TEC advisory group for CEOs meeting a day ago has the opinion that the economy in general that we are still in for more of the ups and downs of the stock market and economy in general.  This advisory group includes professional service providers from mergers and acquisitions specialists, human resource consultants, group insurance providers, merchant banker, investment wealth advisor, business advisory coaches, CFO advisor, to CEO mentors.

The majority of the advisors in the room have over 20 years business experience and have gone through some of the downturns and definitely say that the major difference today in coming out of this last recession is that no one seems to believe that we’re on our way to a major recovery, that the recovery will have hiccups and the economy will go up and come down, maybe averaging zero percent growth for the next couple of years, but potentially income taxes might need to rise in order to continue to pay for continued government economic stimulus.

For a lot of business owners they have experienced a time period where there hasn’t been either constant of great growth and their sales teams haven’t had to work really hard and make several pitches to a prospect before they become a customer.  For some regions of Canada, sales teams are being slowed down to several months before a prospect gives the okay to a purchase.  For some inexperienced sales reps this is new territory and the adage of its cheaper to get a current customer to buy than to bring in a new customer is much more relevant in today’s world.

Statistics from various agencies have shown that the economies of the world have been propped up 100% entirely from the world’s governments economic stimulus plans.  We question when the stimulus plans are done, whether or not consumer confidence will have increased to the point of taking over or whether more economic stimulus dollars will be needed.

The end result of stimulus plans will always be higher taxes, and this time around I am thinking that it will be individuals’ income taxes which will increase by a few percentage points rather than business.  We need business in order for their to be employees to pay their taxes is always the rationale behind increasing taxes for individuals.

We can hope that consumer confidence will grow in the near future so government stimulus won’t be necessary.

Written by Richard Wong, CMA     email: rwong@firstchoicecapital.ca

]]> http://firstchoicecapital.ca/2009/10/05/economy-in-yo-yo-mode-for-next-year-opined-by-a-tec-advisory-group/feed/ 0 http://firstchoicecapital.ca/2009/04/21/xenon-pharmaceuticals-ceo-interview-on-canadian-funding-decreases-part-1/ http://firstchoicecapital.ca/2009/04/21/xenon-pharmaceuticals-ceo-interview-on-canadian-funding-decreases-part-1/#comments Tue, 21 Apr 2009 20:28:23 +0000 Richard Wong http://firstchoicecapital.ca/Blog/?p=277

Part 1:  Simon Pimstone, President & CEO of Xenon Pharmaceuticals Interview

Canadian government’s announcement on reduction of future funding for Genome Canada affects life sciences companies in British Columbia, including larger start ups such as Xenon Pharmaceuticals.

Affects of this including having fewer jobs and hindering the ability of companies to commercialize their intellectual property they have created in Canada because of the cost to do this, hence the need for Canadian life sciences companies needing to partner up with large American and European pharmaceutical companies in order to get these discoveries to market.

For start-up companies Genome Canada has provided bio-tech companies with the ability to do research and keep our science graduates from our universities to bolt to the United States & Europe with the so called brain drain.

A current Xenon Genome BC project has 10 to 15 scientists working on the project currently, which if Genome Canada funding wasn’t available, these high paying jobs would not exist in British Columbia.

Because Canada has such a tiny venture capital pool for life sciences,  life sciences funding is largely dependent on foreign venture capital funding as the primary source of funding as well as Canadian federal and provincial funding.

While in the United States the National Health Institute (NIH) funding will be increasing by $3 billion announced by President Obama whereas the funding from the Canadian government has decreased.  The government is doing exactly the opposite and sending a statement on the importance or lack of it on science and technology in British Columbia.

President Obama has announced already funding for green energy grids, health and innovation, whereas in Canada we are still focused on the old school infrastructure is an opinion in the life sciences community.

Simon Pimstone commented that if you’re putting money into infrastructure which will build a knowledge based economy, such as technology parks for Pharma companies.  Companies like GlaxoSmithKline or Johnson & Johnson will be enticed to build manufacturing vaccine facilities which provides high paying opportunities for science students for years to come.

Continued in Part 2 of Interview with President & CEO Simon Pimstone

Polaroid known as a maker of instant cameras and film was finally auctioned off for $59.1 million in a bankrupty protection.  This famous company had come upon hard times, but it’s interesting to note that the price tag was for the intellectual property, company, and digital and hard film collection.

