Canadian Equipment Finance Magazine JanFeb 2015

jan/Feb 2015 • volume 3 • issue 1 | www.canadianequipmentfinance.com

Industry Report:

From technology to originations to equipment acquisition trends Technology Report: Implementing telematics Your Business: Lean is a four-letter word Observations: Tales from the world of valuations

PM40050803

contents January/February 2015 Volume 3 Number 1 Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Karen Treml karen@canadianequipmentfinance.com Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com

ELFA REPORT: With ELFA president and CEO William G. Sutton, CAE, set to retire at the end of 2015, the association’s Executive Committee and Board of Directors have named Chief Operations Officer Ralph Petta as its new president and CEO, effective January 1, 2016.. »4

FEATURES

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Printed in Canada. Reprint permission requests to use materials published in Canadian Equipment Finance should be directed to the publisher.

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Direct Marketing www.dmn.ca Financial operations www.financialoperations.ca Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit

Industry REPORT THE PROBLEMATIC DATABASE Is ‘shadow data’ hurting your business? »10

FINANCING YOUR BUSINESS: THE EVOLUTION OF FACTORING

TOP 10 EQUIPMENT ACQUISITION TRENDS FOR 2015 Favorable economic and financing conditions will drive replacement and expansion spending »16

An alternative for cash flow management »14

WHENCE THE ORIGINATION?

NEWS »7

EVENTS

Your Business

A look at lease origination channels in Canada »18

Where to go. What to see. »28

Lean is a Four-letter Word »20

TECHNOLOGY REPORT: How is your Equipment Doing?

The QuickStart Guide to Implementing Telematics »24

Observations McBarge?!?

It sits a shadow of its former self … »30

canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

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EFLA Report

William G. Sutton, ELFA President and CEO will retire at the end of 2015

Ralph Petta, ELFA COO will take over as president and CEO in 2016

ELFA President and CEO to retire The Equipment Leasing and Finance Association (ELFA) has announced that President and CEO William G. Sutton, CAE, will retire at the end of 2015 and that ELFA’s Executive Committee and Board of Directors have voted unanimously to name Chief Operating Officer Ralph Petta as its new President and CEO, effective January 1, 2016.

Sutton has led ELFA, the trade association representing financial services companies and manufacturers in the $903 billion U.S. equipment finance sector, since 2010. He also serves as president of the association’s research affiliate, the Equipment Leasing & Finance Foundation.

“We are so grateful for Woody’s outstanding leadership on behalf of our industry and our member companies over the past five years,” says Adam Warner, ELFA Immediate Past Chairman, Chairman of the Transition Committee and President of Key Equipment Finance. “His expert guidance of ELFA following the financial crisis helped the association emerge from the recession stronger than ever, and the association has grown in every area under his watch. Woody will be sorely missed when he retires, but he has laid a solid foundation for our organization’s future success. We are very fortunate to have Ralph Petta on board as the successor to Woody. Ralph’s industry knowledge and commitment to the continued success of our association will be invaluable assets moving forward.”

“It has been an honor to serve ELFA and the Foundation over the last five years,” says Sutton. “I have truly enjoyed working alongside the staff, the Board of Directors and member company volunteers in support of this great industry. However, after a long and rewarding career—including 30 years in the United States Navy defending our nation and 15 years in business working for our nation’s future prosperity—I feel the time is right for me to retire. ELFA is in a strong position and 4

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

is poised for continued success, with an engaged membership, terrific volunteer leadership, skilled staff and sound fiscal standing. I believe 2015 will be our best year yet and when I turn the reins over to Ralph Petta at the end of this year, I know the association will continue to thrive.”

Before joining ELFA, Sutton served as Assistant Secretary of Manufacturing and Services, a unit of the U.S. Department of Commerce’s International Trade Administration. Prior to that he served for over five years as President of the Air Conditioning and Refrigeration Institute. He is a former U.S. Navy Rear Admiral with 30 years of service as a surface warfare officer. Sutton holds an M.S. in Naval Architecture and Marine Engineering from M.I.T. and a B.S. in Naval Engineering from the United States Naval Academy.

Petta has been with ELFA since 1987. He was named Chief Operating Officer in 2010 and previously served as Vice President of Research & Industry Services. Before joining ELFA, he worked for nine years in the office of U.S. Senator Sam Nunn. Petta graduated from Syracuse University with a B.A. in political science.

“I am honored to have been chosen to lead ELFA and look forward to building on the strong foundation that has been built by my predecessors,” says Petta. “There is no other organization in the financial services space that delivers the level of service and the value proposition offered by ELFA to its members—through industry information, advocacy, business and professional development and industry promotion. I look forward to working with our volunteer leadership and exceptional staff in support of member companies and the equipment leasing and finance industry, which plays a critical role in our nation’s economy, equipping businesses nationwide for success.”

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EFLA Report

ELFA Launches Upgraded Website for End-Users Visitors to the Equipment Leasing and Finance Association’s (ELFA) end-user website, Equipment Finance Advantage, will find new enhancements that make it a more powerful resource than ever for helping businesses take advantage of the benefits of equipment finance. The site, at www.EquipmentFinanceAdvantage.org, has improved navigation for a better user experience and offers a wider range of resources focused on how companies of all types and sizes can use leasing and financing to their strategic advantage to acquire the equipment they need to operate and grow. ELFA launched the original Equipment Finance Advantage website two years ago.

Highlights of the site’s user-friendly content include:

◉◉ Equipment Finance 101: Overview of the benefits of equipment finance, the types of financing, the top 10 questions to ask before entering an equipment financing agreement, a customizable digital toolkit and more. ◉◉ Success Stories: Real-world examples of companies using equipment finance for strategic

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CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

advantage. ◉◉ Resources: How-to articles, Q&As, updated end-user industry fact sheets, infographics and more to help businesses develop their financing strategy. ◉◉ Videos: A series of short videos on a range of topics, from maximizing cash flow to staying ahead of the curve to end-of-lease factors to consider. ◉◉ Find a Provider: A searchable list of ELFA members that provide equipment leasing and finance services.

“The critical role the $903 billion equipment finance industry plays in the U.S. economy, manufacturing and jobs is due fundamentally to the participation of individual businesses,” says ELFA President and CEO William G. Sutton, CAE. “They have found the information at Equipment Finance Advantage to be an invaluable resource informing their equipment leasing and financing decision-making over the past two years, and we are excited to offer the newly upgraded EFA website to help keep them up to date with the latest research and informational content available.”

Visitors to the site are encouraged to tweet about the resources they find useful with the hashtag #FinanceEquipment.

News

Business Volume Up Says ELFA Survey The Equipment Leasing and Finance Association’s (ELFA ) ‘Monthly Leasing and Finance Index’ (MLFI-25), which reports economic activity from 25 companies representing a cross section of the $903 billion equipment finance sector, showed their overall new business volume for December was $12.9 billion, up 20 per cent from new business volume in December 2013. In a typical end-of-year spike, their new business volume was up 90 per cent from November volume of $6.8 billion.

Cumulative new business volume for 2014 rose 8 per cent over 2013.

Receivables over 30 days were unchanged from the previous month and from the same period in 2013 at one per cent. Charge-offs were unchanged for the ninth consecutive month at an all-time low of 0.2 per cent.

Credit approvals totaled 78.6 per cent in December, a slight decrease from 79.1 per

cent the previous month. Total headcount for equipment finance companies was up 0.5 per cent year over year.

Separately, the Equipment Leasing & Finance Foundation’s ‘Monthly Confidence Index (MCI-EFI)’ for January is 66.1, an increase from the December index of 63.4 and the highest level in the last three years.

