Posts Tagged ‘financing a business’
Thinking Three Steps Ahead
October 26th, 2010
“Does The Debt or Equity Funding You Accept Today Help or Hurt You Manage The Business Tomorrow”
I have often written that business managers and owners tend to leave the process of acquiring capital to the last minute and end up scrambling in many cases to get some type of financing in place before more costs are incurred or an opportunity is lost or some other dark consequence of not getting things done on schedule.
Not only does this very common approach to business financing create less than desirable results in the short term, but it also can wreck havoc on future business opportunities.
Let me explain.
The process of financing a business and managing a balance sheet is a lot about thinking three steps ahead as you try to proactively predict how things will unfold in the coming years and capital the business will require to operate within your predicted or desired path. And future predictions are not always going to be about growth. Sometimes the look ahead is going to be more on the gray or even dark side as you realistically or conservatively see a storm coming ahead and make a plan to deal with it that will hopefully lead to your long term survival.
Regardless of how you see the future, there is cause and effect in the field of view that needs to be factored into how you cash flow and fund your business.
This is why the decision making process of today can be so critical to what predictably is going to come next. Business financing done in haste most times creates a financing structure that will not easily allow for future moves without creating cost. In some cases, the capital acquired today will be a death sentence to the business if the future unfolds in a direction that is in congruent with what has been accepted or arranged.
An example of this would be an obsession with the cheapest sources of money. These sources not only can take an excessively long time to get into place, but they also demand close to extreme security positions and very stringent operating requirements that may or may not be met by expected future events. While cheaper money is always preferred over the alternative, the business has to be able to meet the requirements of the money, or be faced with demand to repay at likely an inopportune moment in time. And even if the business owner can comply with the demands of the money source, is there any flexibility left to allow for what comes next which might just require more outside money?
The process of thinking three steps a head requires that the business owner starts early and never stops looking for and understanding the available sources of business financing that are relevant to what he or she is trying to accomplish. The more pressed someone is with respect to securing capital, the less likely any capital required will properly allow for future moves.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingNo Such Thing As Easy Money
October 1st, 2010
“When Looking For Business Financing, There Is No Such Thing As An Easy Deal, A Simple Process, Or a Certain Approach To Getting Money”
Ok, so perhaps this is a slight exaggeration as I probably can recall a few business financing deals I’ve worked on over the years that went fairly smoothly, got closed on time, and provided the business owner with what they were looking for without any grief.
I can also easily count these situations on one hand and have some fingers left over.
The process for securing capital, especially since the most recent recession is gotten harder to achieve in most cases, most of the time. Its not that everything can’t fall into place with a funding process, its just not likely to happen and you need to plan for some challenges, costs, and time.
The basic adage is to prepare for the worst and be pleasantly surprised when everything comes together without a hitch.
This may seem like very pessimistic, the glass is half full kind of thinking and it is. But in all my years of working in this business, there is virtually no such thing as an easy deal. Easy deals or easy flowing money falls into the 1% probability category slightly ahead of your odds for winning the lottery.
The take away message here is not that is all gloom and doom and that you’re not going to get the capital you require.
No, that’s definitely not what I’m saying.
What I continuously tell business owners is to get committed to the process as early on as possible and then stay invested in it as long as required and provide the resources and time necessary to increase the probability of a positive result.
In many cases, the business financing process is grossly over simplified and under estimated by entrepreneurs who would rather stick needles in their eyes than have to develop a detailed financial knowledge about any financing request they need to make. Money is a necessary evil that shouldn’t be that hard to come by, or so the thought process goes.
Unfortunately, this thought process eventually leads to failure in many cases in that money that gets secured tends to come from the path of least resistance which is typically not the most ideal form of funding available which can start the business into a death spiral it may never recover from as it continually takes on poorly suited forms of capital that will only reduce the probability of profitable results.
And when I say you need to commit to the “process”, the process is whatever is required and however long it takes to get the right match of money and opportunity.
If you say you don’t have the time for what’s required, then start the process earlier, get farther ahead of when capital is required, avoid being backed into a corner and forced to take what you can get.
Finding easy money that fits your requirements when you need it is always possible. But is it probable?
