How to help our Clients obtain financing -to acquire our equipment-!

In this month's article I return to my professional origins, when, for more than 20 years, I dedicated myself to finding and obtaining financing for Clients, either on behalf of Financial Institutions or Manufacturers.

It is a topic that can be very broad, so I will try to focus the shot and, in this article, I will mainly address Distributors and Renters of machinery ... and I will give you some fundamentals so that you can help your Clients to obtain financing -taking into account that, these days, the support of the Manufacturers is increasingly limited-.

If you think so (and changing the structure of my previous articles), this time the wording will be by way of presentation, so that, if you deem it appropriate, you can use this article in training sessions with your Commercial Teams and/or as preparation for meetings with Clients.

Here we go! ...

Topics

1.- Build relationships with Financial Partners.

2.- Obtain key information from Clients.

3.- Basic concepts of Balance Sheet (B/S) and Income Statement (P&G)

4.- More detailed analysis of the B/S and P&G.

1.- Build relationships with Financial Partners

The first thing we need is to know perfectly our Company, our Brand, our Competition and our Sector… and, certainly, to know it better than the Financial Partners with whom we want to work.

Plan-A (ideal scenario):

Have a financial partner of reference (or exclusive) for equipment financing ... An "Asset Base Lender”.

To have a Financial Partner of reference in equipment financing, we need to meet one of the following requirements:

- Be a consolidated business.

- Represent a consolidated brand.

- Have the support of the Manufacturer.

- Have the support of the Shareholders.

Plan B:

Have several Financial Partners (none of reference or exclusive), to assign the credit applications of our Clients based on the profiles of each Financial Partner and Client.

Plan-C:

Help our Clients to prepare and present their credit applications to their own Financial Partners.

@TIP: Let's never use our daily Finance Partner (not the Asset Base partner) to support our Clients!

2.- Obtain key information from Clients

Getting key information from our Clients will help us help them!

Knowing our Clients' business as well as possible will allow us to offer them the best financial product (sometimes different from the one initially requested by the same Client).

Knowing the business of our Clients will allow us to present their credit application to the best possible Financial Partner (depending on the matches of their profiles).

Here you have a (non-exhaustive) list of questions and necessary information in order to improve the chances of obtaining financing for our Clients:

- Years in business.

- Geographic influence (incl. Delegations).

- Human team (incl. Roles).

- Management team and shareholders (including brushstrokes of their CVs).

- Technical team (vehicles and fleet).

- Facilities (size, ownership or rental, ...).

- Business lines.

- Billing

- Clients (number and diversification).

- Competence.

- Plans / Short term future.

- Medium / long-term Business Plan (BP).

- Equipment occupation ratio.

- Sectors to which our teams are dedicated (and percentage weight).

- Payment and collection periods.

- Sector information (and trend).

- Official figures for the last 3 years + the current one.

- Existing debt ratio, by entities, products, paid and pending (and monthly payment ratio).

With the above, we would be ready to prepare a perfect credit request (or proposal) for our Client.

TIP: Let us instruct our Commercial Teams to try to obtain most of this information in their meetings with Clients (without looking like an interrogation)!

3.- Basic concepts of Balance Sheet (B/S) and Income Statement (P&L)

In short, the “Balance Sheet” (B/S) provides a general description of the Company's Assets, Equity and Liabilities… while the “Income Statement” (P&L) is a description of the Company's Income and Expenses.

What is Balance (B/S)?

The B/S is the financial statement of a Company that includes Assets, Liabilities and Equity, at a given time.

The B/S shows the total Assets of the company and how these Assets are financed, either through Debt (Liabilities) or Equity (Equity).

How to read the B/S?

- The information found in a B/S will always respond to the following equation → Assets = Liabilities + Equity.

- The B/S should always be balanced; Assets must always be equal to the sum of Debts and Equity.

What is the Income Statement (P&L)?

The P&L is an account that summarizes the income and expenses made during a specific period (month, quarter or year).