ELFA President and CEO William G. Sutton, CAE , said: “Despite a very volatile Q4 equities market, the U.S. economy ended the year in a strong position, evidenced by lower unemployment, continued healing in the housing market, gas prices that seem to be declining almost daily, and robust consumer spending. Against this backdrop, C&I lending picked up as commercial businesses made significant investments in plant and equipment. Despite the typical end-of-year seasonal spike, December’s MLFI-25 statistics enter record territory:

the 20 per cent increase in year-over-year new business volume was one of the largest December increases in the history of the MLFI-25. Add to this healthy credit markets and the equipment finance industry appears poised for the breakout performance industry observers have been waiting for.

We hope that this momentum will carry forward into 2015.”

Bill Wavro, President, Dell Financial Services , said, “The rise in new business volume for 2014 reflects what we hear in conversations with Dell customers and channel partners every day. Whether an entrepreneur saving cash for key business investments or a large enterprise looking to lower total cost of ownership, customers are seeing how financing large equipment and technology transactions delivers a real bottom-line and operational benefit for their businesses.”

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News

Majority of Businesses Planning Investments in 2015 A report issued by BMO Harris Bank found that the majority of business owners and executives plan on making investments in their business in 2015. A nation-wide poll of 781 business owners and executives found that 58 per cent plan on making at least one investment in their business, with the expansion of operations leading the way as the most popular option.

“The economic recovery in the United States over the past five years has been driven by the optimism and determination of business owners, large and small, throughout the country,” said Dave Casper, Executive Vice-President and Head, Commercial Banking, BMO Harris Bank.

“It is encouraging to see their continued confidence translate into plans for future growth.”

“Real GDP growth has averaged above

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three per cent for the past 18 months, long enough to convince businesses that the United States has indeed freed itself from its prior low-growth rut,” added Michael Gregory, Head of U.S. Economics, BMO Capital Markets. “This is instilling confidence that such performance will persist, prodding businesses to expand - or at least start thinking about it.”

When asked where they plan on making those investments, the most popular answers from business owners and executives were: ◉◉ Expanding operations 31 per cent ◉◉ Upgrading/Purchasing New Equipment 26 per cent ◉◉ Modernizing Technology/Systems 23 per cent ◉◉ Hiring More Employees 20 per cent

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

“More and more business owners are coming to us, looking for help in financing their capital equipment needs,” said Jud Snyder, Managing Director and Head, BMO Harris Equipment Finance Company. “The continued demand for specialized expertise and access to capital is a very good sign for the economy.”

Plans for upgrading or purchasing new equipment were most common for Automotive / Manufacturing (59 per cent), Computer / Information Technology (41 per cent) and Healthcare (35 per cent).

The survey was conducted by Pollara with an online sample of 781 American business owners between September 8 and 18, 2014.

A probability sample of this size would be accurate to +/- 3.5 per cent, 19 times out of 20.

NEWS

Complete Innovations acquires FieldWorker Mobile Technology Solutions, Inc. Complete Innovations (CI), one of North America’s providers of fleet telematics and mobile workforce technology, has announced that it has acquired FieldWorker Mobile Technology Solutions, Inc. Founded in 1995, FieldWorker creates and implements custom enterprise mobility solutions to maximize customer productivity and return on investment. The strategic acquisition will further strengthen the solution portfolio of CI’s flagship software product Fleet Complete and solidify CI’s position as a leader in the Mobile Workforce and Telematics industries. Terms of the transaction were not disclosed.

“We are excited about the acquisition of FieldWorker and we look forward to integrating the FieldWorker product to expand the solution offering of Fleet Complete,” says Tony Lourakis, CEO of CI. “The FieldWorker product has some of the best enterprise class mobile forms and customizable workflow capabilities I have seen, and these features will

provide our 5,000+ customers with exceptional added value.”

For applications where barcode, RFID, and mobile computing technologies can be leveraged to their maximum benefit, FieldWorker combines the right software and hardware from its partners with its core technology services and skill sets to construct solutions that are tailored to its customers’ specific needs. FieldWorker’s extensive suite of applications and products complement an industry-leading mobile platform that provides customers with endless options to support and track cross-corporation mobile solution needs.

FieldWorker will continue to operate under its existing brand name as a subsidiary of CI. CI plans to integrate the FieldWorker product into Fleet Complete’s highly customizable, data-intelligence driven fleet management solution that tracks, manages, and optimizes fleet vehicles, high-value mobile assets and mobile workers for over 5,000

customers. Once integrated, FieldWorker will be offered as an add-on to Fleet Complete’s industry leading SaaS solution.

“The Fleet Complete platform offers our customers mission-critical technology benefits that significantly improve their business operations,” said Lourakis. “With the addition of FieldWorker and its industry expertise, we will now offer a unique and differentiated product that is game changing to our industry.”

“Complete Innovations is the perfect home for FieldWorker as they take amazing care of their customers, invest heavily in innovation and have a highly efficient sales organization. We expect FieldWorker to thrive as part of CI,” says Peter Neve, president of FieldWorker. “Our employees are excited to be joining CI and I know our customers will benefit from the expanded products and services CI and FieldWorker will be able to offer them.”

canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

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INDUSTRY REPORT

The Problematic

Database 10

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

INDUSTRY REPORT

Is ‘Shadow Data’ Hurting Your Business?

By Roxana Safranek

hat is shadow data? The literal definition is “databases that are built and used inside organizations without the knowledge or approval of IT.” The practical scenario may be such that individual employees build databases using Excel spreadsheets, or keep their notes on their desktop using Word, an Outlook contact file, etc.

Imagine a scenario whereby an important customer calls asking why they did not receive the documents they were waiting on. After further investigation, you confirm the documents were sent – to the wrong address. The customer insists they have given you their new address several times.

The culprit is probably a ‘shadow database’, and it is likely the person she told made a change in one database, but not in the database that was used when mailing the documentation. The scary part in this scenario is that it could happen again to the same customer when dealing with a different department in the same company.

This type of inefficiency reflects poorly on the company and shakes customers’ confidence. In a business climate where creating a good customer experience is critical for success, this type of activity can be back breaking.

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Shadow databases create inefficiencies One of the main reasons shadow databases create such a problem is because manually updating and syncing information between a centralized database and a shadow database can be time-consuming and, consequently, is often overlooked. This leads to old, incorrect data somewhere – either in the shadow databases, or in the central database, or most likely, both.

Other problems with shadow databases are: ◉◉ These databases typically aren’t adequately secured or backed up canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

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INDUSTRY REPORT ◉◉ No one is designated to update and cleanse the shadow data ◉◉ Shadow data leads to disparate and conflicting reports and inaccurate analysis Another pitfall of shadow databases is the inefficiencies they create. In today’s competitive landscape it’s critical to maintain operational efficiency, intuitive processes, and a great customer experience; shadow databases can derail all of these objectives.

According to findings of an Accenture online survey of more than 1,000 U.S. / UK companies, 59 per cent of managers said that as a consequence of shadow databases, they miss information that might be valuable to their jobs because it exists somewhere else in the company.

Forty-two per cent of respondents said they accidentally use the wrong information at least once a week, and 57 per cent of respondents said that having to go to numerous sources to compile

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information is a difficult and time consuming process.

Additional inefficiencies and productivity issues reported were: ◉◉ Corporate knowledge assets are not visible to the entire company ◉◉ Manual data flows are not formalized and operate in a sub-optimal way with workers unknowingly duplicating efforts ◉◉ Customer specific preferences and servicing notes are not likely to be included in shadow databases

Shadow databases are the symptom not the illness It is easy to blame the business group or individual users for building shadow databases, but generally the blame isn’t on them. Shadow databases are typically built when users feel there isn’t another way to easily get at the data they need.

