How Superbowl Preparation Relates To Business Financing
“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
Maintaing Access To Cheaper Money
“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
Debt Financing Contingency Planning
“Do You Have A Debt Financing Contingency Plan In Place?”
First of all, what do I mean by a debt financing contingency plan?
Well, if you’re in business and require third party debt financing to partially fund your operation in some way, shape, or form, then it’s important to have a debt financing contingency plan in the event that your current debt lender or lenders can no longer provide you with funding.
This has always been something that business owners should be mindful of, but most stable businesses consider the potential of their banking or financing relationship going south for no apparent being the most unlikely of events and not worth the time to continually stay on top of a contingency plan.
But guess what? Since 2008, the one of the most common financing requests are those that are required for no reason at all…that is one or more of the lenders financing a given business either called in their demand loans and chose not to renew them…for no apparent reason.
As I continually mentioned, the world of business financing has significantly changed during this last go round of economic down turn and the ongoing ripple effect from the fall out continues to pound the portfolios of the remaining debt providers. As a result, they will periodically need to shore up their risk profile by shedding accounts that don’t score high enough on the score card, or leave certain regions and/or markets altogether.
The end result is that many companies with otherwise solid balance sheets and a significant track records of business performance are getting their loans called for nothing they could have foreseen.
When this occurs, if there isn’t some type of meaningful contingency plan in place, the scramble to get alternative financing in place at best destroys equity due to higher short term rates, and at worst puts the company out of business.
So what do I mean by a contingency plan?
While by no means a comprehensive list of things to do, here are a few points that every business owner requiring third party capital to operate should consider.
First, make sure you maintain a relationship with your current banking representative. For many institutions, the personnel turnover very quickly from position to position. For many businesses, the owner may not even know who his contact in the bank or lending institution is. Having an active relationship where there is at least a quarterly touch point can help spot trouble before it lands on your door step.
Second, stay on top of who your next best option or options are and find a way to borrow some money from them. Its always going to be much easier to get additional financing from a debt provider that is already somewhat comfortable with you as compared to someone starting from scratch where there is a time pressure involved in getting a new facility in place.
Third, keep all your financial statements, asset lists, customer lists, credit profiles, company business plans, etc. up to date so that you’re always in a position to provide a complete package of information at any time or within very short order if required.
Fourth, constantly be on the look out for even a better debt financing program than what you have today, or alternatives that would also potentially work for your business. Debt lenders come and go as well as continually change their appetite for certain types of lending and industries, especially on a regional basis. So if someone is hot for getting into your market, take a serious look at what they have to offer and at least consider starting a relationship.
Fifth, maintain a moderate level of paranoia with your current debt financing source or sources. Banks and other institutional lenders are brilliant at lulling you into a false sense of security. But be forewarned… there is appreciable customer loyalty, at least not enough to save your account if you get in the risk managers cross hairs for whatever reason.
I understand that some people reading this will say they don’t have time as it is to do the daily stuff required in the business let alone make and continually update a back up plan for something that may never happen.
Just remember that if you accept debt financing or investor money from a third party that someday they’re going to want it back and it might now be when you’re ready or able to accommodate them.
Click Here To Speak With Business Financing Specialist Brent Finlay
Getting The Most Out Of Your Cash Flow Management
“When It Comes To Cash Flow Management, Are You Leaving Money On The Table”
Cash flow management can mean a bunch of different things, but in its simplest form, its all about allowing profitable sales to occur on a timely basis while minimizing out flowing cost amounts and improving the timing of inflows and outflows.
Here’s one example that touches on all of these areas and is over looked by many businesses.
A company is in a growth mode in an industry where they are in the middle of a distribution channel.
Even though the company has a strong balance sheet, credit, and cash flow, they can’t find a bank to finance their growth plan as many institutions, especially these days, are cautious towards anything moving too fast. In order to maximize revenues with the credit available, trade credit is stretched out to the max, forgoing all discounts, eliminating potential credit limit increases, and potentially harming credit overall.
The company turns to asset based lending and gets their accounts receivable factored at the god awful rate of 18% per annum, plus transactional fees. Sales double as there is now enough cash flow to cover the gap between collecting money and paying the bills. Trade credit discounts are taken full advantage of also causing credit limits to increase.
The net effect is that the business not only more than doubles its profitability as more sales are being spread over the fixed costs, but the trade credit discounts along are enough to pay for the incremental cost of financing that was created from going from bank margining of accounts receivable to factoring.
