Small manufacturer triples sales through smart financing

—Sponsored article by Blue Chip Leasing

A good client of mine, Douglas Zelaya, owner of Premium Machining Solutions Ltd. in Toronto, has grown his business phenomenally in a relatively short period of time. Doug’s success can be attributed mostly to hard work and the assistance of equipment leasing, banking and support from one of the world’s largest machine tool manufacturers.

Doug started his business in 2009 after being in the industry for almost a decade, working in a few shops doing everything from automotive to mold making. I first met Doug back in 2010—a referral from a well-established used equipment seller in the US.

I had the pleasure of financing his first piece of equipment, a small CNC vertical machining centre. We not only financed the machine, but we also did his air compressor.

That was the fall of 2010, and almost exactly one year later he visited our small booth at the Canadian Manufacturing Technology Show (CMTS) and told me he was ready for his second machine.

This time it would be a larger brand new vertical machining centre to provide more capacity and increase his capabilities. I think the cost of the machine alone exceeded his entire sales for the prior year, but having established a good relationship with Doug (along with a year of perfect payments), we believed in him and knew success would follow.

Well, we could not have been more correct. His customers knew he had installed another machine and by the end of 2013, sales had tripled. In that time, Doug established a banking relationship to provide not only equipment financing but business loans for projects and working capital to protect cash flow.

I always tell my clients to have more than one lender, the same way you need more than just one customer. The bank was able to provide financing for Doug’s third vertical machining centre—used, but with a larger work envelope than the two previous machines.

When I asked Doug what it was like working with the bank, he told me they’re good people but, “slow in response time and always pushing to leave money in the company.”

Complex parts
In early 2014, Doug was ready for another machine. The company’s newest customer was one of the largest privately-owned aerospace shops in Canada, and it was now starting to send him 5-axis work. He realized the only way he could continue to grow was to start machining more complex parts, differentiating Premium from other small machine shops.

Once Doug identified the machine he wanted, he gave me a call. It was about 2.5 times the cost of the new vertical we had done back in 2011, and although I could have gotten him approved, the terms would not have been as favorable.

His company had experienced amazing growth in a short period of time, but because we had financed two of his three pieces already, the size of this latest transaction meant I would need a large deposit—a tough ask for a growing business.

We talked about his bank, but in typical bank fashion they weren’t interested unless Doug was prepared to offer his house as additional security.

The advice I gave Doug was quite simple. I told him when I worked in the machine tool distribution business, our company would offer favorable terms and/or guarantee financing from time to time when we believed in the customer.

Well it didn’t take long for Doug to find a deal from his selected manufacturer which suited him. He still needed to come up with a deposit, but he got a deal which included skip payments for the first few months, a large residual at the end of the term which keeps the monthly payment down, as well as a subsidized interest rate.

At the end of 2014, Premium’s sales were up 1.5 times from 2013, and Doug and I are now talking about his next move—at least one more machining center. But first on his list is more space.

Clearly there are a lot of factors that have contributed to Doug’s success; much more than can be detailed in a simple column, but if there is one take away from Doug’s story it’s the realization that getting good equipment on your floor first and then finding the work makes the most sense.

It’s also important to go beyond your typical bank for financing. It is out there; you just need to know where to look.

Ken Hurwitz is the Senior Account Manager with Blue Chip Leasing Corp. in Toronto. With years of experience in the machine tool industry, Ken now helps all kinds of manufacturers with their capital needs. Contact Ken at (416) 614-5878 or ken@bluechipleasing.com. For more information visit: www.bluechipleasing.com

This article is part of the Financial Management Success Centre featuring strategies to preserve working capital and secure financing.