Question is that does Patriarch think the company’s digital assets are worth more than the Polaroid name?  When you’ve had companies such a Sony, Hewlett Packard, and a host of camera phone makers enter in the space along with Polaroid and Kodak you would think that the Patriarch the private equity firm known for its reputation as a turn around artist it would try to leverage more of its digital assets than the previous management of Polaroid.

Written by Richard Wong, CMA     rwong@firstchoicecapital.ca

The economy has caused a credit crunch for businesses large and small so the one thing that all businesses should do is to get cozier with your banker.  This can take the form of calling more often, visiting, inviting your account manager to your business premises, anything which will provide more real world contact with your banker.

The one thing that is definite right now and that account managers are under more pressure to ensure their clients are worthy credit risks and are up to date in their monthly bank reports.   So now more than ever, its important to better your relationship with your banker, even if you don’t need more financing at this time, but very important if you think you may need to re-finance,  get waivers, or get amendments to their current financing.

Banks through their own databases, but also through credit bureaus have statistics on every industry and if you’re an underperforming company compared to the average in your industry, you may have already gotten a call to ask you whether you really do need for example a $4 million credit line, when you’ve only used $1 million for the past 3 years, yet your debt to equity ratio is higher than the industry average.  Not a good sign, but manageable if you take the time to provide comfort to your banker.

It’s hard to think of your banker as a partner, but they really are, they want to see you succeed, not fail, so having them understand your business and your competitive advantage compared to your competition is very much smart business.  So here are some steps to take to improve your banking relationship:

1. Make Verbal Contact with Your Banker
   - Call your account/relationship manager at least once a month or even better twice.
   - If your company isn’t doing well it’s even more important to outline your strategy to your banker to improve and give them comfort in what’s your business direction.
2. Build Trust with Your Banker
   - Private companies have quite often reported the bare minimum information to their banks, because they have wanted to remain private in all respects.  In today’s economy, in order to get help either re-financing or potentially finance acquisitions its time to bring down the curtains and let the bank see what you’re doing well.
3. Prepared Detailed Forecast Information
   -  Public companies are used to sharing information with their banks so for them this less of an issue because of the quarterly presentation done by CFO’s for their public companies, but some have gotten away from this practice in the last few years but should think about re-instituting it only for the confidence it shows to stakeholders about their business direction.
   - These forecasts should include various scenarios of financial, operational, and employee headcount variables.
   - The forecasts should include worst to best case scenarios going out at least 2 years.
4. Hire Reliable, Knowledgeable Financial Advisors
   - Today its a good practice to ensure that information is presented accurately and consistently by advisors who understand your industry, your business, and advisors who have gone through economic downturns before where maybe your current management haven’t.  In today’s times, you better know you’re making decisions on good reliable financial information.
5. Communicate, Communicate, Communicate!
   - Now is the time to be proactive, treat your banker as your partner in business, keep them informed of major milestones, and what you’re doing to beat the current economic environment.  Be a leader, manage your banker rather than have the bank manager you!

Written by Richard Wong, CMA    rwong@firstchoicecapital.ca

A Vancouver, B.C. based company A Better Life Brands International specializes in selling delicious coffee and chocolate with a twist, 5 to 10% of all revenues go to the Give a Better Life Foundation where charitable projects are undertaken.  The current projects include building a clean water system in Bulate, Ethiopia a village of 850 people, winter shelter for homeless in Vancouver, and a safe shelter for women and children rescued from the human trafficking trade in Vancouver.

You can vote on which cause you want to help and what a better way to than to buy from a corporate socially responsible company whose founders Sara Davis and Darryl Davis talk the talk and walk the walk.   The coffee is fantastic, I tasted it at a Costco Wholesale a few weeks ago and was impressed with their company and thought wow, another great Vancouver socially corporate responsible company to talk about in today’s economy.

Better Life Brands has appeared on Urban Rush TV show on Shaw Cable, written up in Glow Magazine, but its great where a company like this helps take the lead in this still evolving world of corporate social responsibility.  Another corporate social responsible coffee company is Ethical Bean Coffee, and Frogfile Office Essentials, in Vancouver if you want another example of small companies making a difference here in Vancouver and elsewhere in the world.

