This article is from the Using Financing in Recycling as a Strategy to Maximize Growth session at ISRI2021. Many of the programs in ISRI2021 will remain available to convention registrants through May 20 on demand. The exhibit hall will remain open during that time as well.
Financing is not only a product for cash-strapped companies; it’s good for firms’ overall cash management, experts at ISRI2021 agreed. Moderated by Paula Summers Murphy, director of strategic partnerships at Vision Financial Group Inc., and incoming co-chair of ISRI’s Women in Recycling Council, the convention and exposition’s financing session reviewed the impacts of buying, financing and renting on business operations.
According to Kevin Canepa, sales director at Vision Financial Group Inc., 79% of U.S. companies opt to finance, with $900 billion in assets financed in 2019. Financial experts recommend you have a cash reserve of 3–6 months of expenses – not just for emergencies, but for what economists call opportunity cost. “If I were to pay $300,000 for [a] car crusher today, what’s the opportunity cost for not being able to have that cash, versus leasing [the crusher] and paying $10,000 a month, and finding out that you’re matching your cash and revenues and you’re getting immediate cash return on your investment,” he explains.
Whether a lender is a bank, an arm of a machinery supplier, an independent leasing company or a broker, financing machinery, acquisitions, real estate, and more helps conserve cash, get ahead of taxes, and maintain business-cycle flexibility, among other considerations. Brandon Roznovsky, chief financial officer of Brannon Industrial Group (BIG), says his family-owned business in Brenham, Texas, has recycled metal in everything from a small airplane to water towers. BIG works with community banks on acquisitions and real-estate deals.
BIG tries not to have more machinery than necessary in its yard. If equipment is down for maintenance, short-term rentals are more cost effective than other solutions. When BIG goes looking for replacements for worn-out machinery, leasing makes more sense than buying when considering the effects of constant metal-on-metal contact and the hot Texas sun. “We, like a lot of folks in our industry, struggle to find quality mechanics and service techs. Some of the operating leases that we had actually provided a vehicle to outsource our fleet maintenance, along with forcing the lessor to keep the backup units and maintain those,” Rosnovsky says.
Whether you’re buying, leasing or renting, Canepa advises first asking yourself these questions in this time of economic uncertainty:
- Do you have a COVID-19 action plan?
- How does COVID impact your business?
- Can you explain your need for equipment now?
- How is the pandemic impacting your supply chain?
- How does a stay-at-home order affect your business?
- Is your business considered “essential?”
The experts, including Bob DiTroia, Sierra International’s northeast sales representative, and Mike Taranovich, vice president of sales at ProTerra Recycling Systems, agree that when financing a transaction, honesty, consistency, speed and flexibility, and above all an understanding of the recycling business, are critical. Those things can help equipment suppliers close deals, and aid recyclers in balancing their books.
“Anyone can lend in an elevated commodity price or a cycle of strong cash-flow generation. But when things get tight and you land a new account; you need a new piece of equipment to open up some margin; or just to open up some liquidity to bridge a little rough patch or elongated cash-conversion cycle, it’s imperative that you have someone who understands your business and the market to support you during those times,” Rosnovsky says.
Main photo: Courtesy of Alexander Mills/Unsplash. Caption: Finance plays a critical role in how an organization manages its cash flow. Embedded photo: Caption: Mike Taranovich, left, and Kevin Canepa talk about leasing options in recycling machinery.