Acquiring a business is a huge step in the life of an entrepreneur. On top of managing your existing company, you now need to integrate a new one, while ensuring that both businesses operate without disruptions.

The first months after the acquisition are crucial for the successful integration of the new business, says BDC Consulting Partner Gail Blanchette. “You need an action-plan to avoid missing on essential steps,” says Blanchette, who advises business owners in Winnipeg.

She offered a must-do list during the first few months after an acquisition.

1. Meet your new people

A change of ownership is a nervous time for employees. That’s why communication is critical. As soon as possible, hold a group meeting with all of your new employees. If your company operates in multiple locations, consider a virtual meeting, through video-call or web-conferencing. “People need to hear the same thing together so that the message doesn’t get misinterpreted around the company,” Blanchette says.

In the mind of many employees, mergers and acquisitions translate into layoffs. Use this first meeting as an opportunity to put people at ease and reduce their fears. Talk about who you are and what your vision is for the business. But don’t promise more than you can deliver.

2. Introduce yourself to customers and suppliers

A change in ownership might be seen by competitors as a sign of weakness, Blanchette says. That’s why she advises entrepreneurs to think carefully about how they want to introduce themselves to customers and suppliers.

In some industries, it really doesn’t matter who owns the business, as long as it’s business as usual, she says. However, if you’re planning changes or will be interacting regularly with key customers and suppliers, you should make sure to call and meet them as soon as possible.

In an ideal situation, the previous owner will help smooth the way during the transition period by introducing you to external partners.

3. Seek to understand the business

No matter how well you’ve done your homework and due diligence before the acquisition, you won’t fully understand how a company works until you actually run it. Blanchette recommends that you perform a high-level, non-invasive examination of the business, using a specialized consultant or even your accountant to help you.

Look to broaden your knowledge by answering some basic questions, including: Are things operating as efficiently as you thought they were? Is the company achieving the financial results you thought? If not, what can you do about it?

While Blanchette recommends that you avoid major changes in the early stages, there may be pressing issues you need to address quickly. Blanchette gives the example of an entrepreneur who—three weeks after having purchased a business—had to decide whether to renew a $100,000 advertising contract. “This is one of those moments when your high-level analysis of the business will help you make a better informed decision.”

4. Focus on your strategy for the business

When buying an established business, you are also buying the previous owner’s way of doing things. “It doesn’t necessarily mean it’s the right or the best way of doing things just because someone did it that way for 50 years,” Blanchette says.

Consider how you want to run your new business and then build an action plan. As well, start working on a two-year, month-to-month cash flow forecast with the new expenses built in, such as loan payments for buying the business, increased salary levels and the cost of what you plan to change.

5. Leave your door open

Ultimately, buying a new business and integrating it with your existing one is a complex exercise in change management. Don’t be surprised if people still have questions after a few months or are resisting change. Your best ally to fight uncertainty and win people’s trust is to communicate often and ensure you’re being transparent, open and approachable.
 
For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or at hboisvert@hazlolaw.com