In order for businesses to address this common complaint, and potentially eliminate the need for shadow databases, it is essential to integrate business processes with a single database.

To achieve this it’s important to implement a management system with a framework that supports seamless integrations, with the ability to reach across business lines.

By implementing a flexible architecture, you can break down the data silos which will improve efficiencies, data quality, and data security, but that’s just the beginning.

Implementing an end-to-end system with a single database also yields cost savings

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

and improved business productivity, including: ◉◉ Improved visibility Real-time visibility of data is important in making timely informed decisions. When information can be accessed instantly, without wasting resources on data extraction and tying data from different sources together, employees are better informed and can make more accurate, faster decisions. ◉◉ Unified business processes across the enterprise With a single, integrated platform encompassing all functional areas, employees no longer have to re-enter data in different systems reducing inconsistent or inaccurate data. ◉◉ Improved customer service The quicker and more efficiently a customer’s needs are addressed, the more likely they are to continue doing business with you. With an integrated system, you can more easily service your customer’s needs by having the right data available at the right time. ◉◉ Better analytics and reporting A single integrated database also improves analysis and reporting.

Having all the data in one database allows users to drill down and parse through the data any way they want.

This improved level of visibility into the data delivers more detailed and accurate metrics which directly correlates to better, more informed business decisions.

Summary Shadow databases can create a number of risks for businesses. Because they require a manual coordination of efforts, they often lead to duplicate entries, inconsistencies, inaccuracies, and confusion across the business. The obvious result of this is wasted time and lost productivity, but that isn’t the only cost. The integrity of the information and customer loyalty is also on the line.

Roxana Safranek is Director of Marketing for LeaseTeam, Inc. She has more than 18 years of marketing and business development experience with 14 of those years being in the software industry. Roxana is responsible for marketing, communication, and business development for LeaseTeam.

LeaseTeam provides solutions that flexibly manage the entire lifecycle of equipment finance contracts, for an array of business types, portfolio and ticket sizes, and financial products. (www.leaseteam.com).

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INDUSTRY REPORT

Financing your Business: The Evolution of Factoring An alternative for cash flow management

By Oscar Rombola

ccounts receivable financing, otherwise known as factoring, is a sustainable way of selffinancing your business, whether you are looking for a permanent solution or a way of complementing your other longterm options. The factoring industry is seeing an increase in popularity for businesses in both Canada and the U.S. and with annual sales in the billions of dollars, the industry is positioning itself in its rightful place. Chartered banks and other financial institutions recognize the important role of factoring with smalland medium-size companies in a growth mode. It is the nature of the factoring model itself that is attracting business owners who are looking to free up cash flow for their businesses.

From transportation companies to staffing, from manufacturers to consultants, factoring offers immediate cash flow and reliable administration services to the small entrepreneur. Sales could easily be sustained by a reliable financing model and growth can be achieved at a much faster rate since you control your cash flow.

There are a number of reasons or circumstances where a business owner will choose factoring as an alternative to traditional financing. A business may not qualify for traditional financing due to such things as – an over-leveraged balance sheet or recent operating losses; a start-up company with no financial base; a high growth business that’s growing faster than its cash flow; or a business in transition.

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Using factoring simply requires the selling of the outstanding invoices to the accounts receivables factoring company, and, in turn, you are given an advance on the receivables balance. Working capital is immediately increased without waiting 30-60 or 90 days. Factoring companies would typically require a first position filing on the assets of the company or in some cases they can establish an inter-creditor agreement and a carveout of only certain collateral within the accounts receivable portfolio.

Having strong and flexible cash flow is one of the most important aspects of growing and maintaining a strong business. Businesses in both Canada and the U.S. often turn to factoring companies to help them free up and manage their cash flow.

Why do I have the sales but lack cash flow?

It’s not unusual for most businesses, at some time or another, to find that the available cash within their business isn’t keeping up with demand. Some common reasons why that happens: ◉◉ The business sells to clients who demand payment terms of 30, 45, or 60 days, sometimes as much as 90 days.

Often the business doesn’t have the luxury of the same timelines for paying operating costs. That’s especially true with service industries where labour is a large portion of costs. ◉◉ The business is a high growth company that must constantly feed cash back into production to fuel the growth. ◉◉ The business is in start-up phase and is still building its client base and, therefore, a consistent revenue flow.

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

◉◉ The business has experienced a financial setback or is going through a transition.

Opting for factoring as a financing solution does not mean that the business is experiencing financial problems. Often a business will be doing well financially but will be operating in a business sector that the banks consider high risk. For example, when the automotive industry took a plunge a few years back, a number of companies that serviced that industry suddenly found it difficult to get financing – even though they were showing healthy profits and balance sheets. They turned to factoring to keep their cash flow flexible and their businesses growing.

Factoring lines of credit Factoring lines of credit differ from traditional lines of credit in that factoring lines of credit grow with your business because they are based on your outstanding invoices from creditworthy customers. As well, there are no regular payments, because your customers pay invoices directly to the factoring company. The service includes professional management of accounts receivable and collections. That translates to reduced complications and administrative costs.

Financial setbacks are not the only reason why a company may choose factoring. There are many reasons why a business may be turned down by the bank for a traditional business line of credit but still qualify for a factoring line of credit. Reasons include such things as – high growth businesses

INDUSTRY REPORT that are flourishing today, but don’t have long term revenue history to qualify for traditional financing; start-up businesses with no financial base; and hightech companies without a traditional ‘bricks and mortar’ operation; and businesses operating in high risk sectors.

Factoring whether on accounts receivable or as a factoring line of credit are financing strategies that can suit many businesses in many sectors. For businesses that do not fall into traditional lending requirements, factoring strategies can provide a very viable and accessible alternative for freeing up cash flow, thereby helping businesses to grow and prosper.

Expanding your operations as you meet new opportunities Invoice factoring offers a powerful financial tool readily available to growing companies. Let’s take for example the transportation industry. Whether you are a one truck company, a medium-size fleet, or a larger more established fleet expanding to meet demands, common challenges are faced.

To enable growth you need – more equipment; more drivers; more working capital; or more back office support.

Without the adequate financial backing, companies face growth as a challenge.

Increased qualification restrictions and stringent covenants prevent many trucking companies from attaining necessary funding from the banking system. To grow, you need a lender who understands your business and has the financial tools to

meet your needs. Factoring companies specializing in the trucking industry offer several financial solutions tailored to trucking business.

Leveraging your equipment When it comes to equipment financing, there is tiedup equity in your existing equipment that can be unlocked and leveraged to gain access to more funds.

Equipment financing is a key financial tool to meet this objective. Invoice factoring companies that specialize in the trucking industry understand the value of your existing equipment assets (regardless of the age of the asset) and this can be leveraged to achieve further financing. It is an ideal solution to raise the needed down payment for the purchase or lease of new equipment.

The benefits of factoring reaches well beyond the ability to quickly convert invoices to cash. When you factor with a reputable and knowledgeable firm, your company also benefits from professional accounts receivable management, unlimited access to credit reports and a dedicated accounts manager to help you understand the information.

This will help you reduce bad debt and keep your cash flow healthy.

Finding the right alternative financial provider to factor your invoices is highly critical. Look for a reputable firm that discloses the needed details upfront to make an informed decision.

Reviewing your accounts receivable aging schedule with the factoring company prior to committing to their

services is vital to making the right decision. You may have $100,00.00 in receivables from various customers, but if your factoring company does not consider all your customers as credit worthy, you may discover not all your invoices will receive funding.

