EW 003 – From Asset Based Lending to Traditional Financing – How Director of Finance Chelsea Yarmuch Got A Win For McKillican

Gordon Sheppard (00:01.204)
Chelsea, welcome to the show.

Chelsea Yarmuch (00:03.96)
Thanks for having me.

Gordon Sheppard (00:05.65)
It’s really good to have you here. I’m just so excited to hear you share your win with everybody. And usually when people come on these things, know, I’m not sure that too many people necessarily know who you are, your role, and kind of where you work. And take a minute to introduce yourself so we can know those things.

Chelsea Yarmuch (00:20.034)
Yeah, sure. My name is Chelsea Yarmuch I’m currently the Director of Finance at a Wholesale Distribution of Construction Building Materials Company. They are in Canada and the US, so Western Canada, Western US, Texas, and Hawaii. Interesting company for sure. And I manage their accounting, accounts payable, accounts receivable, and payroll.

Gordon Sheppard (00:45.844)
Wholesale distribution so never a dull day I imagine like if I say skews or a number of items getting distributed It’s a lot is that fair?

Chelsea Yarmuch (00:54.174)
lot of inventory but super interesting. Think about anything you could put in your kitchen from the countertops to different cabinets, handles, knobs, slides, all of those sorts of fun things.

Gordon Sheppard (01:10.773)
So builders love you because you’re getting that stuff out to the world, I’m sure, as sort of those things are getting done and you become then it’s and how many years has the company been in business?

Chelsea Yarmuch (01:21.198)
they’re getting close to 50 years.

Gordon Sheppard (01:24.076)
50 years is you got to be pretty good at it, right? If you kind of get going in just for context, when did you, how many years ago did you join the company before we get started in our conversation here?

Chelsea Yarmuch (01:26.699)
Exactly.

Chelsea Yarmuch (01:33.452)
I joined in 2018.

Gordon Sheppard (01:35.34)
2018 so about six years ago you get in and then I get to start us off here and say great since then tell me about your biggest win and Describe it for us

Chelsea Yarmuch (01:45.546)
Yeah, for sure. So normally when I look at an organization, I’m always looking for large expense items. I really love trying to mitigate expenses, trying to make the organization more successful. And one of the line items that I saw that was large was banking.

and it was lending to be specific, asset-based lending. Asset-based lending,

as you might know, is for an organization and they can kind of go up and down with the the flows of the company. It’s a little bit different than traditional lending. You do have a lot more expenses with that asset based lending. So for example, you’re going to have bank audits, you’re going to have third party inventory audits, the bank is likely going to make you have an audit from a third party organization, you might have higher interest rates, a lot more bank

fees and obviously some organizations will have these sorts of things and other organizations maybe won’t or they’ll have a couple additional items. So when I look at something like this I want to know why. Why do they use it? How long have they used it? Does it make sense to still have that line item on there?

Gordon Sheppard (03:10.38)
Because this is a company that’s been in business for decades and then you get there about six years ago and you’re sort of getting into the mix of things and you make this discovery. And asset-based lending, I’m just going to say overall for what you’re describing, there’s a lot more activity with it, for example, and maybe higher risk and higher cost just generally if we’re in the asset-based lending zone.

Chelsea Yarmuch (03:13.858)
For sure.

Yeah.

Chelsea Yarmuch (03:24.686)
Mm-hmm.

Chelsea Yarmuch (03:28.238)
Yeah!

higher cost and also a lot more work from the accounting side. So you have all of these audits, your reporting requirements to the bank are gonna be more frequent than traditional lending. Traditional lending isn’t gonna go up and down as easy as the asset-based lending. So there is that difference there. And obviously for people out there, know, maybe this is right for your organization, asset-based lending. Maybe you could look at traditional lending and see if it makes sense for you.

as well.

Gordon Sheppard (03:59.875)
And just for fun, so I know if it’s asset-based lending and I can’t pay the loan, do they take my assets? Is that what happens?

Chelsea Yarmuch (04:06.348)
For sure, definitely.

Gordon Sheppard (04:08.643)
Wow, so I mean, is a punitive thing. So here’s a company that’s been functioning for long time. You arrive on the scene and we’ve got some Chelsea magic that happens in this win. Is that fair?

