Business success for locksmiths calls for appropriate financial support. Academy Leasing’s managing director Mike Nolan considers the funding options to help drive company growth and expansion.
Hiring a locksmith is something that can be rarely avoided and consequently, the sector rode out the roller coaster of the economic downturn better than most.
But while the industry offers lucrative business potential for budding locksmiths and aspirant entrepreneurs, it can still prove extremely challenging for business owners to obtain funding to start-up or grow from the banks. In many cases, firms simply lack the collateral that banks demand to lend against.
If banks happen to say ‘no’ to you however, all is far from being lost – alternative options are available.
Lease equipment to preserve working capital
The locks and security industry can be an equipment-intensive field of work with asset such as key cutting machinery or access control systems costing businesses thousands of pounds.
Leasing, rather than buying, equipment for business expansion however can free up cash to invest in elsewhere in a company to support growth.
By making monthly payments, companies can then be better placed to pay for the equipment with the improved cash flow generated.
A lender with good knowledge of the market will be acutely aware of any potential returns on investment new equipment may generate and will therefore be more likely to provide approval. In certain cases, the equipment will be in place before the borrower has even been required to make a payment, allowing them to immediately reap the rewards from greater revenue streams.
Making timely regular payments can also help to build up a strong credit history for your company.
Borrow against your hard assets
A company’s hard assets have a clear value that can be exploited to release working capital.
If an asset finance specialist believes an firm’s business plan is sound and the debt can be adequately serviced, it will lend money against existing equipment without the need for further securities. Typically, lending will be arranged based on a fair valuation of the equipment and the amount of debt serviceable.
In the event this debt cannot be serviced, the company will be given the chance to sell the equipment itself, ensuring a fair and adequate price is received.
This kind of arrangement can even apply to equipment which is not unencumbered and still subject to existing finance terms. In this case, the financier can lend money to spread the payments over a longer term, reducing monthly outgoings and providing more financial flexibility.
This might also be a viable option when attempting to fund equipment which has limited resale value, such as an office phone system. In these cases, it may prove difficult to borrow money for the equipment itself but the financier may decide the potential return on investment from implementing such equipment makes it a safe investment.
As a result, finance may be offered with a charge on the company’s hard assets, allowing cash to be freed for the purchase of the new equipment. By using cash, it may even be possible to negotiate a further discount with the supplier.
Plug a gap in your cashflow
If you need a larger pool of working capital to handle accelerated growth, a gap in cash flow might be plugged through invoice financing. This could take the form of either factoring or invoice discounting and acts as a means of providing an advance on future revenues.
In the case of factoring, the invoice financier will managing the company’s sales ledger and take charge of collecting money from customers itself. A percentage of the invoice total will be advanced up front, with the remainder paid on settlement. Invoice discounting differs in that the financier will not collect any debts but will instead lend money against unpaid invoices as an agreed percentage of the total value.
In both cases, the financier will charge an agreed fee for the service but they provide companies with the comfort blanket offered by extra working capital, particularly in cases where debtors are late in making payment.
Such agreements will not require the personal guarantees demanded by a bank lender and, although capped, they are reviewed on a regular basis to ensure working capital requirements remain adequate even when experiencing rapid growth.
Borrow to buy
In certain cases, expansion by acquisition may represent the best possibility for locksmiths targeting more rapid growth to maximise available opportunities and increase market share.
There is no shortage of opportunities here either and the necessary funding can be raised against the acquiring organisation’s book debts, hard assets or, occasionally, even the soft assets.
Such funding is two-fold. First, the acquiring company must find the necessary finance for the deal itself and then secure sufficient working capital to ensure the move does not end up putting both companies at risk.
This extra working capital could be used to cover relocation costs, bringing the two companies under one roof in order to benefit from greater economies of scale. Usually such expenses would be drawn from a company’s cashflow but, by borrowing against their assets, this situation can be avoided, providing the financial flexibility to cope with any issues arising from the new venture.