finance flights

Inventory loans or the financing of your inventory as a component of working capital are critical to the success of your business if your firm has a strong inventory component in working capital.

Inventory is one of the two components of working capital – the other is of course receivables. More often than not the receivable asset is typically larger, on a monthly basis than the inventory assets – but some firms based on the nature of what they do have a very heavy investment in inventory.

Inventory converts into receivable which convert into cash. We all know that. The crux of the matter though is the time in which this happens. Your ability as a manufacturer, wholesaler, etc to purchase inventory, re work it, bill your customer, and then, ( unfortunately ) wait for your account receivable to get paid in many cases can take 2-3 month. The financial analysts call this whole process the cash conversion cycle – the only way you can slow that cycle down and improve cash flow is, unfortunately, to delay payments to suppliers as long as you can. That’s not a desirable operating strategy.

Inventory financing and inventory loans work best when they are often within the context of a true asset based lending arrangement for a combination of inventory and receivables. However the bottom line is as we have stated – financing in this critical area of business financing is available, it’s specialized, but when properly put in place can significantly grow sales and profits.

So is there a solution. There is of course, and in Canada it is a highly specialized solution involving the financing of inventory as a key driver to improve your cash flow and working capital. If done properly you do not incur extra term debt – the reality is that all you are doing is ‘monetizing ‘inventory to generate additional cash flow and working capital for your growth and profits.

One or two critical challenges continually obstruct our client’s ability to properly monetize their working capital. Let’s examine some of those challenges and determine how they can be overcome.

The first challenge is simply that it is becoming increasingly difficult to obtain inventory financing from traditional sources such as the Canadian chartered banks. In fairness to our friends at the banks it simply is difficult for them to properly value and monitor and understand each company’s different inventory financing needs and the cash cycle around that inventory that we have discussed. One further technical issue arises here, which is simply that if your firm has an operating lender in place that lender has probably, sometimes unknowing to yourself, taken a security on the inventory as a part of their security agreement. That’s not optimal, your inventory is collateralized, but you don’t receive any funding or margining against it.

We meet with many clients who are in this position, and need to work with them to unravel their current financing to properly allow for the monetization of their inventory via an inventory loan or margining facility.

Inventory financing in Canada is specialized – as we’ve noted. We strongly recommend you seek and work with a trusted, credible, and experienced advisor in this area.What are the benefits of such a relationship. First of all your inventory will be properly ‘understood ‘and valued, allowing you to borrow against its value accordingly. It is an unwritten but generally acceptable rule that most banks lend approximately 40% against inventory assets. Two points here – if you can get bank financing on inventory and get that 40% advance we would pretty well recommend you take it; however if that becomes insurmountable, as it does for most clients, you actually can get anywhere from 40-75% from a true inventory financier.

Are there any special requirements to get proper inventory financing? In general no – a standard business financing application applies, and you must be able to demonstrate, preferable via a perpetual inventory system, that you can account for and report on your inventory on hand, usually on a monthly, but perhaps on a weekly basis.

As second-year MBA students chatter at cocktail parties, one of the major topics of discussion is who landed investment banking offers. Although the reputation of investment banking has taken a beating following the 2008 financial crisis, corporate finance jobs are still an incredible way to gain valuable business experience and earn a handsome paycheck.

Since the financial crisis, many perceive investment banking to have changed forever, and in many ways, it has. But there will still be IPOs, mergers and leveraged buyouts and a need to raise capital to grow businesses, and that means there will be jobs for those who have what it takes to succeed in corporate finance.

For the MBA, the typical entry job into the corporate finance department is an associate position. It’s a demanding slot, but it’s one rung above an analyst position, pays well and leads to great client exposure and business experience. So what will it take for an MBA to secure an associate position?

From B-School to I-Banking

Yes, corporate finance looks for bright individuals who can clearly articulate business insights and who will dazzle clients with social skills. But at the associate level, investment banks are also looking for MBAs that have strong finance experience and are driven and disciplined.