Chelsea Yarmuch (04:19.011)
Sure.

Gordon Sheppard (04:20.418)
What was your insight? Because you said you were looking into this moment. What was the insight for you?

Chelsea Yarmuch (04:22.926)
Yeah, and the insight for me was just like the sheer amount of costs that was associated to it. And as an accountant, we always look to see like, how expensive are things? And, you know, how much time and effort are you going to put forward to try and look into something? And does it make sense to look into it? And for me,

I wanted to look into this to see whether or not we could change it. And obviously with traditional lending, like you’re going to run into certain requirements as well. you know, if you can’t pay the loan, then obviously they’re going to see some assets as well. you know, what’s going to be the best for the organization and what kind of benefit are we going to see from it? And the more I dug into it, the more I said, I

this makes sense but

let’s work with the bank and see what the other options are and then work with the executive team and work with other key stakeholders to make sure that this makes sense for the organization and that they’re still going to be able to have as much lending as they do today with ABL, tomorrow with traditional lending. And that’s kind of where I got with it.

Gordon Sheppard (05:41.584)
Interesting.

Chelsea Yarmuch (05:47.372)
through those steps I realized that you know there could be some huge cost savings here because if you’re getting a bank audit

Twice a year, $20,000 a pop, there’s $40,000. Inventory audit, $25,000. And then third party audit, there’s another $40,000 that the bank requires you to do. Interest, interest could be anywhere from 150,000 to 300,000 per year. Other bank fees could be upwards of $40,000, $50,000. So once you start looking at some of those numbers, you’re like, wow, this is actually pretty expensive.

And that’s not even taking into account the weekly reporting all of the time in the audits that your team is spending on these different things. So, you know, after I made the decision and said, hey, you know, this makes sense for us to switch. I got buy in from the executive team. We got buy in from the bank. The bank said, yes, we could do this. We could switch you over to the traditional lending. I made sure that my team was on board and everyone understood

understood what we were going to be moving towards and made the switch. And you know, those aren’t just one-time expenses. Those are going to be continuation of expenses every single year that we’re going to be saving.

Gordon Sheppard (07:13.555)
What a great win and how lucky, because I mean, obviously you got this done in an hour, right? You recognize the problem, it just took an hour and you just talked to everybody and it was all easy. Is that the right thing?

Chelsea Yarmuch (07:20.078)
yeah, no problem, know, an hour. No, it definitely takes time. know, anything banking related, you know, you’re going to have to negotiate different interest rates or different agreements with the bank to make sure that that

Gordon Sheppard (07:25.03)
He he he he.

Chelsea Yarmuch (07:40.76)
type of lending is going to work for you and that you’re going to have the same amount of borrowing capacity as you previously did as well as buy-in. Like if you have APL lending.

today and you’ve had it for 10 years, you know, I would be a little bit cautious to switch to something else unless it made sense. And you definitely don’t want to have any holes in it because if you make the switch and you don’t have the lending capacity that you need, that’s a problem.

Gordon Sheppard (08:14.036)
Wow, so this is a significant impact on, again, something, know, business has been around for a while. You’re there, you’re kind of newer guy, in a sense, your first little while, and you make this recognition and you start that process. Wow, what a great win, because I’m hearing the hundreds of thousands of dollars, and then I’m just gonna say a lot of time that could then be spent on probably higher value activities, you know, for your team and for other people. The five-part framework that I would call the anatomy of a win is what I’d like to jump into at this point.

Chelsea Yarmuch (08:22.402)
Mm-hmm.

Chelsea Yarmuch (08:43.278)
Mm-hmm.

Gordon Sheppard (08:43.401)
It’s got these five steps and the know, it’s this idea of what was the strategy behind it? What was the work plan? Were the people involved? What was happening operationally and what were the results? And so when you look at it strategically, from your perspective, what was the strategy behind getting this to happen?

Chelsea Yarmuch (08:59.118)
The strategy was just, you know, how can we make this happen but still keep the borrowing capacity for the organization? How can we make a, what seems like a small change to have a large impact on the organization that continues to help the organization for years to come?