The company websites are www.betterlifebrands.com and www.frogfile.ca

Written by Richard Wong, CMA    rwong@firstchoicecapital.ca

In today’s economy people who are looking to start businesses here all over the media that the credit crunch has hit everyone and it’s impossible to get financing. In our business we certainly see that for existing clients with large banks as their creditors it certainly is more trying in determining whether or not to cut back on costs, or deciding on going after acquisitions.

The basis for capital has always been based on “How’s your credit worthiness and what’s the Collateral.”  In Vancity’s case Community business loans are based on “Character & Business Viability.”

This major difference in helping small businesses in BC has amounted to loans of over $13 million for 800 companies.

The question is why would Canada’s largest credit union with over $14 billion in assets and over 390,000 members why would they do this, simply because by helping out small businesses establish themselves in the first 5 years they will in turn likely turn these customers into larger businesses with larger operating credit lines, create more jobs, and help the credit union grow as well.

If larger banks had a small portion of their business directed to helping smaller new businesses they maybe able to do the same, possibly, but Vancity has taken the risk and it seems to have provided a service where potential small business owners can look to for help in financing.

Written by Richard S. Wong, CMA      rwong@firstchoicecapital.ca

Facebook’s initial failed attempts to takeover Twitter were because the most common reason why mergers & acquisitions fail, VALUATION differences. This is the main reason why other mergers or acquisitions fail because of the parties not being able to agree on what each brings to the table. That’s why Facebook’s attempted acquisition of Twitter didn’t materialize this time around, but don’t be surprised if this marriage of social media companies still happens.

Simply, Facebook believed that their private company stock value was worth a higher amount than what Twitter management believed and when you’re trying to purchase another company primarily with company stock it really is a moving target because there is no real 3rd party independent opinion of what the common stock is worth, like a public company stock.

Twitter was in active talks with Facebook for a takeover based on a value which is still a moving target just like any other private company where it is hard to put a independent value on its common stock. However, Facebook for stock option purposes where employees wouldn’t be taxed had valued its common stock at $3.7 billion after Microsoft’s investment which calculating backwards had Facebook’s stock valuation approaching $15 billion, but that was in a hot stock market over a year ago.

Problem with Twitter is that Facebook offered them $500 million for the company which apparently was a good number until Facebook pegged its own company value at $8 or $9 billion making Twitter shareholders’ worth of Facebook’s company less. This is a common issue in negotiations for many private companies who are looking to sell a share of their company or their company in whole. The sellers’ valuation is commonly based on the company’s best financial year and multiplying by a number to get a sales price value, whereas a buyer usually will try to use either the company’s worst year or projections to help bring the price closer to what they want to pay.

In high growth companies like Facebook who are continually trying to organically grow and through acquisitions don’t be surprised if they come back to Twitter and give them a higher dollar amount based on dropping technology stock values and Twitter has something Facebook wants is the micro-blogging technology, but most importantly growing user base of Twitter.

Mergers & acquisitions whether its for large private company like Facebook or your small business in downtown USA or Canada still have its issues trying to come to a mutually satisfying dollar value. However, for the smaller business be expected in this selling cycle to have purchasers ask for what’s called “Earnouts” and “Vendor Take Back Financing.” Earnouts are basically bonuses for the seller if the company reaches certain targets or milestones for anything from number of subscribers to EBITDA to Net Profit. Vendor take back financing is where the seller agrees to a price and will help the purchaser by financing a portion of the sell price which helps the purchaser get outside financing. These 2 negotiation tools were widely used before the last economic boom and expect them to come back if sellers want to sell their businesses quicker in this economic environment.

Written by Richard Wong, CMA      rwong@firstchoicecapital.ca

Marketing and advertising is one item you shouldn’t cut from your expenses budget as according to research, companies which continue to promote themselves in downturns do better than their competitors once the economic downturns have subsided.  Here’s a list of 5 ways to promote your organization:

1. Send out promotions with your customer invoices, either electronically, fax, or mail.
2. Create a Facebook page for your company.
3. Give free workshops on your products or services.
4. Create a video for your business and upload it to Youtube.
5. Network in new circles and ask for referrals from your old customers.

What’s important to remember is that it’s still important to promote your organization in tough economic times and if you’re not comfortable doing some of these things then get someone else in your organization to do it.