In terms of experience, bankers are ideally looking for candidates with previous corporate finance experience. Such experience could be a pre-MBA stint as an analyst or a summer internship with an investment bank. Firms also tend to value candidates with Big Four accounting experience, commercial banking experience or other positions that require significant exposure to finance and accounting.

Similar to the analyst hiring process, interviews for associate positions can be intense, and the ante is upped for candidates who have completed graduate programs and will be expected to work more closely with clients. Associate candidates should put in several hours of practice interviews and be prepared for all sorts of questions. For those who have already gone through the interview process as an analyst, the interview won’t be as intimidating (otherwise, get ready!).

Interviews may involve several rounds, culminating in a “super Saturday” round in which the top candidates meet with all the bankers at the firm for another round of interviews and socializing – giving the firm an opportunity to see which candidates are the best cultural fit.

As with most interviews, candidates must be prepared to impress the firm with their intellect and skills, but more importantly, they must prove that they are a likeable person that will work well with the firm’s employees. For candidates who receive offers, it’s time to get ready for life as an investment banking associate.

The Corporate Finance Quarterback

There’s a good reason why associates earn a healthy salary and a large bonus each year. In short, they are the quarterbacks of the corporate finance office. They may have analysts to whom they can assign projects, but they have to juggle multiple projects from multiple bankers with complicated schedules. Managing the analysts is no easy task either, as each of them are pushed to the max with their project workloads.

Like analysts, associates may start their day at 8 am and not finish it until 1 or 2am – and sometimes may not go home at all. They come in on the weekend to stay on top of projects and ensure that documents and presentations are completed with enough time for thorough editing. Associates usually put in as much time as analysts – often 80 to 100 hours a week at New York firms or 60 to 80 hours at firms off of Wall Street.

The Deal Cycle

Associates play a key operational role in the deal cycle of the corporate finance department. In the deal cycle, investment bankers – the vice presidents and managing directors – will either approach or be approached by companies with ideas for potential transactions. These deals may include IPOs, follow-on offerings, private placements, mergers and acquisitions.

Bankers will set up a meeting with the company called a pitch, in which they pitch the services of the firm to the company and present their analysis of the feasibility of the potential transaction.

At the pitch, the bankers will present the potential client with a pitch book – usually a hard-copy PowerPoint presentation that describes the credentials of the bank along with a detailed analysis of the market in which the company operates and often a valuation of the company itself.

If the company is impressed with the firm and interested in pursuing a deal, then it will engage the firm to execute the transaction. Depending on the type of transaction and the conditions of the market, these transactions can take anywhere from a few months to a few years to complete. At any point in time, bankers can be working on several pitches and deals all at once.

What do Associates Do?

Analysts tend to work on the front end of the deal cycle, working on pitch books for the bankers. Associates also work on the front end of the deal cycle, overseeing and editing the work of analysts in the preparation of pitchbooks.

But associates also assist in the execution of deals – preparing sales documents for various transactions, editing prospectuses and even discussing due diligence materials with potential purchasers in M&A and other transactions. As associates gain the respect of senior bankers, they may get to accompany the senior bankers on pitches and become more involved in business development.

A first-year associate may initially perform many of the same analyses as analysts – comps, DCFs, LBO, etc. – but associates eventually transition to more senior level work. Rather than cranking through the template financial models that analysts work with, some may redesign these models or build models specifically for particular deals.

Much of the legwork that associates perform involves spreading client financials to share with potential investors or drafting private information memoranda for M&A transactions or private placements. Because of the nature of this work, associates often work closely with clients, speaking with CEOs, CFOs and other members of the management team to assemble relevant information for sales documents.

Associates quickly learn to charm clients while at the same time leaning on them to provide timely, detailed information for sales documents. Corporate finance transactions can be extremely stressful on clients (and associates), and associates must be able to navigate tough situations where clients have become fatigued and emotional by the deal process.