Gordon Sheppard (09:25.216)
Borrowing capacity, pretty critical because I mean, you’ve described without getting into it, you’ve described a global operation where the borrowing levels need to be where they need to be, especially because you would ebb and flow with your scaling opportunities and with your level of reputation. I’m sure there’s all that kind of growth things in the background because if you’re in your strategic plan, for example, you’re ready to go and take on another territory or whatever that is because you’re around the world, right? This is really critical.

Chelsea Yarmuch (09:35.415)
Exactly.

Chelsea Yarmuch (09:42.658)
Yeah.

Chelsea Yarmuch (09:48.256)
Exactly.

Exactly, yeah, you want to pick up a new product line or expand into new territory, you need to make sure that that boring capacity is there so that the organization is able to continue to, yeah, follow their strategic plan.

Gordon Sheppard (10:05.995)
Makes total sense. So now you’ve put them in a better position where you’re saving them this money, and also you’ve got sort of similar terms on the borrowing capacity side. And strategically, that was very intentional, and you’ve kind of got that going forward. The second step then is a practical step. was having fun before saying it takes an hour, mean, there’s sort of, take me through the timeline. There’s a moment where you recognize this, and then what were kind of the what, who, and when steps that sort of made this move forward?

Chelsea Yarmuch (10:25.729)
Yeah, for sure.

Chelsea Yarmuch (10:30.356)
Yeah, I mean, when I first started, I noticed it. And you know, you always keep it in the back of your mind to be like…

you know, is that something I’m going to be able to change? And during that time, there was a ERP conversion that was happening. you know, we want to change a couple of things. You don’t want a bunch of major changes all at one time because that can be very stressful on the organization and the employees. So during that time, I kind of waited, but still kept it in the back of my mind, learning what the organization needed and how they would

would be able to get that by moving away from the ABL. So once I kind of waited that out and the ERP conversion was done and we were able to pick up all the process improvements and efficiencies from that, then I circled back around to it and said, does it make sense at this time to look further into it? And at that time it did. It made sense to look further into it to see what the other options are out there and how we can maintain that moving forward.

That’s when I reached out to the bank and got suggestions from them on how we could go about doing this without changing the capacity of the lending. you know, when you have a good relationship with a bank, they’ll definitely help you out and can help move the organization forward as well. So it was probably, I would say, six to eight months from the time that we said, okay, this makes sense to being able to switch everything over

to the traditional lending.

Gordon Sheppard (12:09.849)
And you’re being kind, because again, that’s the good high level part of it. There would have been multiple meetings with your senior leadership. It sounds like you have a joy for change. Do you know what mean? Like just the change discussions that would have been like, well, hey, wait a second, new guy, like we did it this way for a long time. Kind of, can you sell, was there moments where you kind of had to sell it along the way as well?

Chelsea Yarmuch (12:28.038)
for sure. You definitely have to get the buy-in from not only the executive team, but making sure that the other employees that had long tenure with the organization and were used to that type of lending or those audits, that they all had buy-in. Because if you don’t have that buy-in from other employees, executives, the bank, other parties that are going to be interested in that,

you know, it could be pretty rough and it might not go as smoothly as you had hoped.

Gordon Sheppard (13:00.269)
No doubt. then when we look at that work plan part, there’s really just some paperwork reality that has to occur, right? There’s some mountains to be moved when you’re hitting, I’m going to say, don’t know, is there regulatory? What frameworks kind of, what are the moments along the way that might be some highlight moments when you’re changing over this type of banking thing? And again, who’s it impacting?

Chelsea Yarmuch (13:20.706)
yeah, totally. You definitely have to look at what rules and regulations are out there, especially when you’re not only in Canada, but internationally, what are they required to do? And then the reporting requirements for the bank and then the reporting requirements if you’re getting an audit or review engagement from a public practice, making sure that all of those boxes are checked off.

Gordon Sheppard (13:49.573)
So many things, again, along that practical part and somewhere then you’re getting the paperwork together, you’ve got this change part, you’re having these conversations, it’s getting towards the finish line. What are those last few finishing steps that kind of get it over the line? Like do you show up in a hotel room and sign papers? Like what occurs?

