First Choice Capital Advisors » Cash flow

HST & How it Helps Businesses & Citizens

Richard Wong — Wed, 28 Apr 2010 00:06:45 +0000

HST vital to sustaining economic prosperity in BC

The BC government intends to harmonize the provincial sales tax (PST) with the federal GST, effective July 1, 2010. This will result in the elimination of the PST and the establishment of a new, single harmonized sales tax (HST) initially set at a rate of 12%.

The business associations listed at the end of this document, and the tens of thousands of enterprises – large and small – that they represent, are supportive of moving to the HST

because we believe it will mean a stronger economy, more jobs, and higher incomes over time. There are a number of reasons why eliminating the PST and adopting the HST makes sense.

Increased competitiveness: By removing the PST that companies now pay on their inputs, the HST will make British Columbia more competitive. While the PST is often viewed as a “consumption” tax, in fact it applies to both consumption and production. Approximately 40% of PST revenue is paid by businesses on goods and services which they purchase to run their operations – everything from equipment, machinery, vehicles, and building materials to office supplies, furniture, energy, legal services and more. As this PST-related tax burden is removed, the vast majority of businesses will be in a better position to invest, to grow, and to sustain and create jobs.
More investment: A second and related reason to adopt the HST is that it will stimulate investment. Experience in Atlantic Canada and other jurisdictions confirms that shifting to a value-added sales tax like the HST paves the way for increased capital spending on machinery, equipment, structures, new technologies, and other productive assets. Additional business investment should lead to faster economic growth, more jobs, higher productivity, and greater exports – all of which are good for workers and consumers alike.
Reduced ‘paperwork’ burden: As British Columbia integrates its sales tax with the federal GST, compliance and ‘paperwork’ costs will decline for tens of thousands of BC businesses. Under the present system of separate provincial and federal sales taxes, businesses are forced to deal with two different sets of tax rules, administrative authorities, and compliance requirements. Tax filing, compliance, and other regulatory costs will be significantly lower under the HST, which should be especially beneficial for smaller businesses.
Federal government funding: By moving to a harmonized sales tax, the province is in line to receive $1.6 billion from the federal government. This reflects a longstanding federal policy to encourage the provinces to integrate their sales taxes with the GST in order to strengthen the Canadian economic union. Additional federal dollars will be helpful in allowing the province to maintain important public services and to pay for measures that may be used to facilitate the transition to the HST for a small number of vulnerable industry sectors.
Aligning with other provinces: Finally, the fact that Ontario plans to legislate its own version of the HST next year, and that Quebec and three Atlantic Canadian provinces did so in the late 1990s, is also an important factor. These provinces represent about 70% of the Canadian economy. The HST will put BC on a more even tax footing within Canada and ensure that needed investment dollars and jobs aren’t lost to other jurisdictions.

A healthy business sector is a vital part of any thriving economy. By providing jobs and buying inputs from local suppliers, competitive enterprises make a big contribution to the tax base that governments rely on to pay for programs and services. The HST promises to strengthen the foundations for BC’s high standard of living by helping to expand the economic pie and spurring the creation of more good-paying jobs.

Consumption taxes are sometimes criticized for being “regressive,” by disproportionately affecting lower income households. To address this concern, the provincial government has

pledged to provide a new, refundable HST credit which will be paid quarterly along with the existing GST credit, to lower income individuals. We believe this represents a balanced and

equitable approach to ensuring that lower-income citizens do not face an added economic burden from the HST.

In conclusion, while we recognize that a few industry sectors may face challenges as the HST is implemented, overall we are convinced the HST will generate positive economic results for businesses, consumers, and workers in British Columbia in the years ahead.

Re-printed with permission.

Email: Richard Wong, CMA rwong@firstchoicecapital.ca

Reasons Why Private Companies Stay Private for Easier Financing

Richard Wong — Wed, 20 May 2009 21:00:14 +0000

Private company financing is in many ways easier to get as you don’t have the regulatory hurdles you would as a publicly traded company on a stock exchange. The most important reason why some companies stay private instead of going public though is being able to keep control of the business, making decisions which generally are best for the long term success of the organization.