Obviously this exact scenario isn’t going to hold true for all companies. The point here is managing cash flow is about generating more net income for the business at the least amount of cost. The least amount of cost doesn’t mean you can’t use higher priced debt to fuel your business financing needs. What it does mean is there ways to gain cost savings in one area to offset increases in another where the net overall effect is going to be positive to the business bottom line, balance sheet, and cash flow position.
The example cited above occurs more often than you might think in growth markets and in some cases the trade discounts generated through more available cash flow are actually greater than the higher cost of asset based debt, driving profit to the bottom line due to use of the higher priced money.
I’m not advocating here that higher priced debt is good or bad. This is about what’s relevant to a particular situation and what net impact available capital will have on a growth situation, regardless of the cost.
If the results are positive, press on and grow the business, all the while looking for cheaper sources of money.
If the results don’t add up, then twist the rubic’s cube in other directions and see if you can find another angle to improve cash flow and profitability.
Click Here To Speak With Business Financing Specialist Brent Finlay
Asset Based Loan Fit
“When Does It Make Sense To Take Out An Asset Based Loan?”
We are in a period of time where asset based loans have grown in significance due to the more conservative approach currently being taken by banks and institutional lenders.
In most cases, Asset Based lending is significantly more expensive than bank or institutional lending, reflecting the higher level of risk inherent in the business being financed. With greater cash flow comes lower cost forms of asset based lending as well, but for the purposes of this discussion, I’m referring to asset based lending that falls in the 18% to 24% per annum type rate range.
Any business owner will tell you that you can’t function long term on those types of rates and for the most part, they are absolutely correct.
The higher priced, and more traditional form of asset based lending is meant to be short term in nature, dealing with either distress or growth.
In a distress situation where the business is failing, gone through a down turn in the market, or has been unceremoniously dumped by its institutional lender for some reason, an asset based financing facility buys time to either turn things around, wind down, or sell off in a manner that does not destroy value or equity in the process.
For situations of growth, if the growth rate is too high, especially for newer businesses or smaller scale businesses, banks and institutional lenders will shy away from business financing these situations due to risk of the business not being able to properly scale growth and crashing and burning at some point along the way to a better top and bottom line. Once higher levels of sales are maintained over a period of time, then lower cost forms of money will be more than happy to step in and take over the business. They just don’t have the stomach for the potential wild ride that may occur during a growth spurt.
Neither a growth or distress situation can be sustained for any length of time which is why the asset based financing can be a very good fit, even at significantly higher rates of interest than what can be secured through an institutional lender.
In situations where the business is asset intensive and needs a high level of financing leverage over the long term, an asset based financing solution can still work, but its going to have to be a lower cost version which tends to require a minimum facility size of $5,000,000 and strong cash flows and margins to support a lower cost of funds.
Business Financing For 2011 Starts With A Bang
‘Business Financing Activity High At Start Of 2011″
While the new year always starts with a certain amount of renewed hope and optimism, the business financing activity at the start of 2011 has been very high to say the least. If the first ten days of 2011 is any indication of where the year is going, we should be in for a pretty good year.
That being said, I should clarify what I mean by the early on business financing activity I’m speaking to. This is coming from business owners and entrepreneurs actively seeking business business financing facilities. This could be for new projects or carry over efforts from last year. In order for this initial flurry of activity to translate into economic activity, there is going to need to be willing participants on both sides..ie borrowers and lenders.
The potential borrowers are certainly doing their part. It remains to see how lenders will respond to requests in the new calendar year.
In 2010, lenders and investors could be characterized as cautious and conservative throughout the year, trying not to make any mistakes in an economic turnaround that was hard to predict by industry sector and region. Last year also saw a continued retraction of the retail space as more lenders either left certain markets all together or went out of business due to failed porfolios.
In 2011, it will be interesting to see what the business financing mood will be like from the sources of financing as well as who will move forward to take on market share that has basically be vacated by competitors.
And one thing to know about the financing market, if this initial flurry of activity translates into funded projects, the action is likely going to continue as word gets around that money is starting to flow more freely.
The corollary to this statement is that nothing much has changed and all this new activity could fizzle out in the coming months, dampening the plans and aspirations for many for the coming year.
The next two months will be a key barometer for how the rest of the year will play out as without an increase to the available money supply for business activity, the economy in general can only progress so fast.
Hopefully the trickle of 201o can turn into a more steady and predictable flow in 2011.
Click Here To Speak Directly To Business Financing Specialist Brent Finlay
Cost Of Locating Business Capital
“What Is The Cost Of Locating And Securing Business Capital?”
Depending on who you’re talking to, there will be those that claim there is no cost to them to acquire business capital and to others the costs is considerable.
I say that there is always a cost to find, arrange, and secure business financing.
Always.