Chelsea Yarmuch (14:03.291)
Hahaha

Yeah, trying to coordinate everything to get it all signed off on. Trying to figure out, you know, what previously did we do and what do we need to do now? What are the changes in the reporting requirements to the bank or, you know, to your third party auditors or if you’re changing those sorts of things and, you know, it’s all changes that happen and you’re like, okay, what other things are going to change?

because of this. another thing in addition to changing this, we were able to downgrade our audit to a review, which also, you know, cost savings. You just see all of these chain reactions happening because if the organization doesn’t require an audit engagement and you can have it downgraded into a review engagement from your accounting firm, then you know,

That’s pretty cool too, know, decrease expenses, again, time saving so your employees don’t have to pull off the information for the audit. But again, like what makes sense for your organization? Do you want to keep having the audit engagement? Do you need it for something else or is it only a banking requirement?

Gordon Sheppard (15:26.363)
love it. The cost benefit analysis if we got in there and we looked at sort of the, I don’t know, the thousand buck an hour people and the hundred dollar an hour people and all the impacts that this would have had. What a nice ripple effect and again I’m sure if we sort of got the fine-tooth comb out we would hear all those exact steps along the way. There was a moment when it closed like along that timeline. What was the moment when you got the, when you knew it was a green light and all your efforts had sort of come to fruition?

Chelsea Yarmuch (15:50.988)
Yeah, when I got the green light, everything was signed off on and like previously we were having to do weekly reporting. We didn’t have to do that anymore and it was like, okay, now what am I gonna do with my time? Now we have to find something else that we can work on.

Right? All of this extra spare time. What can we use the other accounting employees for? What am I going to spend my time on? And it’s just looking for that next thing that you can help move the dial and move the organization forward.

Gordon Sheppard (16:26.14)
What a major, and again, we’re crisscrossing back into the practical parts, how that influences strategy. can hear the circular part of how that sort of helps to build up. And you can also hear your own strategic thinking. How nice to have, it’s one thing to punch the numbers. It’s another thing to have a global thinker involved who actually likes change. That’s a pretty interesting combo that you’ve got going there in terms of what you’ve described. The third step in the anatomy of a win, we’ve just talked about the strategy and the work plan, is the people involved. So I’m just gonna help you walk through it a little bit. And maybe if you can describe the people, but also along the way, like,

What about the attitude and skill sets, attitude and competency levels that sort of each person brought to it? Let’s start with you. mean, how would you describe your own attitude and competency level to actually initiate this and just describe that?

Chelsea Yarmuch (17:07.338)
Mm-hmm. Yeah, and like that’s a great point because the understanding and you know ability to be able to make this sort of change, you know, most of the time people are just like asset-based lending, traditional lending, I don’t understand. How about you deal with it or like, you know, I trust you and you’re just like, mmm.

You take a step back and you say, how can I present this in a way that makes sense, that other people can understand and be on board with and give input because…

Other people in the organization might be able to contribute something that you’re not able to contribute or they might see something that you didn’t see and they’re able to help move it forward that way. So from executive management, executives most of the time will understand it, but just making sure that it’s in a simple format that they understand, but also

trying to communicate from the bank back to the executive team. Because sometimes when you’re dealing with the bank and they’re talking about, you know, cross border or…

you know, the interest rates or the different types of lending, you really want to make sure that you fully understand what they’re talking about. And if you need to do additional research and come back with questions and then being able to communicate that in a manner to the executive team and then also communicating it, you know, to your senior accounting team or your junior accounting team that’s going to be pulling data or information for you so that it’s presented in a way

Chelsea Yarmuch (19:00.738)
that they’re going to understand and possibly have some questions or give some input on it.

Gordon Sheppard (19:09.57)
It’s so rich listening to what you’re saying because underneath there, there’s also, you’ve got your own sort of confidence level. right? This isn’t for the lighthearted to initiate something like this. Cause you know, it depends on where you’re thinking. So there’s something about you, the Chelsea factor that kind of gets this kicked off. And there’s also that detective part of like, wait a minute, I want to keep this on the radar. Cause we know it’s going to be sort of good things to pay off along the way. And then you’ve got this ability to storytell. So of course that your other senior executives don’t have a chance to go and learn to be accountants. So you’ve got to be able to.

