Archive for February 2011
Ready To Apply For Busines Financing?
February 24th, 2011
“Are You Sure You’re Ready To Put In An Application For A Business Loan Or Business Financing Facility?”
I good portion of what I do is to arrange business financing facilities for small and medium sized business owners.
And a good amount of the initial time I spend with a client is figuring out if they are ready to apply for financing or as I like to say, are in a “finance-able” position.
Unfortunately, I good bit of the time I have to try and convince them that until certain things are brought into order, the financing they’re looking for is unlikely to be coming their way any time soon and some potential financing opportunities may get destroyed by an incomplete or uninspiring credit package.
The truth of the matter is that business financing is much harder to secure in 2011 than it was only a few short years ago. And business owners have been spoiled into believing that close enough is good enough when it comes to putting forward the information a lender or debt provider is likely going to want to see and review.
And the old adage that you never get a second chance to make a first impression was probably first uttered by a bank manager or debt financing source of some type. A lender is going to say N0 more than Yes and the process of going through an application in many ways is a disqualification process as they try to get to N0 as fast as possible.
The fastest pathway to NO today and perhaps for a long time with a lender is to present an incomplete and somewhat sloppy application package. While most people do not have any desire to become an anal retentive bean counter, the reality is that they are initial being judged on both their physical appearance and information appearance. And by the way, a nice hair cut and a sharp looking business suit will not make up for a less than stellar information package.
When lenders turn business owners down because of incomplete information, poor information system reporting, lack of up to date business knowledge, etc., they typically will even go so far as to put notes on the file so the next time you come in to apply for business financing, even if the people you initially met with aren’t there anymore, the notes will be left behind for those that are.
From the files I work on, there are basically two types of situations that, unless you’re completely desperate for cash, should cause you to hold off applying for a loan or financing facility.
The first is about the wrong point in time. If the last business cycle was less than stellar and you’re in the middle of a pretty good year, until you can get third party financial statements completed, the application is likely going to suffer.
The right point in time is always when things are not only going good, but when you can verify that they are going good through third party validation.
The second situation where you should throw out the anchor and slow down is when the business is running a bit ragged. Sure, you may be making money and not owe much debt, but the accounting systems and other information systems are in shambles or not up to date, providing a low level of confidence that you’re in a position to manage growth or take on debt for whatever reason.
Its easy to not only waste a lot of time trying to plow a road with poor equipment, but its even easier to screw up opportunities where someone would have been prepared to advance a financing facility if you would have had your —- together at the time of application.
The key here is to make sure you are in a “finance-able position” prior to applying and the best way to do that is to work with experienced business financing specialist who knows what the market is likely to accept or not accept.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingImportance Of Counting The Beans Properly
February 18th, 2011
“Make Sure That Your Accounting System Will Provide A Lender With The Confidence They Need To Lend You Money”
In the process of trying to secure business financing for a small or medium sized business, the business owner or manager is typically focused on presenting their business plan, historical financial statements from the accountant, and some projections for the future profitability of the business.
What is overlooked in many cases is the state of the accounting and/or bookkeeping system that counts the beans.
In this day and age of closer scrutiny by lenders and debt providers, its not uncommon for lender due diligence to reach into the bookkeeping and accounting system and practices to see if the proper rigor and discipline is being applied to the financial side of the business.
And what’s even more common is that most businesses score keeping systems are not up to par and can’t meet the standards of the person doing the reviewing.
When this happens, all the hard work it took to find a lender that was willing to provide business financing in the first place can quickly go up in smoke as the business owner’s credibility goes out the window along with all the ledgers and sub ledgers that don’t balance.
Its not at all uncommon for businesses to take a close enough is good enough attitude to record keeping, then through everything at the accountant at the year end to see if they can make sense of it in order to produce some sort of reliable and valid financial statements. Unfortunately, because year end filings aren’t required for months after the year end, nothing in the behavior tends to get corrected due to the fact that as soon as the books are finally closed for a given year, the business is half way through the next with another set of incomplete records already in the making.