Shareholders complain to management and directors through primarily stock performance, rather than necessarily the business performance. Stagnant growth or maintaining profits are not sexy enough for most stock analysts and shareholders, while in a private company the owners’ can think about the long term health of a company and make decisions based that way. Think of it another way, the owners’ don’t have golden parachutes, their retirement strategy is to build the strength of their companies in order to hand it down to family or sell it for a healthy profit. This kind of decision also mirrors how private companies are financed such as below:

Credit card
Operating lines of credit
Operating assets lease financing
Accounts receivable financing
Mezzanine Debt
Subordinated debt
Private equity financing

These financing methods apply to start ups to established companies and each a have purpose in the growth or the business life cycle and also reflect the amount of equity a company is willing to give up in order to attain growth. The earlier stages are boot strapping a company to growth with equity being grown by the owners and the later stages are potentially giving up equity for orderly succession or exit strategies.

Written by Richard Wong, CMA rwong@firstchoicecapital.ca

Xenon Pharmaceuticals CEO Interview on Canada’s Reduced Funding Part 2

Richard Wong — Wed, 29 Apr 2009 23:40:05 +0000

Part 2: Simon Pimstone, President & CEO of Xenon Pharmaceuticals Interview

As a large part of the life sciences group in BC Simon Pimstone met with Liberal leader Michael Ignatieff on life sciences and explained the issues of funding, and you would think that it would fit in with Ignatieff’s desire to build a larger knowledge based economy and a louder opposition to the Canadian federal government’s budget would have sent that message on behalf of the life sciences community that it does have greater support, especially in the downgrade in future funding in this area.

The Canadian TV & film industry according to industry reports employed 126,900 FTE’s (full time equivalents) and the value of production was $5 billion in the 2006/2007 years. This compares to the Life Sciences industry in Canada which produced sales of $1.9 billion but the tax breaks are not equal with the Canadian federal government and provincial government film and TV tax credits allowing up to 53.5% of BC labour expenditures on a yearly basis.

BC universities produce between 3,000 to 4,000 science graduates of which many do not find employment in Canada, yet all the life sciences is asking for is a fair share of funding to continue to find cures for different diseases that helps all Canadians and the world. The public cost of educating students who end up working in another country is approximately $48 million (3,000 students * $40,000 expected cost of education * 40% funding from governments, estimated) . This a huge cost only for a single province, not the entire country where the Canadian people are funding scientists to work in other countries at the end of the day.

What’s important is not providing funding on an ad hoc basis but continued basis even if its smaller amounts to foster an environment of innovation and then onto commercialization opportunities through Genome Canada, CIHR (Canadian Institutional Health Research) and tax incentives.

Our health system is arguably one of the best in the world, some say the United States, but only if you’re willing to pay $2,000 per month.

SRED is a good funding tool starting from 1995, but really now inadequate for Canada’s life sciences sector as drug development takes much more time and money in order to recoup research funding. It is only good for Canadian controlled private corporations, (CCPC’s) which many are not anymore because they’re too large and Aspreva Pharmaceuticals & Biovail Pharmaceuticals are some of the few companies which have profits in order to recoup some of these research that takes several years to make create a single drug. A cap limit on SRED would even be more palatable to the sector ie. $100 million if they took off the CCPC eligibility requirement and the threshold are too low with barely any increases since 1995.

Even if tax incentives, to entice offices in Canada such as providing tax holidays for bringing in new manufacturing facilities where they employ 200 people which are paying income tax now where they don’t pay personal income tax for the first 2 years with a commitment for 5 years residency then people would be paying taxes and spending that income in the country and province.

Allow investments earned from life science investments in 2009 and 2010 to be exempt from capital gains tax but was ignored by the federal government in the budget. Use some of the carry forward losses that life science companies have accrued and provide a formula where say 1/2 of all carry forwards are eligible ie. 40 million and provide a cash reimbursement for 25% of the 1/2 which would result in needed funding to continue doing research to reaching the milestones.

The facts are that SRED was really designed for large company models, large drug companies, large aerospace companies, not really the Canadian life sciences sector which the majority are small companies from 5 to 150 people. The inadequacy of updating the Canadian Scientific Research & Exploration Development tax credit system is costing the Canadian economy jobs in the short and long term, but more importantly the potential cures to the various diseases and cancers out in the world.

Written by Richard Wong, CMA rwong@firstchoicecapital.ca

Its Important Today To Get Friendlier with Your Banker

Richard Wong — Wed, 25 Mar 2009 06:01:46 +0000

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:

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.
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.
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.
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.
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

CEO Hint #2: 5 Things to Improve Your Cash Flow

Richard Wong — Wed, 11 Feb 2009 18:15:04 +0000

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

CEO Hint #1: 5 Things to Conserve Your Cash Flow

Richard Wong — Tue, 10 Feb 2009 07:23:25 +0000

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