Your small business: your money

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When it takes financial capital to grow or rebuild, funding your plans is about good cash management and relationship building.

Trimming, economizing, reinventing and fighting to keep every possible dollar you can out of the hands of your competition.

While the last 12 months have been all about survival mode for many small businesses, the upside is that entrepreneurship is always about maximizing cash, and the discipline of lean times can reap long-term rewards.

Keeping working capital flush will always remain among your top concerns in winning the confidence of bankers, suggest small business financing experts. Cash is an absolute necessity when it comes to seizing new business opportunities and putting yourself in a good light with financial institutions and other investors.

“When your sales volume goes down, so does your working capital, and without that, you lose a lot of your flexibility as a business,” says Edmee Metivier, executive vice-president of financing and consulting with the Business Development Bank of Canada (BDC) in Montreal. The bank, a commercial lender that provides long-term financing to small and medium-sized businesses, issued a record $1 billion in loans between April and the end of June 2009–37% more than the same period a year earlier and the largest quarterly increase in the organization’s history.

Much of that loan demand has been from entrepreneurs seeking working capital, says Metivier, illustrating BDC’s mandate to support entrepreneurs faced with tighter credit market conditions in a tough economy.

Small or medium? Measuring up business size

Depending on who’s taking the measure, the size of a business can be defined in many ways: annual sales or shipments, annual gross or net revenue, capacity to borrow or number of employees.

According to the Canadian Bankers Association glossary, banks define small businesses as those with authorized credit limits of $500,000 or less. Industry Canada typically uses a definition based on the number of employees: a firm is considered small if it has fewer than 100 employees, and medium if it has up to 499 employees. A firm with one to four employees is defined as a micro-enterprise.

The term SME (for small and medium-sized enterprise) is used to refer to all businesses with fewer than 500 employees.


Keeping Cash on your Balance Sheet

Having available cash allows financial institutions and other lenders to view you with confidence, says Metivier, and also lets you take advantage of buying opportunities in your market. She offers a few strategies that can help keep your balance sheet attractive.

* Avoid financing fixed assets with working capital. While it can seem intuitive to pay off purchases with cash to own them “free and clear”, long-term loans or leasing is often a better way to pay for fixed assets. With cash in hand, you can use it to your advantage today, and do things like negotiate volume discounts with suppliers–which ultimately can help cover off your longer-term interest costs.

* Borrow to increase your working capital. You can’t generate revenue if you can’t afford the inventory, innovation or staffing to supply your clients and grow your market share. Set your increased revenue targets to pay off the loan.

* Refinance your fixed assets. “Use your assets as a lever,” says Metivier. Business owners can benefit from the extra working capital to improve their plant layout, pursue new export markets or align their HR strategies.

* Win friends and influence bankers. Whether you’re looking for help from traditional financial institutions, other lenders or angel investors, success lies in the strength of your business plan, your ability to pay your bills, and your efforts to foster a good relationship.

Nearly three-quarters (72%) of small and medium-sized enterprises use a bank as their main financial institution, according to the Canadian Bankers Association, and about two-thirds (65%) use the same financial institution for both personal and business banking. The defining factors for satisfaction: access to credit and a face-to-face relationship.

* Trust your banker as an advisor. It undoubtedly helps to have a commercial bank manager who understands your business and works with similar types of companies. Most banks have invested in their knowledge of certain sectors or business specialties.

* Always be prepared. When you’re asking for advice or credit, carry a summary of your business plan, organizational chart and most recent financial statements, and know your numbers off by heart.

* Don’t give up. Lenders have different criteria for how they score the risk they are willing to take. If you’re turned down, ask why, make adjustments if you can, but move on and keep trying.

Just the Facts

* 98% of businesses in Canada employ fewer than 100 people.

* Between 2002 and 2006, 130,000 new small businesses. on average, were created in Canada each year.

* Small businesses with fewer than 50 employees account for about 26% of Canada’s GDP.

Source: Industry Canada.


So, they’re not handing out toasters, but Canada’s major banks are wooing small businesses by offering new tools and business basics. Here’s a sampling of help and advice you can get–mostly free–to build your business.


Unlimited transactions. This fall, the bank launches a new lineup of business bank accounts, including an operating account with unlimited monthly transactions. “Business owners have told us they want the certainty of a single, low monthly fee to cover all of their day-to-day banking,” says Colette Delaney, senior vice-president, CIBC Retail Markets. For a monthly fee of $35, it includes withdrawals, account transfers, bill payments, no additional handling fees for up to 100 cheques, among other features.

BMO Bank of Montreal

Business coach podcast: In collaboration with PROFIT magazine, this series draws on experts in a number of fields to provide the information and advice to run your small business better. Now also available in French.

Contingency planning guide: Get your backup plan ready, and search the website for the BMO Guide to Business Continuity Planning to download this handy reference. The bank’s research suggests that 82% of Canadian small businesses do not have a health-related contingency plan in place, for example, to respond to spread of an influenza outbreak.