In other words, you may only receive $40,000.00 or $50,000.00 in advances, while the remaining receivables are considered un-fundable. Too many trucking companies have signed up with a factoring provider only to find out that a portion of their receivables cannot be funded. A reputable factoring company, will assess all your financials, including the accounts receivable aging schedule to ensure you have a clear understanding

of how much cash you can expect to have advanced to you from your customer base. Furthermore, the right factoring company will, also, provides you with tools, resources and practical advice on the best ways to forecast, track, and manage your cash flow.

Oscar A. Rombola started his career in the Factoring and Financial Industry in 1998. He is currently a Managing Partner at Accutrac Capital ITC Ltd. in Mississauga. Oscar’s extensive knowledge of the Factoring and Financial Industry places him as a leading consultant in the industry. He brings a whole professional life dedicated to creating business liaisons between companies. All through his professional career, Oscar has worked with factoring companies and financial institutions to implement efficient sales teams and successful portfolios of business.

Oscar is the President and founder of the International Factoring Association Canadian Chapter and has joined forces with his factoring colleagues in the provinces of Ontario and Quebec to help develop an educational and networking tool for the industry.

Oscar has provided his expertise as an Advisory Board Member at the International Factoring Association USA between 2010-2013. He has been invited to participate at the IFA Annual Conference as a speaker and panel participant in matters related to the Canadian Market since 2008.

Direct 416.593.3954 dbrooks@blaney.com

2 QUEEN ST E, STE 1500 | TORONTO, CANADA | BLANEY.COM |

canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

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INDUSTRY REPORT

ELFA: Top 10 Equipment Acquisition Trends for 2015 Favorable economic and financing conditions will drive replacement and expansion spending he Equipment Leasing and Finance Association (ELFA) which represents the $903 billion equipment finance sector, today revealed its ‘Top 10 Equipment Acquisition Trends’ for 2015. Given U.S. businesses, non-profits, and government agencies will spend nearly $1.5 trillion in capital goods or fixed business investment (including software) this year, financing a majority of those assets, these trends impact a significant portion of the U.S. economy. Businesses will find opportunities presented by a steadily improving economy and favourable credit conditions as they make their decisions for equipment replacement and expansion.

ELFA President and CEO William G. Sutton, CAE, says, “Equipment financing is a critical source of funding for a majority of U.S. businesses, allowing them to acquire the equipment they need to operate and grow. It enables equipment acquisition, which plays a critical role in driving the supply chains across all U.S. manufacturing and service sectors. To assist businesses in planning their acquisition strategies, we have distilled recent research data, including the Equipment Leasing & Finance Foundation’s ‘2015 Equipment Leasing & Finance U.S. Economic Outlook Report’, industry participants’ expertise, and member input from ELFA meetings and

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conferences to provide our best insight for the top ten equipment acquisition trends for 2015.”

ELFA forecasts the following top ten equipment acquisition trends for 2015: Investment in equipment and software will reach an all-time high in 2015. As the U.S. economy continues to improve, business investment is forecast to reach a record $1.484 trillion in 2015. As business investment grows, demand for equipment financing will increase.

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Businesses will invest in equipment not just to replace aging assets, but also to aid in expansion. The pent-up replacement demand that has driven equipment investment in previous years may be supplemented by long-awaited expansion investment as capacity utilization rates in some industries reach or surpass levels historically known to spur business investment. Industries poised for investment growth include oil and gas extraction and transportation equipment manufacturing.

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While some equipment types will see strong growth, others will moderate. In 2014, equipment and software investment increased 9.6 per cent in Q2 and 9.3 per cent in Q3. Looking ahead, growth in

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CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

equipment and software investment is expected to moderate somewhat, as it is unlikely to keep up the strong pace seen in Q2 and Q3. A still healthy growth rate of six per cent is forecast for 2015.

Aircraft, trucks and other industrial equipment are projected to be among the higher growth types, while agriculture, computers, and software are expected to see slower growth.

Improving market conditions will continue to increase credit supply and demand for equipment acquisitions. As the economy steadily improves and business confidence continues to increase, credit standards should modestly loosen. The propensity to finance decreased in the wake of the financial crisis as businesses deleveraged and refrained from new business investment. Since bottoming out in 2010, the rate at which businesses finance their capital spending has grown consistently and will continue to increase in 2015 with steady economic recovery and shifts in Federal Reserve policy.

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Eyes will be on short-term interest rate increases.

Expectations for the Federal Reserve to raise short-term interest rates in 2015 should spur equipment investment as businesses seek to lock in equipment financing at lower rates.

INDUSTRY REPORT Despite rate increases, businesses will find that a highly competitive ‘buyer’s market’ will continue to make financing an attractive option for acquiring equipment.

Businesses will use financing for a majority of their plant, equipment, and software expenditures. In 2015, 62 percent or $922 billion of investment in plant, equipment and software in the United States is expected to be financed through loans, leases and lines of credit. A majority of businesses – seven out of 10 – will use at least one form of financing to acquire equipment.

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Advances in the use of technology will drive innovative financing options. Equipment finance providers are streamlining their business processes and improving customer self-service capabilities using digital technologies. At the same time,

some end-users are moving away from traditional equipment consumption models and toward hosted or managed services based on usage rather than total ownership. To meet customer demand and address evolving technology equipment requirements, equipment finance companies will tailor innovative financial offerings.

Several ‘wild cards’ could impact equipment acquisition decisions.

In what could be a breakout year for the U.S. economy, positive and negative external risks could affect equipment investment. Potential political gridlock, global economic weakness, and geopolitical risks could be a drag on investment decisions, but GDP growth from low oil prices, a potential surge in the housing sector, and sufficient capacity utilization could have firms ramping up capital expenditures.

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Non-traditional financing will continue to grow and play a larger role in the equipment finance industry. As regulatory scrutiny increases and some banks’ lending standards tighten for certain credits, nontraditional financing sources, such as investment bankers, venture capitalists, insurance companies, crowd funders, and others, are exploring opportunities in the equipment finance sector.

A final lease accounting standard will be released. The Financial Accounting Standards Board and the International Accounting Standards Board continue to work on the lease accounting project, which will change how leases are accounted for on corporate balance sheets. A final standard is anticipated in 2015, with a possible effective date of 2018 or later.

The good news is that the benefits of leasing equipment will remain intact despite the lease accounting proposal.

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Customized Solutions for your Equipment Financing Needs Nations Equipment Finance provides equipment financing for a variety of equipment types including: • Oil & Gas • Construction • Rail • Tractors/Trailers • Aircraft • Manufacturing and Industrial Our investment professionals have decades of experience providing financing to small and medium sized businesses.

With transaction sizes ranging from $1 Million up to $50 Million, NEF can craft a customized financing solution that provides you with the necessary capital to grow your business. We have locations across the USA and Canada.

Contact Ed Stolarski, Executive Vice President • Tel: 203-229-2224 Email: EdStolarski@nationsequipmentfinance.com • www.nationsequipmentfinance.com

canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

17

Industry Report

Whence The Origination?

A look at lease origination channels in Canada

By Stan Prokop

he hundreds of active equipment lease organizations in Canada ultimately come down to three types of participants in the industry – independent/bank lessors; captives; and third party brokers/intermediaries. Few statistics exist around how these organizations aggressively market and derive their lease originations and how the method of origination affects their profits and sales growth.

The largest segment of the Canadian lease industry, certainly from a revenue point of view, are the independents and bank lessors – these firms derive revenues from a direct sales force, and in the case of banks, branch referrals.

Sales force education allows successful lessors to constantly grow revenues and dominate their market niches. Prime suspects for revenue generation always include vendors and manufacturers in every segment of the Canadian market.