The message here is basically that good accurate bookkeeping and accounting practices provide credibility and support for any lending decision a bank or institutional debt financier is prepared to make to a company.
Counting the beans properly should also lend to better decision making, better cash flow management, and greater lead time to deal with issues that are known sooner.
Good financial management is just as much a decision making factor to a lender as is the business strategy, owner experience, and historical financial performance.
And its likely that higher scrutiny is going to continue, especially after the high levels of loan failures of recent years.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingSecuring Capital For Growth – Moving From Theory To Practice
February 14th, 2011
“Proof Of Concept Leads To Business Financing More Often And Much Faster Than Not”
Because we live in a fast paced, immediate need fulfillment society, there is the unrealistic expectation on the part of entrepreneurs and business owners that people with money are willing to finance our hopes and dreams and let us start living the good life faster than is realistically possible.
Start up capital is hard to raise for one very important reason…the request for business financing is based on theory not practice.
While every would be entrepreneur or serial entrepreneur is convinced that their latest idea or plan is sure to succeed, statistics related to business failures in start ups would prove otherwise.
As I mention to individuals that call me to help finance basically their business plans, debt financiers and equity investors are looking for those individuals with the good ideas, accompanied by the proof that they’ve figured out or learned the first thousand things required to make money in a given business pursuit.
The analogy I will typically provide is that most entrepreneurs or business owners with a great idea and solid market opportunity available have done a great job of learning the first hundred things that are important for them to make money in their chosen en devour. However, at that point in the evolutionary process of getting to market, they start asking for large sums of money to accelerate the process.
In most cases, people with money are not interested in funding those who have not been able to get further down the learning curve, closer to the knowing of the thousand things that are important unless its some kind of mind blowing surefire thing a ma jig.
In the early stages of developed, no matter how well the business plan is written and how thorough it identifies and addresses all significant risks to moving forward, its still all theory.
What I mean by theory is that it hasn’t been done yet.
Moving from theory to practical application where actual results are generated, measured, and shown to be profitable is the ultimate pathway to finding all the business financing you could possibly require.
In order to accomplish this, the entrepreneur or business owner needs to figure out what the smallest possible scale he or she can work at to achieve the desired result and how much money will be required to develop and implement this smaller scale model of the grand design.
This is going to be a much smaller amount of money to locate than the big picture funding most are looking for, and in the event that the mainstream market is still not interested in funding, the requirements may be small enough for bootstrapping and the recruitment of investors from the friends, family, and fools section of the market.
Once proof of concept and practical, measurable results are in hand, its going to be a lot easier to get someone to take you more seriously.
Of course this approach will likely mean slowing down the march to market domination and will put off the quest for larger development dollars until one or more economic cycles of the business model can be completed.
But by taking the long way around, you’re going to go through the learning process in much more depth and get closer to the thousand things you need to know.
Or, you can continue to aggressively look for overly aggressive money in the hope that you will be one of the lucky few with more ambition than practical proof of concept that will get the funding necessary to carry on.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingHow Superbowl Preparation Relates To Business Financing
February 7th, 2011
“Success Does Start With Preparation, Regardless Of What The Objective Your Trying To Achieve”
The Superbowl didn’t go so well yesterday for my Steelers… that is for the part of the game I actually got to see versus chasing my kids around.
Regardless of who won, what was well known before the game began was that both teams were prepared to play, that sufficient preparation had gone into the two weeks leading up to the big game and for both the Packers and Steelers, success was only going to be possible through the necessary preparation, or at least it would considerably strengthen the odds of winning the game.
With business financing, there is a view among many business owners that securing third party capital in the form of debt financing or equity investing does not require a great deal of preparation and that knowing the process and managing the details of what leads you to getting business financing in the first place are not overly important.