RBC Financial Group

Risk-assessment guide. The RBC Insurance Business Risk Management Guide helps you identify nine key business risks in four categories, providing financial and insurance strategies you can use to protect your organization. Quick assessment tools help you see where your business could be most vulnerable. risk-management-guide.html

Online advice centre. RBC Royal Bank’s recently launched Advice Centre for business owners adds new features each month, on topics like managing debt, making business plans for retail/franchise, and other practical measures. resources

National Bank of Canada

SME awards. Some $750,000 in prizes and publicity are doled out each year to recognize the successes of business banking customers in Quebec through National Bank’s SME Awards. While this year’s contest has closed, pick up business tips from the case studies of winners, to be announced Nov. 6. Entrepreneurs’ survey. This fall, results of an entrepreneurs’ survey on the challenges of the future will be shared in a cross-province venture with the Federation of Quebec Chambers of Commerce (FCCQ).

Seeing angels: The real-life dragons’ den

While the well of institutional venture capital dried up significantly through the recession, the rise of angel investors–wealthy individuals who put up their own money for a stake in a startup–has been one of the emerging “good news” stories in small-business finance. And now, an increasing number of angel investors are organizing themselves into networks or groups to find deals, share research and pool investment capital.

“It’s a phenomena we’ve seen grow over the last six or seven years, where you see any number of angel investors get together to look at opportunities, sharing their knowledge and expertise,” says Bryan Watson, executive director of the National Angel Capital Organization (NACO) in Toronto. “People think of that television show, Dragons’ Den. In principle, it’s similar–although without the drama.”


Watson cites 2006 estimates that angels funded some $2.2 billion of small-business investments in Canada. But, to get start up money, you need to show initial sales or commitments or collaboration with a major customer. “Angels look for a product in development, or the physical thing–that has initial traction with customers, or ideas that have proven that somebody is willing to pay.”

Brilliant leadership, alone is not enough, says Watson. “They’ll want to see an experienced team built around a company that is compelling.”

Research the investors you are presenting to. Know their preferences and choose ones who understand your business and whose experience and contacts will be able to help you. “If you’re going to approach someone to invest their own after-tax dollars,” says Watson, “you’d better get your head around what motivates them.”

Inspired Entrepreneurs

When choosing a financial institution, 31% of small and medium-sized companies base their choice on credit services; 62% chose their institution for non-credit banking services.

Source: Canadian Bankers Association

TD Canada

New webinar series: You don’t have to be a current client to log on and join experts in live interactive sessions and receive practical advice on managing a small business. You can ask questions, answer real-time polls, and download resource guides and reference material. Upcoming topics include protecting your business against fraud and honing your unique selling proposition. Or view archives on how to improve cash flow, get government grants, and secure innovative financing options,


Get growing tools. Register to use the online business tools at:, which includes a cash flow analyzer and a step-by-step business planning tool that lets you save and download reports.

Book smarts. Scotia Small Business Banking executives Kyle McNamara and David Wilton co-authored Get Growing: Keys to Unlocking the Potential of Your Small Business, featuring best practices from a number of entrepreneurs they met during a five-month cross-country tour.

Credit Unions

Main street wisdom. Canada’s credit unions pooled resources to highlight their small business banking services and build a content-filled website with expert advice, webinars and chat areas. Look for their publication called What Would Harold Do?, described as “the business book by business owners for business owners.” It offers main street wisdom from the experiences of 102 owner-operators. Ask for it at any participating credit union: there’s a ‘CU Locator’ on the website.

Attracting angels for growth

Company:, Guelph, Ont. Business: E-commerce

The recession has been pretty good to Ali Asaria, founder and chief executive officer of, which has grown to become Canada’s largest online health and beauty store since he launched the company in 2007. In July, closed a $1.1-million private financing round led by an angel investing group–the second such infusion of private equity since its inception.

“We have a great relationship with our local bank but, in reality, it’s very hard to get that kind of financing for a company that hasn’t existed for at least two years, so we couldn’t really look to them as a source of capital,” says Asaria, a computer engineer who has worked with RIM. And it’s not just about money: gaining the expertise and connections of experienced angels, including eBay Canada managing director Jordan Banks, is part of the plan.

Aside from a customer-focused marketing model that offers free shipping within Canada on any size order (“We’ll deliver a tube of toothpaste to Nunavut,” says Asaria), hand-written thank-you notes (“We love hand-written stuff,” he adds) and more product selection than any physical pharmacy (19,000 items and counting), the company’s business model has always focused on cash flow. Says Asaria: “We had revenue from day one: we were selling things.”

In a fast ride, the business plan has morphed along the way. “When we started, we thought our target audience was going to be young males,” says Asaria, taking a cue from the Grocery Gateway model to serve bachelors who don’t shop. “It turns out that 65% of our orders were coming from women age 30 to 45, including young office morns, the Chatelaine readers. I spend a lot of my time now just learning about what people want.”

Sources of Financing

Small and medium-sized businesses go where the money is,
by tapping into a wide range of financing sources.

Angel investment                   15.1%
Government lending agencies        20.9%
Loans from friends and relatives   24.2%
Personal loans                     33.2%
Teasing                            30.4%
Personal lines of credit           45.2%
Business credit cards              48.4%
Retained earnings                  53.7%
Personal credit cards              50.0%
Personal savings                   56.9%
Supplier credit                    51.9%

Source: SMF Survey Results: Assessments of Relationship with
Financial Institutions. Strategic Counsel, Canadian Bankers
Association, 2008.

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