Here sales reps are often compensated on some measure of return on equity or net margin on spreads.

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Leveraging sales versus cost How does the commercial leasing company address sales growth versus cost of origination? The lease ‘order takers’ of the past are long since gone.

Many organizations now compensate sales based on financial margins, types of leases, or transaction size. Suffice it to say volume requirements for all markets have typically increased.

Many well known manufacturers have adopted the ‘captive’ approach, having developed creative programs around financing their products and services.

The technology and heavy equipment market space dominate this portion of the market. Finance income from the captive augments the actual profits from sale of products and services – although an 18

interesting twist arises when lower finance costs subsidize product /service sales.

Lease brokerages make up the final segment of the origination market.

They represent the indirect channel of lease industry originations in Canada.

They scour the marketplace in an attempt to match client needs with the ‘perfect’ lessor. Brokers substantially fill the origination and sales pipes for funders via their ability to distinguish between different credit risk profiles – in effect providing lessees with a ‘onestop shopping’ approach to the most appropriate underwriter.

Legitimate lease brokers understand the needs of the client, and their services around structuring and pricing transactions can significantly affect profits and revenues of their chosen lessor(s). Unlike Canada, many U.S. states actually mandate these firms and individuals be licensed. Most brokerages compensate reps on a commission basis, encouraging revenue focus.

The math of leasing Independent and bank lessors derive sales and profits via classic ‘relationship selling’. These are the true heavy guns in the industry, the legendary prospectors who truly understand ‘the math of leasing’. Their ‘brand’ separates their finance offerings from competitors, but comes at a significant cost of salaries, technology, and direct marketing expense. Originations are relationship based, not transactional in nature and drive the marketing engine of the lessor.

While low rate strategies diminish profits, they do in fact have the ability to develop relationships or establish a beachhead in different industries.

Competition, combined with low rates, has reduced industry profits so each type of lease originator needs to constantly assess economic returns. Lessors utilizing lease brokerage channels in some or all originations must balance fees paid to the

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

brokerage against customer acquisition and diminishing profit on deals.

We spoke to Peter Knight, and industry veteran and co-owner of Catalyst Finance, a national lease brokerage. Knight stated that the ability of his sales staff to convey different financing products and services, as well as to understand issues such as crossborder financing, small/mid-ticket differentiation, and residual and finance stream pricing are the key to the ability to drive profitable financing business to their chosen lessors. An interesting observation arises out of Catalysts ability to light the candle at both ends – having recently invested in an ‘online’ sales model they market as ‘Sprint Lease’, where lower customer acquisition costs translate to higher profits and scalable sales growth, thereby enhancing growing originations to their funder base.

Both commercial leasing companies and numerous lease brokerages comarket key centres of influence for sales opportunities. These typically include accountants, lawyers, bankers, and other similar professionals.

The bottom line Sales origination is a constantly changing trend in the industry. While the industry prides itself on the fact that the majority of assets in capital spending are in fact leased, risk around rates and credit default and the lessor’s ability to educate lessees via investment in training and marketing always exist.

Top experts maintain that any lessor or brokerage will grow revenues only when utilizing value added marketing strategies, directly, or through the broker channel, given the relatively crowded Canadian marketplace.

Stan Prokop is principal at 7 Park Avenue Financial and specializes in business financing for Canadian firms, such as working capital, cash flow, asset based financing, equipment leasing, franchise finance and Canadian tax credit finance. Founded in 2004, the company has completed in excess of $90 million of financing for Canadian corporations. www.7parkavenuefinancial.com

KEEP UP TO DATE AND INFORMED BY VISITING OUR WEBSITE DAILY. Canadian Equipment Finance magazine posts news, insights, updates and breaking stories as they happen.

Stay Informed. Keep Ahead.

Visit us online at www.canadianequipmentfinance.com Canadian Equipment Finance is a Lloydmedia, Inc publication.

Lloydmedia also publishes Payments Business magazine, Canadian Treasurer magazine, Financial Operations magazine, Direct Marketing magazine and Contact Management magazine.

your Business

LEAN is a Four Letter Word

Projects come in over budget, over time, with little motivation for change as the profits just keep coming.

By Angela Armstrong “A sack full of bricks in the spleen – lean times ahead.“

hat’s how one of our clients described the recent announcement of the ‘softening’ of the economy.

I wish I had a nickel for every time I’d been asked, “What’s happening in Alberta’s oil and gas market?”

Considering that $91 billion of Canadian GDP is tied to oil and gas, it’s not only a big question for Alberta, it’s a pretty big one for Canada.

Drill down a little further (pun intended) and you’ll see a huge construction economy. Construction in Canada is responsible for about $300 billion of GDP, or $35 billion in Alberta.

Alberta has outpaced all other provinces but one in productivity output.

You know that old adage, “make hay while the sun shines”? Well, it’s been darn sunny out west. There’s just one problem with all this productivity – it’s been rising on a cloud of vapours. (and I’m not talking about the kind used at Sag-D sites).

A November 2014 report titled ‘Trends in Labour Productivity’ identified that more than half of Alberta’s increase in productivity in the last five years was due to increasing net man hours. But it gets worse – check out the Statistics Canada chart in the report showing 50 years of Canadian productivity growth with results at an all-time low. To make things worse, we’re lagging behind our U.S. neighbour and the gap’s growing.

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We’ve GOT to find another way to be productive – ‘cause continuing to throw people at the problem isn’t a sustainable strategy. Given that it’s January as I write this, month of New Year’s Resolutions, maybe it’s a good time to talk about getting lean.

What is Lean?

Defining lean isn’t easy – it ranges from “no fat” to “mournful expense cutting” to “not enough” – the current mindset of scarcity.

But I like this one from the Cambridge dictionary – “Efficient”.

I got interested in this last fall when I began reading about a first in Edmonton construction – a fully net-zero, LEED Platinum certified construction project.

Built using the evolution of LEAN Construction – IPD (Integrated Project Delivery), it is called the Mosaic Centre (themosaiccentre.ca).

Small wonder that we’ve got here – construction is one of the largest and least productive sectors on the productivity list. Projects come in over budget, over time, with little motivation for change as the profits just keep coming. To be fair, most industries suffer the same problem – you don’t put up the hurricane shutters until the announcement comes on the radio.

And, behold – the perfect storm; falling oil prices and falling revenues, combined with falling international competitiveness.

A quick primer; LEAN is attributed to the leader of Toyota , and has been endlessly studied. LEAN was a marvelous innovation as applied to manufacturing – highly repeatable processes, where front

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

line workers were given responsibility for noticing problems and implementing solutions, and leadership was embedded in the philosophy.

LEAN focuses on reducing waste, thereby improving the efficiency of the channel from production to client. The traditional concepts of LEAN:

VALUE: The ultimate starting point is ‘value’. Value is only defined by the ultimate customer.

VALUE STREAM: The set of all the specific actions required to bring a specific product thru problem solving task, to delivery to the customer.

FLOW: once you identify the value, map the value stream, eliminate waste, then you work on making the steps flow.

PULL: Simply means that no one upstream produces a good or service unless and until the downstream customer asks for it.

PERFECTION: Continual improvement is just that – relentless pursuit of perfection, with the expectation that it is elusive and evolutionary.

Construction, by contract, became increasingly siloed over the 20th century – segregating owners from contractors and trades. Take a typical project: An

your Business architect meets with an owner and comes up with a design for which an RFP is created. Each trade submits a sealed bid hoping to win the job. Nowhere in the entire process do the experts come together to actually discuss what is feasible given the budget, or reasonable given the owners’ mandate. In other words, VALUE gets lost, it’s a PUSH environment (trades delivering costs and outputs by THEIR definition), constant friction and execution delays (no FLOW) , and no one kids themselves thinking they’re achieving PERFECTION. In a segregated, highly competitive culture, trades have to bid low to win the job, and are then forced to count on change orders to make their margin.