Provides information on the ability or inability of a business to generate profit, increase revenue, reduce expenses, or both.

How to read the P&L ?:

- Income from goods sold is calculated ...

- The expenses of the goods sold are calculated ...

- The Expenses of the goods sold are subtracted from the Income, to determine the Gross Result (profit or loss).

- Operating Expenses are calculated ...

- The Operating Expenses are subtracted from the Gross Result, to obtain the Operating Result (profit or loss).

4.- B/S and P&L in more detail

How the B/S is structured:

The B/S show small differences between Sectors. However, there are several general lines that are commonly seen in any B/S ...

Current assets:

- Cash and equivalents (amounts that Clients owe us, convertible into cash in less than one year).

- Accounts receivable (that is, income from credit sales, net of provisions for doubtful accounts).

- Inventory (i.e. raw material, work in progress, and finished goods)

Non-current assets:

- Plant, property and equipment (PP&E).

- Intangible assets (things like patents, formulas, and trademarks).

Current liabilities:

- Accounts payable (amount owed to suppliers for goods or services).

- Current debt (amount due within one year, including current portion of long-term debt).

Non-current liabilities:

- Long-term debt (principal + interest on outstanding debt, excluding its current portion mentioned above).

- Bonds to pay (only for large corporations).

Equity (Shareholders):

- Capital Stock (funds invested by shareholders in the Company).

- Retained earnings (amount of net income that is kept in the business).

How the P&L is structured:

The Profit and Loss Accounts (P&L) also show small differences between Sectors. And here too are general lines that are commonly seen in any P&L ...

Revenues / Sales:

- They are the company's income from sales or services, which are shown at the top of the Income Statement (P&L).

- Some businesses have multiple sources of income that add up to a total income line.

Costs of Goods Sold (COGS):

- It is the sum of the direct expenses associated with the sale of Goods or Services to generate Income.

- Direct expenses can include labor, parts, materials, and an allowance for other expenses such as Depreciation (which I refer to below).

Gross result (profit or loss):

- Gross Result is calculated by subtracting COGS from Sales Revenue.

Marketing, advertising and promotion expenses:

- This is self-explanatory (I guess).

Selling, general and administrative expenses (SG&A):

- Here we include the rest of indirect expenses, associated with the operation of the business. Such as; wages and salaries, rent and office expenses, insurance, travel expenses, and sometimes Depreciation and Amortization, along with other operating expenses (however, different companies may choose to separate Depreciation and Amortization into their own sections).

EBITDA (Earnings Before Interests, Taxes, Depreciation & Amortization):

- The meaning of EBITDA is; Profit before interest, taxes, depreciation and amortization ... And it is calculated by subtracting selling, general and administrative expenses (excluding amortization and depreciation) from the?

Gross Profit.

Depreciation and Amortization Expenses:

- Depreciation and Amortization are non-monetary expenses (fictitious or purely accounting), created by Accounting to distribute the cost of Capital Assets, such as property, plant and equipment (PP&E), in various accounting periods.

Other expenses:

- Businesses often have other expenses that are unique to their industry …Other expenses may include compliance, technology, research and development (R&D), share-based compensation, impairment charges, gains/losses on the sale of investments, currency impacts, and many other expenses that are industry or company specific. .

EBT (Earnings Before Taxes):

- The meaning of EBT is; Result before Tax, and is obtained by subtracting interest expenses from Operating Result. This is the final subtotal before reaching the Net Result.

With all of the above, I do not pretend all of you to become accounting experts (it requires more study and dedication than what can be extracted from an article) … What I have tried -and I hope I have achieved- is to bring Accounting and Commercial Worlds closer together, since they go hand in hand and a Sales Person who has accounting notions will do his job much better.

I understand that points 3 and 4 above may be somewhat dense and, therefore, I will leave the (exciting) Topic of Financial Ratios for another article.

I hope you have found it interesting, useful and of practical application, this is my first article, let's say, more technical. If so, I will repeat it on future occasions, but letting some time pass and returning next month to lighter and less dense topics.