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 As your company builds equity, you can finance more equipment to generate further growth. It's a sound business strategy that Phoenix Building Components has fully exploited.
"Continuing to invest in equipment is essential for a company with a lot of growth potential like ours. Ideally, when your distribution capacity is limitless, you want to be ready to meet production demand," says Jeff Allan, Vice-President, Sales & Marketing. "As a start-up, it has been important for us to carefully stage our growth but we also make a point of investing in our future, too," he emphasizes. Phoenix Building Components is a rapidly growing manufacturer and wholesale distributor of engineered wood building products such as roof and floor trusses, prefabricated wall panels and beams. The company largely targets building supply retailers in Ontario and the North Eastern U.S.
Invest for the right reason
Phoenix Building Components went to BDC to finance a new automated component saw as well as a laser assembly set-up. The 2-year-old company's main motivation to make the investment was to improve productivity and ensure quality control. "These key purchases were also critical when starting with as many new people as we did," adds Allan. Automated equipment, he explains, reduces the "learning curve" and simply helps employees build products more efficiently and accurately. "Ultimately, the result is a better product for our customers."
Choose the right financing solution
For Phoenix Building Components, long-term financing was the obvious strategy. "Leasing wouldn't have been an option for us because our equipment is highly specialized and not available through leasing companies," he says. The choice of lender was also a clear one for the company. "BDC showed confidence in us and recognized that our investment would generate growth. We were a new player but they saw that we had an experienced management team with a lot of expertise in the industry," he says. Entrepreneurs are often attracted to BDC's long-term financing, which can cover up to 125% of costs to address additional needs such as installing and assembling equipment, training employees and related consulting services. BDC Consulting also helps companies develop operational efficiency plans which can increase productivity and reduce waste.
Take the necessary time
Looking back over the last year, Allan believes that his company learned a great deal during the whole equipment purchasing process. His first piece of advice for entrepreneurs is to ensure that they allow the necessary time to do their equipment purchase research and get the financing in place. "We know this industry very well, so choosing what to buy wasn't so challenging for us. However, you need to allow sufficient time to work out the financing details with your lender." This applies particularly to start-ups where financial institutions may conduct a thorough assessment of a company's risk potential. "It may take time to dot all the I's, so it's wise to take the timing into consideration," he adds.
Work with a business plan
A key factor that contributed to the company's success in buying equipment was working with a clear and documented business plan. Rather than buy their equipment randomly, Phoenix Building ensured that the investment was part of the company's overall business strategy. "We had a very detailed plan that showed exactly where revenue would be generated with our equipment purchases, for example. Our plan showed the best and worst-case scenarios and where exactly we were going," he says. Allan believes that the business plan was very helpful when looking for the right lenders. "You have a lot more credibility if you can show that your purchase will help your company grow," he believes.
Be cost-effective
Although many entrepreneurs might instinctively want to purchase only the newest equipment or technology, Allan recommends that business owners consider the "right mix of refurbished and new." For instance, his company invested in both refurbished equipment, such as basic fork lifts and newer equipment for automated tasks. "When you're a young company, I think it's important to be able to save costs and be smart about how you invest. Our idea was to make sure that we were working with the latest technology but also working within budget," he emphasizes.
Now that Phoenix Building Components is equipped for the future, the company is excited about moving forward and meeting its aggressive targets. "We're beginning to see the return on our investment already" says Allan. Having grown from 18 employees in June of 2005 to almost 80 employees 2 years later, Phoenix is poised for continued growth both domestically and abroad.
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