Changes to the project lead to the hated cost and time overruns; to the dismay of everyone, from the financers, to the owners, to future tenants.

Disgruntled owners, trades, and contractors now live in the land of litigation and liens. Collaboration and trust are strangled by a culture of blame – and many industry participants are more jaded than jubilant about their work.

Construction and LEAN seem like unhappy bed fellows. And yet – there’s those troubling productivity numbers… and the specter of a slowing economy.

Over the last two decades the growing interest in LEAN Construction evolved into the concept known as IPD. The working definition of IPD by the California Council of the AIA is: “A project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to reduce waste, and optimize efficiency, through all the stages of design, fabrication and construction.”

Too Pollyanna for you? This might blow your socks off. Mosaic’s construction project ‘Vision Statement’ includes: “Not only does the Mosaic Centre (for Conscious Community and Commerce) need to meet the three objectives (beauty, sustainability, affordability), but it also needs to inspire a paradigm shift in workplace design and construction – the project’s ultimate success hinges on achieving this shift and inspiring change.”

Mosaic: The perfect alignment with the three underlying values of LEAN Muri-Mura-Muda.

That vision statement is a tall order.

So is LEAN, in a high service or highly customized product environment such as construction, where there is little repetitive activity and projects are custom and complex.

LEAN actually fits very well into contemporary business philosophy – traditional LEAN depends on respect as a key pillar. LEAN relies both on engagement (i.e. how you do things, i.e. your culture) and what you’re doing.

Many criticisms of LEAN stem from too much execution emphasis on trimming ‘waste’, and too little consideration given to building a sustainable culture.

And that is what sets the Mosaic project’s vision apart from the crowd.

Basic respect for human relationships and a desire to fully align the three pillars of ‘people, planet and profit’.

The building is now nearing completion – and it recently won a Sustainability Award by Alberta Construction magazine. That’s nice – and the building is beautiful, fulfilling two items of its rather ambitious mandate – but was it affordable? Did it inspire a paradigm shift?

Disrupting conventional wisdom isn’t for the faint of heart. Not one but three withdrawn financing letters of intent nearly tanked the project. IPD requires bringing on board the ideal partners to be involved in the design and discussion phase from day one, or not at all.

Because collaboration and transparency are key, everything had to be built from scratch – from creating a multi-party agreement which stipulates a shared risk/reward strategy (includes

– seriously – a shared profit pool), to finding an insurance/bonding partner, to daily site collective problem solving.

I’ve had some sleepness nights growing my business, and the stakeholders’ Mosaic journey was no different. You land in the annals of history for one of two reasons – luminous success or devastating failure.

There’s insufficient space in this article to detail the success of this project – but check out their blog and video (themosaiccentre.ca). From the owners, the contractor – Chandos Construction, the architect – Manasc Isaac, and the trades, and down to the site workers, all agree that it changed their lives.

On time? You’d better believe it.

On budget? Yep. Change orders? Not a single one.

This wasn’t a strategic exercise in building a competitive advantage – this was taking a stab at the blood sucking vampire heart of an unsustainable construction culture.

Not grandiose, just simply grand.

Chandos is now on its 7th IPD project, and there is a lot of buzz in Alberta – some of it admittedly skeptical, but a lot of it of the ‘we better learn more’ variety.

All the strategic partners are delivering talks, presentations, and webinars to the competition. Mosaic got the right believers at the table, incredibly important for the success of an IPD project. They are all committed to the paradigm shift, and are recruiting more believers.

LEAN is so much bigger than cost cutting – it’s a deep commitment to driving value to the client by building an engaged, agile workforce and eliminating waste.

It’s difficult to take a stand in the midst of the crowd – but championing the change needed in your industry just might be equivalent of storm proofing your business – and it couldn’t have come at a better time in Canada.

Productivity, here we come.

Here’s hoping your January resolutions include shedding a few pounds, and getting LEAN. Angela Armstrong is the founder of the Prime Capital Group – a super interesting team of people who regularly brainstorm to creatively solve problems, including how to brainstorm, for a great portfolio of Canadian business clients. Prime specializes in equipment finance solutions. Angela specializes in asking questions. www.pcclease.com

canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

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2015 ISSUES & EDITORIAL THEMES Issue  January-February Industry Report

Kick off the year with our Industry Report, which provides insights on the state of the leasing and financing market in Canada and across North America. We feature contributions from industry and association leaders who provide exclusive, personal viewpoints that our readers will use to shape their planning and strategy for 2015 and beyond. EDITORIAL DEADLINE: February 13th

Issue  March-April Lending Report

The Lending Report is where our readers will get the word on the availability of capital from each of the significant sectors which provide funding—leasing companies, bank subsidiaries, credit unions, captives, third party and independent lenders. EDITORIAL DEADLINE: April 2nd

Issue  May-June Technology Report

There’s two ways that our Technology Report helps our readers manage their key software, systems and hardware decisions. We look at a range of key IT developments which companies are managing while taking the plunge to upgrade, enhance and expand their IT operations. Readers will read exclusive articles that show the way to best practices in cloud computing, analytics, and more. EDITORIAL DEADLINE: May 15th

Issue  July-August Services Report

This issue is our Services Report, which looks at Remarketing, Aftermarket, Appraisals and Auctions. Readers will learn what they need to know to take full advantage of the offerings and opportunities in these key services.

We feature contributions from the leaders of each area to provide advice on strategy, tactics and processes.

EDITORIAL DEADLINE: July 30yh

Issue  September-October Legal Report

Our Legal Report, which provides an extensive report on the legislation, statutes, law and ongoing government changes in Canada and across North America. We feature contributions from a wide range of legal experts who provide exclusive, fully vetted opinions that our readers will use to shape their deals, contracts, agreements and structure for 2015 and beyond. EDITORIAL DEADLINE: August 28th

Issue  November-December Market Report

With a new year on the horizon, our Market Report includes our convention issue and detailed industry forecasts. The issue focuses on hard decisions affecting our readers’ ability to fund their projects. Also features a series of industry leader interviews in a one-on-one format. EDITORIAL DEADLINE: October 9th

Plus…

Each issue includes Regular Editorial Columns which look at funding sources …business management…real world case studies…vertical market insights …technological developments…major news stories…events and more.

Call us to learn more about how to leverage these editorial opportunities with Advertising, Online Campaigns, Editorial Roundtables, and more.

Phone: 905-201-6600 • Toll Free: 1-800-668-1838 • www.canadianequipmentfinance.com

Technology Report

How is your Equipment Doing?

The Quick-Start Guide to Implementing Telematics

By Brett McNally

ntegrated into consumer and commercial vehicles for over a decade, telematics is useful for monitoring vehicle diagnostics, driver behavior, and vehicle location.

From vehicle manufacturers to insurance companies to owners, telematics helps in such things as vehicle maintenance, warranty reporting, claims and risk metrics, and vehicle theft.

Vehicle OEMs and insurance companies have developed their own solutions that are specific to their functional requirements. They own the data collected as a result of their implementations and don’t generally extend that information to the end customers. Commercial equipment manufacturers have followed suit on select models; however, typically they have provided this to their endcustomers as an added service.

Some industries such as the rental equipment market possess the need to implement telematics on assets to protect their investment by monitoring vehicle location and movement, to track usage parameters like engine hours, and to monitor vehicle misuse. This article outlines the features to consider when selecting a telematics system for first time integrators or aftermarket customers. We will cover hardware selection, connected technology, data service provider selection, data

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management, data/metric aggregation, and prototype system deployment.

