Ernest Partners supports your company assessing the business, funding and liquidity situation, developing and quantifying possible scenarios for financing your business, choosing the best scenario with your management and shareholders and reaching agreements with banks, institutions, suppliers or other stakeholders
Our partners speak both banking and corporate language, ensuring common understanding and clear communication between all stakeholders. We facilitate and formulate communication strategies to smoothen the transaction process
Our profound knowledge of the Belgian finance ecosystem allows us to have a good knowledge (often personal) of parties involved in a transaction: bankers, lawyers, funds, family shareholders. Building trust between people is crucial for a successful deal
The team gathers expertise in various types of transactions such as:
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What should I consider when attracting new funds?
- Bringing the story right: when approach fund providers the reason for the fund raising should be clearly presented and quantified as well as the demonstration of the ability to repay at maturity
- Diversify the sources: the fundraising process should consider different options. If one of the envisaged parties pulls back during the process, plan B should already be in place
- The adequate instrument: depending on the company’s profile, the right instruments should be identified ranging from equity, public funds, bonds, short term or long term bank debt, working capital financing, asset backed financing, platform financing or private debt.
How to optimize working capital?
- Reducing unpaid receivables (by invoicing more often and with shorter payment terms)
- Reducing inventory
- Funding the unpaid receivables through receivable finance / factoring
- Reducing short term debt by securing mid- and long term credit lines
Our team of experts helps your company on financing your Working Capital, the capital needed to operate daily business. In general calculated as assets minus liabilities. In practise this comes down to capital retained in unpaid receivables and inventory minus all short term debts like suppliers, tax office and banks.
Setting up a Factoring?
- Factoring is often limited at 80 to 90% of the invoice value including VAT
- Factoring is not expensive, having unpaid invoices outstanding is expensive
- Factoring comes in many forms and each factoring company has a different approach. What works with the one, does not work with the other. Make sure to have multiple offers on the table
We advise your company about customized financing solutions such as Factoring in order to finance your unpaid receivables by pledging or selling them to a financial party. Depending on the quality of your clients, maturity of the unpaid receivables and the legal relationship you have with your clients, setting up a factoring will be more or less complex
How to write a relevant business plan?
When building your business plan, you should focus on:
- Revenue streams: ability to capture value from your customer
- Cost items: identify fixed, variable, recurring, non-recurring elements impacting business profitability
- Investments: amounts needed in fixed assets to sustain the strategy. This component will usually require large capital needs
- Working capital : amounts needed in short term assets such as commercial receivables and inventories, partially financed by suppliers credit. Usually getting less attention, working capital can also be a large cash consumer for the business
- Cash flow generation: cash generated by operations after investments and working capital finance will determine the type of funding and the ability of the company to repay its debt or distribute dividend
- Funding requirement: identify the sources of funds necessary to realise the company’s objectives and materialise the strategy
Our team can help you building your business plan and challenge the hypotheses you are currently using to avoid typical pitfalls and biases
What are the different ways to present a business?
- Business story: the ability to correctly explain the ambition and unique selling proposition of a business is key to attract adequate partners (banks, suppliers, customers…)
- Equity story: when raising capital, management should clearly explain its ambitions, the needs necessary for their realisation and the value creation a company can realise for potential investors. The focus should be aligned with the investor time horizon
- Credit story: when approaching banks, debt funds, or other fund providers, the company should identify and explain its business strengths, its ability to generate cash flows which will ultimately be necessary to repay debt
At Ernest Partners, we help you formulating the right story to approach your various stakeholders and engage them in funding your business
Why Supply Chain Finance?
- Easy access to liquidity for SME’s and Midcorps
- Cost price to sell invoices under a SCF contract can be relatively attractive for companies having difficulties funding themselves in a classic way
- One of the key elements to consider before entering into a SCF proposal, is if you already provided a general pledge on receivables to another party
- Setting up a SCF program for your Supply Chain often comes with a minimum volume and can be a complex process
Setting up a Supply Chain Finance?
The Initial goal in applying Supply Chain Finance strategies is to create a financially stable supply chain. In practise SCF is mainly used to extend payment terms at favourable conditions for both the buyer and the supplier. To set up SCF for your suppliers or joining a SCF program of your client specialized advice is recommended. Ernest Partners can assist you in this process.
What is the importance of liquidity management?
Whilst an issue with profitability is like a cancer for a company, a lack of liquidity is like a heart attack. It strikes suddenly and is fatal for the business
- Liquidity planning: the treasury team should at any time have a view on the cash in- and out-flows for the coming months
- Stress case: to prevent liquidity issues, management should assess the impact of a large fluctuation in key parameters such as volumes, sales prices, raw material prices…
- Back-up solutions: keeping either cash or committed financing lines such as a revolving credit facility or straight loans allows the company to absorb unforeseen events or to seize opportunities
Our team has an extensive experience in cash flow management, crisis management and can accompany your team in rapidly finding the right partners to overcome a liquidity shortage
What is the right capital structure for my company?
With Capital Strengthening a company determines the equity and debt funding it wants, in order to finance its operations whilst managing several constraints such as cost of funding, flexibility, maturity…
- Alignment assets vs liabilities: as a basic rule, long lasting assets should be financed with long term funding (equity, long term debt instruments). Ideally, long term funding will even be slightly larger than fixed assets but not too much as this type of capital is usually more expensive
- Capital structure: the type of instruments used to finance a business should also match the company’s cash flow generation profile. At an early stage, companies with limited cash flow generation will require more equity (with a longer commitment) whilst mature companies with steady cash flow and strong assets can raise debt from debt funds
- Funding diversification: besides traditional bank credits, other sources should be used: public capital, debt capital market instruments such as private placement, commercial paper, bonds…
- Fair value of assets: the company should ensure that assets on the balance sheet reflect their current market value. Indeed, next to cash flow generation and contractual engagements, lenders will tend to look at the quality and value of assets as a secondary way of recovering their stake. Leaving depreciated assets on the balance sheet leaved pockets of liquidity untapped and trapped
Debt restructuring ?
Debt restructuring is the process through which a company will adapt its funding structure to better match its current situation
- Long term vs short term: as a basic rule, long lasting assets should be financed with long term funding (equity, long term debt instruments). Ideally, long term funding will even be slightly larger than fixed assets but too much as this type of capital is usually more expensive
- Bullet vs amortizing: depending on the cash flow generation capacity and in order to provide the necessary comfort to debt providers, amortization of credit will be necessary. This will however reduce the average maturity of the funds provided
- Secured vs unsecured: when cash flows are more uncertain, lenders will require a secondary way to recover its money. It can take the form of securities on assets, shares, businesses
- Going through tough times: when a company faces headwinds, lenders can decide to modify terms in order to keep the business afloat and recover their credit at a later stage. Such process requires the company to prove its ability to survive the difficult period
The etymology of the word “credit” goes back to ancient Rome. The verb credere meant trust, believe. Likewise, in a relationship between lender and borrower, even if the company has strong assets, contracts and cash flows, a transaction will be more difficult to realise without trust
- Several qualitive elements a key to build such trust:
- Quality of management
- Proven track record of successfully implementing strategies
- History of having overcome difficult times
- Market reputation
Our team can help you addressing the right partners to fund your company in its next adventure
Focus and key topics
Bank financing – Business plan – Equity story – Balance sheet structuring – Fund raising – Debt restructuring – Syndicated loan – Club deal – LBO/MBO – Leveraged finance – Supply chain finance – Working capital management – Factoring – Project management – Acquisition financing
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