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingBusiness Financing Can Require Lots of Patience
September 10th, 2010
“Any Attempt To Secure Business Financing Needs To Be Tempered With Patience”
Recently I was working on two different business financing deals. The first one was for a well established business with great cash flow, great credit, and a strong business model. The second financing scenario was refinancing a business that was struggling to cash flow growth and was trying to overcome many of the challenges that come with a start up business.
While on the surface they couldn’t be much different, the one thing they had in common was the amount of time it was taking to get the financing they needed into place.
And it wasn’t necessarily hard in either case to identify the potential source of business capital that could satisfy their needs. The challenges in both cases came from getting a final commitment in place and getting the funding advanced.
This is a very common occurrence these days post 2008 thru 2010 recession (which for many is still not over).
The lending process and related bureaucracy can be totally maddening to any business owner and manager who is used to taking charge of a situation and getting everything covered off that is required, within a certain time frame.
When it comes to business financing, the process can only be followed, not forced. As soon as you put pressure on a lender or a provider of capital, it will also inevitably lead to a no or decline of an application for funding that may have otherwise gone in your favor.
This is where patience comes in.
Once you have a source of financing lined up that you are comfortable with, its time to gear down and start moving at the speed of the lending process, which can be delayed or slowed down for any number of reasons, most of which you have no control over.
And when you start running out of time on a deal or funding requirement and the financing is still not either approved or available for funding, the tension and pressure of the moment can push you over the edge.
But if you want the options you’re working on to remain options, you’re going to have to create whatever contingency plans are necessary to get you through to the other side of the process where the money is.
Remember that the more people that are involved in getting everything covered off for a lending approval and disbursement (appraisers, accountants, lawyers, consultants, credit committees, customers, suppliers, etc.), the higher the probability that the process will take more time than less.
Sure, everything can come together quickly and be in place ahead of your expectation. But most of the time it won’t, and without a healthy dose of patience, good options can quickly be destroyed, putting you right back at square one.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingBad Business Financing Assumptions To Avoid
April 25th, 2010
Bad assumptions are a common reason for many of the problems small and medium sized business owners have locating and securing business financing when they need it.
Here are some of the more typical bad assumptions that get made on a regular basis and either inhibit capital from being acquired or cause a business to face serious short term repayment demands from lenders and creditors.
- Using government remittances to cover off cash flow deficiencies is an acceptable practice that the related government agencies will understand and work with.
- New business loans can be used to pay off arrears related to government accounts.
- Personal credit of business owners or major shareholders of small business corporations does not have a large part to play in the making of business financing .
- The process for acquiring business financing is relatively straight forward and predictable.
- Trade credit can easily be acquired for companies that have been in business for several years even if business credit still hasn’t been established or if the business has overdue trade payables on its books.
- Your business bank will be able to provide you’re financing requirements, even if you’ve just been through a rough period where the business has generated financial losses.
- Business financing decisions can be be based primarily on the long term potential business opportunities in the future versus historical result
- The industry and geographic location where the business is located does not have any bearing on the ability to secure commercial capital.
- Prime plus interest rates are available to all businesses regardless of the level of potential risk to the lender.
- Once business financing is provided, as long as the business owner meets all the requirements of the financing facility, there is no risk that the lender will call the loans or restructure future repayment to the detriment of the business.
- If a lender does not want to continue providing your business with capital that there will be another similar lender prepared to provide refinancing quickly and with similar terms.
- Its not typically a problem to leave a financing requirement to the last minute or near the time when funds will be required as there are lots of sources of financing available.
- Shopping around a commercial financing request is the same as shopping around for the best residential mortgage interest rate.
- Once a commitment for financing has been provided, the closing process will be quick and there is very little risk that financing won’t be provided.
- Lenders will typically be understanding if you can’t make all your payments on time.
- The economy is currently improving and coming out of the current recession and the capital markets will follow closely behind.
The key point I’m trying to make is that the process of business financing is not easy by any stretch, especially if you want to secure a financing facility that best meets your requirements. Significant lead times should be built into the process of locating and securing business capital, especially in the current recessionary environment. Proper cash flow management and credit responsibility are also very important aspects of any lender decision making process.
Click Here To Speak Directly With A Business Financing Specialist
Business Financing