Hardware selection It is important to understand the technical integration hurdles before selecting a telematics hardware platform.

The brand of the equipment and its model year will determine the feasibility of implementing and integrating technology on equipment. There are a variety of serial data interfaces that range from J1708, CAN, RS-232, and RS-485.

Additionally, these interfaces support standard protocols; others maintain proprietary manufacturer protocols.

Make sure your hardware is designed to read-in data parameters from the existing communication protocol on the vehicle or engine.

In addition to serial data interfaces, telematics hardware needs to meet the rigors of the environment. Temperature, water intrusion, and vibration can render hardware useless and the telematics device selected must be designed to survive continuous operation in harsh environments. An IP67 rating or better is recommended. Hardware manufacturers advertise these environmental ratings on most technical or marketing documentation.

Connected technology Asset connectivity is a convenient and necessary requirement to maintaining capital investments. There are multiple

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

methods of connectivity to consider when selecting the correct telematics platform. Satellite, GSM/CDMA cellular, Bluetooth, and Wi-Fi are the most popular forms of data transmission; each has its benefit and disadvantage.

Data transmission via satellite is required when you need continuous connectivity and the equipment is deployed in areas outside of cellular connectivity. This is a common requirement for container ships and assets in the Northern Territories.

Satellite telematics equipment and service have become more cost competitive with alternative solutions; however, they are typically the most expensive solution and require more costly data service.

Cellular communication is also a necessity if continuous data is required and the equipment is located in a relatively populated area. Cellular communication networks are rapidly expanding coverage areas and producing reliable connectivity. Typical applications include services dispatching, onhighway vehicle tracking, and stationary equipment. CDMA and GSM are the two options to consider when selecting cellular telematics solutions.

GSM and CDMA communication are the most prevalent form of telematics applications. GSM, or Global System for Mobiles, is accepted as a world-wide standard for cellular communication.

CDMA is limited to North America and a select few areas world-wide. Telematics

Technology Report manufacturers have produced both CDMA and GSM solutions. The decision to select between the two should be made with geographic deployment in mind.

If continuous data connectivity isn’t a requirement, Bluetooth may be the most cost effective and convenient method of equipment telematics. Equipment operators and service technicians are typically equipped with cellular phones that have Bluetooth. These devices can poll data and leverage custom applications to aggregate equipment metrics. This data can be visualized on the device and pushed to a data hosting cloud for future use.

Wi-Fi is another cost-effective solution with powerful application functionality.

Embedded Wi-Fi modules typically have embedded operating systems like Linux. Wi-Fi enabled devices can connect directly to mobile devices and PCs with agnostic web interfaces hosted on the device. They can also connect to a localized hot-spot and deliver data directly to the cloud. This type of device has a wide variety of applications and could replace the use of HMI on some pieces of equipment.

Data service providers Some solution providers offer an a la carte style hardware and services.

Others provide complete end-to-end systems with hardware, wireless data subscriptions, data hosting, and data presentation interfaces. Purchasing elements independently from multiple suppliers can be a procurement nightmare. However, if the scale of the deployment is large, then it will benefit the customer to leverage new vendors and competitive pricing. Alternatively, if the opportunity is small, the selection process will increase the time to deployment and the pay-off to diversify suppliers may diminish.

If you prefer to select your own Machine-to-Machine service provider, be cognizant of the hardware capabilities.

Satellite, CDMA, and GSM all require specific service providers that offer the respective communication standards.

Additionally, each carrier requires hardware to have network certification before they authorize network access. canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

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Technology Report Data management Data hosting and presentation should be defined in parallel with hardware selection. The sheer volume of data can be expensive, un-manageable, and overwhelming to individuals who access, post process, and manage it.

Each telematics consumer maintains a specific set of requirements in order to leverage a return on this system investment.

Managing data can be done in multiple ways. Some popular methods include: secure web applications; secure web APIs; and custom enterprise software interfaces.

Secure web applications are most common for flexibility and user distribution.

They provide tools for post processing data into usable

metrics and graphical renderings.

Furthermore, web applications are easily accessible via web-browser and an internet connection.

Additional features include dispatch tools, service ticketing, navigation, geo-fencing, routing, and optimized mobile device interfaces. Dispatch tools include geo-tracking, timeto-response metrics, and route-optimization. These are powerful features employed in service fields such as refuse and utility.

Data aggregation The ability to capture every piece of data and transmit it all of the time is not a prescribed method of implementing telematics.

Fasten your seatbelts. Roll up your shirtsleeves. And prepare yourself for an information packed day.

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CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

Each data point that is captured has a cost associate with it (transmission and storage). A data strategy is essential to have the system deliver value to the user. Developing a clear and concise list of data points and each parameter’s transmission profile should be held in high regard. For example, you may want to monitor geographical position every five seconds, while you would only need to log it every minute.

Data is transmitted using different protocols. Data can be sent using a serial method or file transfer. Both of these integrate overhead such as timestamps, checksums (or cyclical redundancy checks), and packet sizes. This overhead should be accounted for in data transmission profiles.

Furthermore, algorithms can be employed on the module to capture and postprocess data for selective transmission events.

Additionally, transmitting prepared data using an event or exception can significantly reduce data consumption. If periodic transmissions are still required of data should be done with consideration.

Evaluating your solution Once the items above have been selected, defined, and implemented, the next step is prototyping. Prototyping provides the opportunity to evaluate data transmission profiles, user interface, and to refine equipment metrics.

Once the data transmission profiling is complete, asset data plans should be refined and reevaluated with the service provider for cost effectiveness. Additionally, any desirable features in

the user interface that weren’t originally defined should begin design and development.

Production deployment Ultimately, production deployment follows the project process of hardware selection, connected technology, data service provider selection, data management, data aggregation, and prototype system deployment. This requires business functions such as forecasting, supply chain engagement, production process implementations, billing, customer service, and contract management. If telematics is new to an organization, consultants engaged in the telematics industry can be hired to advise on implementing these new processes into the business.

In summary, telematics can be a great tool for vehicle owners and operators. It can save you time and money needed to monitor and maintain your vehicle to optimize operator safety, productivity, vehicle health, uptime, and cost of ownership. Developing an effective data collection and management strategy can create an effective ROI for your investment.

Brett McNalley is the Product Manager at Wireless Products at HED (Hydro Electronic Devices, Inc.). Mr. McNalley has seven years of product development and engineering experience in embedded controls and systems. Prior to joining HED, he served as a senior level software and controls engineer at Mercury Marine.

Additionally, Brett has a B.S. in Electrical Engineering from Michigan Technological University.

HED Inc. is a recognized leader in the development, manufacture, and sale of mobile electronic controls utilizing the highest technology and quality standards.

Our mission is to provide substantial market differentiation to our OEM customers’ on and offhighway mobile vehicles through superior electronic control solutions that enhance vehicle performance and maintainability while reducing development cost and time-to-market. For more information visit us at www. hedonline.com or call 1-800-398-2224.

Coming Soon

Your guide to the world of telematics in Canada

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The Insurance Issue for UBI?

ging the face • How Big Data is chan of auto insurance nnected car • Special report: The co

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• Are Canadians ready • Mobile’s role in UBI

To advertise or to get more information and a media kit: 905-201-6600 | 1-800-668-1838 | 302-137 Main Street North, Markham ON L3P 1Y2 Canadian Telematics is a Lloydmedia, Inc publication.

