There’s No Time Like the Present to Finance Your Plastics Business

July 11, 2019 • Posted in Fireside Chats, Trends & Updates

Smart financial strategies are critical to any company’s long-term growth, and despite disruption from global competition, escalating trade wars, and consolidation, the plastics industry presents a profitable opportunity for those who can navigate its risks and rewards. In our latest Fireside Chat, we discussed the ideal time to seek out capital, how to best manage working capital cycles and the benefits of automation with our panelists:

  • Kate Choi, Senior Product Manager at BMO
  • Pat McKune, CFO at M. Holland Company
  • Bob Ruehl, CFO at Hansen Plastics
  • Carl Skoog, Senior Banker at BMO

Lenders Are Ready to Invest

Several conditions within the market identify the present as an ideal time to invest. Among those, an uptick of consolidations and acquisitions are paving the way for cutting-edge plastics businesses and materials. Additionally, the rise of U.S. shale oil production is reducing reliance on overseas supply, further fueling lender appetite. Capital is readily available, and investors are keen to put their money to work and build new relationships with qualified companies. “Strategic growth requires capital,” said Pat McKune, CFO at M. Holland Company. “Now is a great and necessary time as a net borrower because capital is available at a very advantageous cost.”

Carl Skoog, senior banker at BMO, agreed with McKune. He added that markets, banks, and other providers are ready and willing to deploy capital and partner with high-growth companies with long working capital cycles looking to mature through acquisition or geographical expansion. Additionally, interest rates are at an all-time low of around 2.5% – “something we may never see again,” Skoog said.

Most growing plastics businesses will have two core financing needs:

  • Capital to grow through acquisitions and investments in facilities and new machines/tooling
  • Working capital to fund day-to-day operations and mitigate materials volatility

According to panelists, a range of sources, from traditional banks and equipment finance providers to supply chain finance tools and other non-bank lenders, can satisfy both needs.

But what are lenders looking for in a potential investment opportunity? “First, it’s a soft issue of leadership and the people running the business– that they are confident and capable of doing it effectively,” said Skoog. He added, “the rest is the stability of cash flows, quality of assets, concentrations of end markets and customers, and sometimes supplier concentrations if that’s a risk.” Moving cash and working capital quickly enough to achieve profitability is vital for businesses to attract investment.

Working Capital Management Best Practices

Working capital is typically tied up in three main assets: inventory, accounts receivable, and accounts payable. To achieve a steady stream of working capital, our panelists recommended aligning accounts payable and receivable cycles and moving inventory quickly enough to cover the gaps between the two. They outlined a few best practices:

  1. Practice Discipline: Whether it’s ensuring the accuracy of every invoice or meticulously forecasting inventory, disciplined internal processes are crucial to managing working capital cycles.
  2. Balance Relationships: Balance the value of customer and supplier relationships with accounts payable and receivable terms, cash flow, and the needs of your business. It’s a delicate but essential juggling act.
  3. Optimize Your Operating Cycle: Cash is king, and you shouldn’t leave it in the form of product or inventory sitting in your facility or warehouse. Instead, use it to help grow your business.
  4. Leverage Supply Chain/Vendor Terms: Some suppliers, typically larger ones, can negotiate extended payment terms while also offering to have a supply chain finance provider discount the receivable. See if these types of options are available.

Finance Automation and Cybersecurity

There are many moving parts when it comes to managing working capital. Manual accounts payable and receivable processes can become tedious and wrought with error and inefficiencies. Luckily, automation tools have become a reliable strategy for growing businesses to avoid unnecessary mistakes.

According to Kate Choi, senior product manager at BMO, finance automation has come a long way over the past few years. Automation offers many benefits from a risk reduction perspective by decreasing a company’s exposure to fraud and human error. It can also cut the amount of time spent on manual activities like data entry or reconciliation, thus freeing up finance personnel to focus on strategic business objectives.

“From a payments and reconciliation perspective, there are risks inherent when using a browser service,” said Choi. She added, “many companies have experienced attempted fraud situations and will remove the wire in a browser function completely and shift to doing everything in their ERP or accounting system to protect themselves from fraud attempts, remove manual steps, and avoid human error.”

Further to Choi’s point, Bob Ruehl, CFO at Hansen Plastics, added, “anything we can bring to the table to free up time for employees to focus on strategic business objectives is an easy and intriguing win for our business.”

Automation can also reduce a company’s browser risk and exposure to phishing scams– two of the biggest cybersecurity concerns facing finance teams. Panelists offered the following recommendations to combat payments fraud and cybersecurity threats:

  • Leverage finance automation tools
  • Train employees on an ongoing basis about common scams and attacks
  • Conduct regular cybersecurity checks and tests

Cyber-attacks can happen to any company at any time, and preparation should be a top priority.

As the North American plastics industry continues to grow and evolve, there has never been a better time to take advantage of profitable capital investments and leverage operational best practices and tools that can help optimize plastics companies for growth. Companies employing strategic finances and smart business practices stand to pull ahead of their competitors in the eyes of potential investors and customers alike– which is a win for everyone! To learn more about what was discussed and watch the latest Fireside Chat, please click here.

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