On the no cost side of the argument, people with “A” credit who have always been able to get the financing they need through an institutional lender would claim that they never had to pay anything to locate or arrange the financing nor should they. For these individuals, I say good for you. But there is a cost of time, and business financing these days is tougher to get in place even for those of you with even the best credit and strongest lending profile. And if doing it all yourself gets the best result, that’s great… provided it didn’t take two years to accomplish during which time there could have been a substantial opportunity cost associated with not getting things in place sooner.
To me, biased as I am as a business financing consultant, there is a cost for locating and securing business capital no matter who you are. Even if you go to your bank tomorrow and get financing right away, there is no guarantee that its the best deal available on the market or even the best deal you could have secured with the time you had to work with.
And regardless of whether or not you pay a third party to assist you with the process, looking for business financing is still going to occupy your time and there is a cost to your time.
A better worded question would be how do you minimize the cost of locating business capital and get the largest possible benefit or group of benefits? Avoiding costs trying to understand and do everything yourself, especially in the world of business finance these days, just creates more cost in the long run.
And what’s hard for the average business owner to understand is that the landscape is continually changing so that whatever you thought you understood about finding and securing money for your business a few years ago may no longer be relevant.
It all comes back to how is your time best spent and, all things being equal, will you be able to figure out the best course of action that is actually cheaper for you in the long run compared to what others that work in the market every day may suggest as alternative approaches.
Regardless of what you’re personal belief system is on this subject, remember that there is a cost to this process and many times less investment in the process generates less results.
Click Here to Speak Directly With Business Financing Specialist Brent Finlay
Meeting Lender Expectations
“In Order To Secure Debt Financing, Make Sure You’re Able To Put Your Best Foot Forward”
In any business, there are basically three parts that need to be working in balance for the business to grow and prosper.
The three parts are Marketing/Sales, Operations/Administration, and Accounting/Finance.
For smaller businesses that are on the come, it can be hard at times to have all three areas firing on all cylinders.
The importance of this when it comes to securing debt financing can be significant as no matter how well you can present the business, its opportunities, and what you’ve been able to accomplish so far, a debt financing source or lender is going to want to be sure that everything is going to hold together as you move towards warp speed in your business plan.
Increasing size means more people, more transactions, more stuff to keep track of and manage. Without some amount of stability in each of the three areas, the brilliant up front presentation requesting growth capital can be quickly dismissed if a lender discovers that one or more of the key business areas is under developed or lagging behind the others.
And in many cases, the weakest link in the chain is the area of Finance.
Here’s a typical example.
A business has successfully got off the ground, been operating for a couple of years, made some profits, and is well positioned in the market to start taking greater chunks of market share from competitors with inferior business models or offerings. The only thing the business owner believes they need is more capital.
But when interested debt lenders start pealing back the covers, they discover that the score keeping system is a total mess and information tracking for management purposes is mostly done on scratch pads outside of the accounting system.
This is not an uncommon occurrence that typically is trivialized by the owner as their main focus is market and sales (which it should be) with a secondary focus on operations, and limited to no focus on finance.
But from a lender’s point of view, not maintaining an up to date bookkeeping system is a big deal, especially if you’re planning to double or triple the size of the business in a relatively short period of time. And its not just about not having the historical bookkeeping completed. It’s about the business not knowing exactly where its at all the time and flying a little bit blind. This type of unbalanced approach can lead to customer bad debts, loss of supplier credit, government arrears, cash flow shortages, debt covenant failures, and so on.
In most cases, one or two weeks of intensive work utilizing some outside resources can fix the problems and get the finance function up to an acceptable level to support the other areas of the business. And this is not just to satisfy a banker. Getting the finance and accounting systems in place and up to date are essential if the business ever intends to reach its goals.
Failure to meet the lender expectations in this regard is going to make it hard to secure business financing, especially lower cost forms of capital.
Being able to demonstrate the financial aspects of your business on command is expected. The sooner a business owner comes to this conclusion, the faster the business is going to be able to grow and easier it will become to secure the capital required.
Click Here To Speak With Business Financing Specialist Brent Finlay
Pros And Cons Of Up Front Engagement Fees
“Should You Consider Engaging With A Business Financing Intermediary That Charges Up Front Fees?”
Its not uncommon for business financing intermediaries to charge up front fees or engagement fees to take on a file where financing is required.
From a business owner or business manager point of view, is this a good business practice or one to stay away from?
Like anything else, payment of money should be related to value received.
On the one hand, business owners will argue that they should never have to pay engagement fees or up front fees for financing as there is no way to know for sure if 1) the business financing intermediary is not a scammer making money collecting fees; or 2) the intermediary or business financing consultant, or broker has a pre-established lending source they have pre qualified your application with.