Chelsea Yarmuch (19:32.046)
Mm-hmm.

Gordon Sheppard (19:39.181)
package that up and make it all that kind of translate. So you’re translating between these people, you got the bankers involved, how are you sort of, what would you say their sort of attitude and approach to this was from the people point of view?

Chelsea Yarmuch (19:51.15)
I think it totally depends on the bank that you’re dealing with and the bank that we were dealing with was very supportive, understanding and they were able to research it themselves because I feel like sometimes maybe they don’t fully understand like the different options so they’ll kind of

they’ll go back to their team and say, you know, is there another option from this perspective or that perspective? And coming back and circling back around and letting us know, hey, these are the options. And sometimes you’ll come back and say, hey, I don’t fully understand this. Can you give me a little bit more information on this? Or what kind of interest rate or what kind of requirements are you going to require with this? And they were extremely helpful with that.

Gordon Sheppard (20:39.908)
That’s so lucky. So can hear that you’re building the partnership in a sense, right? You’ve got a good banking partner on board. You’ve got support from your senior leaders. And again, what would you say your senior leader’s attitude, like what would you say initially, there’s a first moment where comes out of your mouth. You’re like, hey folks, we’re doing it this way. We would like to make a change. Like, what’s that moment like? And then what was the progression of that from the people side?

Chelsea Yarmuch (20:54.028)
Mm. Totally.

Yeah, totally. And I agree. Like sometimes you come at it and you’re just like, hey, you know, I think, you know, this might be an option.

We should look into this, you know? Maybe we should switch. Does it make sense to switch?” And then they’re just like, I don’t know. We’ve done it this way for so long. I’m not sure if it makes sense at this point in time. What’s our lending capacity going to be at? And…

then you come back and you’re like, okay, well, let me just crunch some numbers here and I’ll get back to you and let you know, you know, how much cost savings it’s gonna be, what our lending capacity is gonna be. And I feel like that’s kind of the approach that I like to take is, you know.

you know, little tidbits of information being like, maybe we should do this. And then saying, hey, you know, it makes sense for us to do this and this is why.

Gordon Sheppard (22:01.872)
And if we accelerate down the timeline then, there’s that initial reluctance and then you’re dripping in the story, you can hear your experience speaking there loudly. What was it like when they realized, when they saw it all come together? What was their response?

Chelsea Yarmuch (22:14.126)
This makes sense. Once you fully understand it, you know, it made sense to them to make the switch. And it’s gathering all of that data, all of that information, and making sure that all of their questions and concerns were answered. And I think as long as you’re able to answer any concerns or questions from the other executives,

they’re able to buy into the idea and then they’re able to come around and say, hey, yeah, you know what, we did it this way, but now it makes more sense to do it this way and we’re gonna have all of these cost savings. And I think right now after COVID, a lot of organizations with the huge inflation rate, this is what they’re looking for. They’re looking to see what you can make.

changes to in the organization and not have a decreased level of service, decreased level of lending, those sorts of things, and benefit from it. Benefit from the cost savings.

Gordon Sheppard (23:20.626)
I love it. And the other people that were involved would have been people on your team, do you know what mean, that are sort of executing on this. There’s an element of that. By the way, six to eight months sounds lightning fast for this type of change to me. Like, don’t know your world. It just sounds like, again, the buy-in, the change, the shift, the paperwork that you described, all the players involved. if I had to, there’s you, there’s the bank, there’s your senior leadership team, there’s your team itself. Any other players involved? Like, I’m gonna say the auditors get sort of.

decreased role to a certain degree. So the auditors, anybody else that we might have missed if you had to describe the people involved?

Chelsea Yarmuch (23:50.04)
Mm-hmm. Mm-hmm. Yep.

Hmm. I think that’s probably about everyone that was involved and I would say like the auditors, our accountants, like they also had a role in this because we had to make sure that we were meeting all of the reporting requirements. As soon as you have cross-border, it just adds that extra level of difficulty that you have to make sure that you’re following any international rules.