Lloydmedia also publishes Financial Operations magazine, Canadian Treasurer magazine, Canadian Equipment Finance magazine, Payments Business magazine, Direct Marketing magazine and Contact Management magazine.

EVENTS

WHERE TO GO. WHAT TO SEE.

Find out more about the conferences, exhibitions, seminars and meetings in your industry

2015 January 20-22 18TH Annual AFSA Vehicle Finance Conference & Exposition San Francisco, CA www.vehiclefinanceconference.com

February 8-11 IMN (Information Management Network) ABS Vegas 2015 Last Vegas, NV www.imn.org

February 22-24 Equipment Leasing & Finance Association ELFA Equipment Management Conference Miami, FL www.elfaonline.org

April 15-18

May 6-8

Factoring Association 20th Annual Factoring Conference New Orleans, LA www.factoring.org

Equipment Leasing & Finance Association Public Sector Finance Forum Denver, CO www.elfaonline.org

April 21 Equipment Leasing & Finance Association ELFA Bank Best Practices Roundtable Chicago, IL www.elfaonline.org

April 21 Equipment Leasing & Finance Association ELFA Captives Best Practices Roundtable Chicago, IL www.elfaonline.org

April 21

National Heavy Equipment Show (NHES) Toronto, ON www.nhes.ca

Equipment Leasing & Finance Association ELFA Independent Best Practices Roundtable Chicago, IL www.elfaonline.org

March 12

April 21-23

Equipment Leasing & Finance Association 13th Annual IMN/ELFA Investors Conference New York, NY www.elfaonline.org

Equipment Leasing & Finance Association ELFA 27th Annual National Funding Conference Chicago, IL www.elfaonline.org

March 15-17

April 30-May 2

Equipment Leasing & Finance Association ELFA Executive Roundtable Palm Beach Gardens, FL www.elfaonline.org

Nat’l Assoc of Equip Leasing Brokers NAELB 2015 Annual Conference Phoenix, AZ www.naelb.org

April 15-20

Equipment Leasing & Finance Association ELFA Legal Forum Nashville, TN www.elfaonline.org

March 5-6

National Equipment Finance Association NEFA 2015 National Equipment Finance Summit Long Beach, CA www.nefassociation.org

May 3-5

May 13-14 Equipment Leasing & Finance Association ELFA Capitol Connections Washington, D.C. www.elfaonline.org

June 7-9 Equipment Leasing & Finance Association ELFA Credit & Collections Management Conference Washington, DC www.elfaonline.org

September 16-18 Equipment Leasing & Finance Association ELFA Operations & Technology Conference Philadelphia, PA www.elfaonline.org

September 16-18 Equipment Leasing & Finance Association Lease & Finance Accountants Conference Philadelphia, PA www.elfaonline.org

September 16-18 Canadian Finance & Leasing Association CLFA Annual Conference 2015 Gatineau, QC www.cfla-acfl.ca

October 25-27, 2015 Equipment Leasing & Finance Association ELFA 54rd Annual Convention San Antonio, TX www.elfaonline.org

Visit us online www.canadianequipmentfinance.com/events.html 28

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

vendor directory Providing practical and cost-effective legal services to the Equipment Finance Industry for 20+ years

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877.463.8241 www.verusvaluations.com

905.940.8700 • 1.866.508.8700 • wvllp.ca

Northstar takes pride in offering fast approvals, competitive rates, and flexible terms, coupled with friendly, personal service.

Please contact Bruce Collingwood or Wayne Gray at 705-737-5595 or toll free 1-888-678-2701. www.nstarleasing.com

Since 1983, Northstar Leasing Corporation has been meeting the needs of our business clients and Broker network across Canada.

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Vendor Directory Advertising call Mark Henry at 905-201-6600 x 223 or email mark@canadianequipmentfinance.com canadianequipmentfinance.com | january/February 2015 | CANADIAN EQUIPMENT FINANCE

29

Observations

McBarge?!?

It sits a shadow of its former self …

By Rob Birnie

few months ago I happened to pass by a long term fixture of Burrard Inlet here in Vancouver, BC. Those who attended Expo ’86 may remember the ‘Friendship 500’, a custom built floating McDonald’s restaurant which was intended to showcase future technology and architecture. McDonald’s engaged local architects and engineers to construct the restaurant and their other Expo facilities at a reported cost of $12 million. Following Expo, the restaurant remained unused in False Creek until 1991 when the owners of the grounds forced McDonald’s to remove it. The barge was towed into Burrard inlet and has remained there at anchor for the last 23 years.

There have been multiple potential sales of the barge over the years and non-profit organizations have even put forward proposals to redeploy the restaurant as a homeless shelter, but none of these proposals have gained traction and the derelict building sits in a back corner of the inlet as a ‘point of interest’.

Passengers on Vancouver’s West Coast Express barely give the barge a second thought on their way to work each day.

Several years ago, we were requested to identify the market value of a custom

A

30

designed floating showroom for a well-respected yacht manufacturer.

The showroom was constructed on a barge with a documented total cost of construction approaching four million dollars. The building was absolutely beautiful, and illustrated the high quality of materials and craftsmanship introduced into each and every yacht manufactured by the company. There is no question that the cost to replace the unit would have exceeded the original construction cost and the building was an absolute one-of-a-kind facility, but the conclusions that could be drawn from ‘McBarge’ were too obvious to ignore.

This is where a common challenge in appraising custom built assets lies.

Regardless of the cost of construction (or replacement cost), market value of a unit is based on the premise that a sale transaction can be agreed upon by both a seller and a buyer. Sales history of custom built units is, of course, non-existent and drawing parallel conclusions from similar units is subject to assumptions, each of which increases the potential margin of error in a reported value. Identifying the factors that will influence a buyer of the unit is a key consideration when establishing the suitability of the asset for redeployment.

CANADIAN EQUIPMENT FINANCE | january/February 2015 | canadianequipmentfinance.com

These factors may include costs to modify the unit to address branding or other business requirements and can also include costs associated with transport and ongoing maintenance; the buyer will weigh these costs against the potential cost of custom manufacturing their own solution. These factors are not limited to a portable building structure (no matter how elegant), but may be applied to all custom manufactured equipment and extends to manufacturing production lines. A production line which is custom designed to produce a unique product and is configured to specifically fit within the footprint of a location may have costs associated with re-configuring it for installation in a new facility which may actually exceed the cost of acquiring new equipment.

In the case of Friendship 500, plans have been discussed over the last two years to move the restaurant 100kms by water, to completely refurbish it and to make it the centerpiece of a waterfront community, but, in the meantime, it sits in Burrard Inlet as a shadow of its former self.

ABOUT THE AUTHOR: Rob Birnie is a Certified Machinery and Equipment Appraiser (CMEA), Master Marine Surveyor (MMS Senior Business Analyst (SBA), and an active member of the Canadian Finance & Leasing Association.

Rob has applied his hands-on experience in mechanical and marine repairs and more than 19 years of insurance damage appraisal, valuation and loss settlement experience to create and direct Verus Valuations.

EXPERTISE, FLEXIBILITY AND SPEED We understand that cutting-edge equipment is key to your organization’s productivity and success. Let our financing team put their specialized expertise to work for you to allow you to acquire the equipment you need more readily and rapidly.

EQUIPMENT FINANCING SPECIALISTS Jean-Pascal Gagnon Account Manager Thierry Martin Senior Manager

To contact Business Services�: ��������������

Jérôme Thibeault Senior Manager

François Houde Senior Manager Thierry Langevin Vice-President

Sébastien Lemay Senior Manager Louis Dupuis Senior Manager

At Element Financial we help North American businesses finance the essential capital equipment that makes them productive, profitable and powerful.

Call us or visit us online today.

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