The football equivalent to this type of thinking would be for the Steeler and the Packers to take two weeks off prior to the game, arrive a couple hours before the game began, and then get ready to play. This is not to say that this approach could not be successful, but their are long odds against it which is why no one does it.
Yet in the business world, the process of looking and securing capital for a business is very much like this at times. The business owner, once again in many but not all cases, doesn’t really understand the full process, starts preparing too close to the time the money is required, and assumes that he or she will be able to convince a lender or investor to provide capital without much effort or time being extended.
Once again, this approach can prove to be successful, as it has in the past, especially in the economic period prior to the last recession.
Which is what has also led us into the current economic downturn…too many people prepared to borrow or invest too much money into situations that were not prepared to receive and properly manage capital.
Now that things have tightened up in the capital markets, success once again goes to prepared more so than the unprepared.
While developing business plans, financial projections, and project plans for the future as well as developing a solid working understanding of the performance metrics of the past are not going to be viewed to be overly sexy by most business owners, managers, and entrepreneurs, the same can likely be said towards doing extra film study, extended practice time, and team meetings.
One of the things that has kept me a Steeler fan for over 30 years is their steadfast approach to running a business in a consistent fashion. Focusing on a proven model only makes the future results better. Flip flopping from approach to approach surely will not, especially over time.
Most business owners have a goal to be in business for a long period of time, and modeling out success for many will include the periodic or ongoing need for third party financing. To maintain stability with this critical business component requires a great deal of diligence and at times preparation.
Preparation never guarantees the outcome, but almost without fail will increase the probability of success and make the outcome more realistic to achieve.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingMaintaing Access To Cheaper Money
February 1st, 2011
“Being Able To Access Cheaper Forms Of Money Can Maintain Long Term Profitability”
Financing your business with cheaper money will promote the longer term health of your business.
Easy to say, but it can be hard to do.
Why?
Because cheaper money is lower risk money, meaning that you always hold significant risk yourself and you continually work hard at minimizing the risk for lenders and investors. In order to maintain access to the lower cost forms of debt and equity, the business financing year in and year out approach is to methodically move through the market and closely monitor the economy so that your collective neck is not sticking too far out.
For many small and medium sized businesses, the principals of cheaper money make sense, but the desire to grow and take risk can easily push a business into higher cost capital that may be difficult to get rid of over time. And if the margins are too thin, then the business owner can easily end up owning a job that hands over all the potential profits to lenders and creditors.
Small business financing lenders get rich by they themselves accessing the cheapest forms of money and then marketing it up 5 to 10 times when they lend it out to SME’s. The key to small business lending success is not to kill the patient, but to price the money and set the debt service at levels that allow the borrower to continue to function.
In their haste to get started or grow too fast, small business owners convince themselves that an equity stake and a proper balance sheet are going to take too long to get into place, turning to more expensive sources of business financing to buy assets or fund working capital, all the while protesting that the cheaper sources of business credit have conspired against them.
The reality is that cheaper money has an equation and discipline that goes with it. And sometimes the process for getting and keeping access to lower risk funding requires a slow and steady pace.
And while there is a certain segment of business owners that are prepared to go for it and earn their way out of more expensive debt, the majority are not prepared to go through boom and bust cycles, opting for steady, profitable growth.
In order to achieve this, business owners and managers need to first learn the requirements of cheaper money and then make sure that they are always reconciling their actions and spending against these requirements, otherwise the business results that get generated can easily fall outside of the requirements of many of the main line banks and institutional lenders that provide the lowest cost levels of business financing.
Bean counting and financial discipline are not always the most popular focus areas for an entrepreneur or business owner. But a lack of focus in these areas creates business imbalance, which can easily lead to more expensive money and effectively serfdom with the business owner turning over the potential future profits to money lenders and settling for a modest wage.
Perhaps some would view this as still better than working for someone else. But it pales in comparison to what may be possible if you keep your financial and credit profile in order.
Click Here To Speak To Business Financing Specialist Brent Finlay
Business Financing