From the consultant or broker or intermediary’s point of view, the flip side of the argument is, how can I engage in locating financing for a business if they are 1) not monetarily committed and invested in the process (i.e. how badly is this deal being shopped around) and 2) not prepared to either provide a proper financing package, don’t know what a proper financing package is, don’t know why its important to securing business financing, and/or don’t want to pay someone else to spend the necessary time to put one together.
These up front fees or engagement fees are a risk and a cost that may not lead you to the financing you desire, despite the best efforts of fully qualified and reputable intermediaries.
But, not considering these engagements may also restrict your access to business financing sources that may very well be able to invest in your business.
Once again, we go back to value received.
Personally, I only charge up front fees if there is a substantial amount of work for me to complete in order to be able to properly present a case for financing to a qualified lender. If the client is prepared to provide me with everything I need, I’ll work without an up front fee provided I feel comfortable with the applicants commitment to the process I’ve outlined to them.
At the same time, I’m not going to spend 20 plus hours (in some cases 100 plus hours) getting a proper package together without some form of compensation. And in terms of value received, whatever I put together is provided to the client. The package is based on their confidential information, but the presentation and organization is my intellectual property. If you want it, you have to pay for it.
There are many reputable intermediaries that won’t enter into any engagement without an engagement fee as they only want to deal with the most serious clients who understand the risks of broadly shopping a deal.
There are also many arguments for and against these fees. In every case, you have to take a buyer beware mentality, perform all the due diligence you feel necessary to validate the intermediary and their stated approach, and be prepared to lose the money (don’t use your last dollars to enter into one of these engagements) as there is never a guarantee that a financing arrangement will get funded, no matter what you’re being told at the outset.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business Financing Scams
“Here Are Some Tips For Avoiding Business Financing Scams”
Some would argue that there are more business financing scams out there these days than legitimate lenders or financing intermediaries. Especially with the rise of the internet, its pretty easy for a clever scam artist to put up a virtually untraceable presence that makes strong promises but doesn’t deliver against them.
The reason why there are so many business financing scams is because there are always lots of people trying to secure money for a new or existing business and when they can’t get anywhere with the more well known conventional sources, they start looking for other sources.
And what really makes the scams work is issuance of some sort of commitment for the money being requested. Of course in return for being able to move forward, the scammer is going to want an up front fee of some sort. This is where things become tricky for the business owner as up front work fees and commitment fees are also requested by legitimate lenders making it hard to tell who are the good guys and who are the bad guys.
If you’ve come across a source of financing or an intermediary who claims they can lead you to a source of financing, here are some things to consider before stroking a check for any type of fee.
First, Google anything and everything you can find about these guys and see what comes up. If there are negatives, ask them to explain what happened that caused the negative press to occur. If you can trace any negative press back to the source, give them a call as well to get both sides of the story. If nothing comes up when you search for information, that can be just as bad as negative information coming up.
Legitimate sources of financing and financial intermediaries should have a very public and verifiable presence on and off the web. If they don’t, then you’re really in a buyer beware type of situation.
Second, what type of third party or social proof can you get from others that have had some type of similar experience with the lender. It may be difficult to get customer references from the potential lender as client confidentiality needs to be maintained (which is also something a scammer can hide behind when not providing you with this type of info).
Third, go to the better business bureau, FTC, or any other regulated body to see if there is any evidence of the financier’s existence or proof of wrong doing.
Fourth, go through the process and documents that they provide to you very closely to see what holes may exist. If there are items that are unclear or inconsistent with the intent of the agreement, as them to change their documentation and see how they react. The goal is to get them off the basic script and see how they deal with your specific questions. Legitimate businesses go through this all the time, are used to the questions getting asked, and usually have fairly straightforward answers as to what they can or can’t do to change what has been provided to you.
Fifth, disengage your emotional involvement in the deal if you can and stick with logic and your gut instinct. If it sounds too good to be true, then it probably is. Remember that 90% of the time or higher, business financing is never easy or quick to get in place. If someone is saying that it is, they are likely trying to get a hold of your money.
Scammers will prey on the fact that you’re short on time, that you’ve been turned down by others, that you’re looking for someone to take a chance on you.
And even if you do all the above and more and feel confident that you’re working with a legitimate source of financing, there is still no guarantee that whatever money you pay out will result in the business financing you seek. All money paid out up front is a risk. If you can’t afford to lose the money being advanced, don’t pursue the proposal.
Click Here To Speak With Business Financing Specialist Brent Finlay