Written by Richard Wong, CMA   rwong@firstchoicecapital.ca

Cash flow is important anytime, but especially in today’s economic environment of tighter credit.  We know today that the credit crunch has affected the economy and that banks are now able to pick and choose who they extend credit to, how much credit they extend, what conditions they extend it to, and how they can pressure you the CEO, CFO, or owner of the business into improving your financial results to comply the banking arrangements.

Here are 5 hints to Improving Cash Flow:

1. Invoice ASAP & Follow up next day to double check client has received the invoice

• Get in the habit now of invoicing as soon as the job is done and getting it into the hands of the customer electronically, either by fax or email or if handwritten invoices spend the time after delivery to now write the invoice earlier in the day before delivery, rather than “I’ll invoice you later.” Most accounting software from Simply Accounting & QuickBooks to Microsoft Great Plains, Sage ERP, to Oracle and SAP the email invoices feature can simply be turned on.

• Now considered a best practice, be proactive you don’t want to find out 30 days after the invoice date that the customer hasn’t received it.  Customers may find this irritating at first, but you can always tell the customer that you are just trying to ensure they are happy with the product or service they received and that there aren’t any issues with the invoice.  You can say that you’re trying to improve your customer service at this time.

2. Ask for a Retainer or Deposit

• Depending on the industry or whether it’s a new client or old this is one worth trying as if you can get a deposit for goods/services ordered then paid in installments is better than waiting for the payment to come 30 days after the job or product has been delivered.

3. Offer Cash Discounts for Quick Payment

• If you haven’t offered a cash discount for payment within 10 days, ie. 2% 10, net 30 means that the customer gets a 2% discount off the total invoice if  “they pay within 10 days only” or the customer has the standard of paying within 30 days.
• Think of it as a sales discount you’re willing to give to be able to get the money in your hands earlier rather than someone else’s hands.

4. Become a Pit Bull of Receivables (Keep after them!)

• Start reviewing your aged receivables reports weekly if you don’t have a Key Performance Indicator system (KPI’s for short) and seeing if you have late paying customers how late they are get your receivables people to start action right away by either emailing them right away then calling them the next day.  Some customers need to be reminded, that’s why if you’re proactive and invoice right away and follow up to ensure they have received the invoice and processed them you’ll have to do less collections work in the end.
• Why wait, it’s your money?

5. Pay Invoices Only When Due

• Review those vendor contract terms to see when those invoices are actually due for payment rather than paying them right away because you want to get them out of the way.
• Setup online banking payments so you can schedule when payments are due and you are able to download electronic information to your accounting software.

In summary, these are some quick things to implement to improve your cash flow and also at the same time improve your customer service and satisfaction.  Protection of cash should be the CEO’s biggest concern nowadays and any ways to improve the order to cash cycle should be attempted.

Written by Richard Wong, CMA     Email: rwong@firstchoicecapital.ca

Cash flow is one of the most important things to keep an eye on at any time, but especially in difficult economic times.    Think about suppliers to Nortel and the auto industry wanting to get paid earlier than usual and you understand how these suppliers are trying to stay on top of their cash flow.  Here are 5 things you can do to conserve your cash flow.   If you’re a small business or multi-national conglomerate the need to conserve cash is important in these times.  Equity funds and venture capitalists are hoarding cash waiting for the right opportunity to invest in those opportunities which fit their profiles at this time.

1. Prepare cash flow projections going out at least 2 years.

• It’s better to be proactive, to understand what happens if your cash flow drops a few per cent andbe able to take action early.

2. Review and tighten credit policies

• Review the payment histories of late paying customers and see if they’re stretching their receivables with you.
• Start flagging late paying customers and re-do credit checks on them.  Credit is a privilege, the restaurant industry is very quick to change their credit to C.O.D. if customers don’t pay on time, other industries could use the same policies.

3. Invoice for services provided or goods delivered when they’re complete, don’t wait, the extra few days or week adds up.  Start emailing and faxing invoices instead of snail mail.

• Follow up the next day after invoices to double check customers have received their invoices.  Waiting till the end of the month to check on invoices will delay payment.

4. See if you can extend suppliers’ terms to over 30 days.

5. Renegotiate contracts with banks, landlords, telcom carriers, etc. especially if the contracts are coming up for renewal within a few months.

In summary its easier to spend money than to collect so its even more important today to try to conserve cash and collecting accounts receivable is paramount today.  By tracking your cash flow it easier to make sure you don’t get unpleasant surprises.

Written by Richard Wong, CMA  rwong@firstchoicecapital.ca