Gordon Sheppard (24:22.141)
Multi-jurisdiction, always a level much more complex for sure. Great, that’s the people thing so eloquently described. And then the fourth step is this operational component. there’s a way that you were operating before. You had all this reporting. There would have been rules and procedures in place to deal with asset-based lending. And then operationally, things would have had to switch over. So can you describe that a little bit on the operational brass tax part?

Chelsea Yarmuch (24:34.86)
Mm-hmm.

Chelsea Yarmuch (24:39.672)
Mm-hmm.

Mm-hmm.

Chelsea Yarmuch (24:46.05)
Yeah, I mean, it’s almost like a sigh of relief because, man, with the ABL, like, you do have a lot of reporting requirements. So you’re going to have like your banking audit. And I mean, other organizations, they might be different. The one that I was dealing with, this is what happened specifically is, you know, you have your banking audit and it was twice per year. So you’re pulling all of the paperwork for that. You’re doing all of the analysis.

Gordon Sheppard (24:51.762)
Hmm hmm hmm.

Chelsea Yarmuch (25:16.156)
So it’s time-consuming and then they had their inventory audit, which also again, you know, they’d come in very time-consuming pulling information doing analysis for them and then our third party auditor and they would come in and again multiple staff pulling different samples and information requests and Doing all sorts of analysis and stuff like that. And once you move away from that you got to figure out

What are those employees going to do with that time after, right? Like, what else can we do to help shift the organization, move it forward, make sure that, you know, if there’s other processes that we can improve and just making those sorts of changes.

Gordon Sheppard (26:06.141)
Love it. And then also in the operational part, I’m always curious about touching on, there’s a regulatory component, there’s the cross border component to this. There probably is a legal component, any lawyers involved as well?

Chelsea Yarmuch (26:18.104)
The legal part of it was, I would say, fairly minimal. With any banking changes, you obviously have to get new contracts, new agreements done up with the bank. I found that moving away from the ABL to traditional lending, traditional lending has less legal nuances than the ABL did. The ABL, I found, was a little bit more expensive than the traditional.

Yeah, a little bit illegal,

Gordon Sheppard (26:51.282)
less. Super. And then the fifth step in the anatomy is, know, how do you measure the results? Like what what do you measure to know that this was a win?

Chelsea Yarmuch (26:58.254)
For me, it was the cost savings and being able to see the amount of hours decrease, not only my hours, but the accounting staff hours, the accounts payable, accounts receivable payroll, even purchasing like all those different samples that they would be pulling for the audits. So just that huge number of

the cost, the sheer cost of it, and then also the amount of hours that were significantly decreased from doing way less audits.

Gordon Sheppard (27:35.764)
Love it. How would you measure the intangibles? Like how to make you feel?

Chelsea Yarmuch (27:41.602)
Made me feel great. It’s a nice wind. It makes you like, it makes you feel good inside, but also.

It’s a team effort. So you look around and you say, hey, you know, we did this and it’s a huge check mark for the year. You start looking at the different initiatives that you have going on. And like you said, you calculate, you know, this cost savings, this amount of hours, and you look around to your team and you say, hey, good work, everybody. Like we did something awesome this year. Now, what are we going to do next year to top it? You know?

Gordon Sheppard (28:18.432)
That’s so exciting. I just love the way that’s gone. And again, you got the tangible results. You got the intangible results. I just have to ask, was there a celebration at the end of all this? What happened?

Chelsea Yarmuch (28:31.872)
I don’t know, I think it’s just me feeling good inside.

Gordon Sheppard (28:35.278)
Totally, right? There’s that sort of good feeling you got from it all. Well, what a great story. I so appreciate the amount of time that you’ve taken to tell us in a really well-detailed way. Any closing comments on this win before we sort of let you go?

Chelsea Yarmuch (28:51.306)
I have any additional comments but thank you so much for chatting with me about this it was a lot of fun and I hope to hear about the other podcasts that you have going on.

Gordon Sheppard (29:03.841)
This was a good one. think a lot of people are gonna learn from it. Really appreciate you being on the show. Thanks so much.

Chelsea Yarmuch (29:08.152)
Thank you so much.