Up Your Business LLC

Numerous business owners are contacting me with a similar question, “My lender won’t renew my loan or grant me a new loan until I give them a loan package, what do I do?”

A loan package today is a good bit different that it was two years ago. These are different economic times and lenders are more conservative, cautious as well as more risk adverse than in the past five to ten years. Thus lenders will be expecting and demanding more information from you. The loan package gives the Loan Officer the necessary information to gauge the viability of your loan request, helping them to provide you with the loan or renewal that you seek. Lenders have different requirements, so it is very important to communicate with the specific lender to customize your loan package to their particular needs.

It is very important, perception wise and to help the loan officer as much as possible, that your package is organized and thorough as possible. You just might gain favor points by offering to also provide the package in electronic form as well as printed form. This way the loan officer can use some of your data by cutting and pasting to his presentation, thus saving time.

Preceding your loan package should be a loan summary, two to three pages in length, which summarizes the important parts of your request. The loan summary is the first part of the loan package and is used generate and gauge interest in your request and need.  Contact me if you need help with the loan summary and I will email you a template.

Following is a list, not necessarily complete, that should be provided to your lender:

1.     Loan Summary

2.     Company / Project Information, and History

3.     Principals’ Backgrounds, Experience and Resumes

4.     Project Description, if applicable

5.     Project Pictures and Renderings, if applicable

6.     Key Roles & Relationships:  Company, Strategic Partners, Third Parties

7.     Sources and Uses of Funds

8.     Company & Project Collateral, Assets, Liens and Loans

9.     Schedule of Debt

10.   Company and Principals’ Credit Standing and Credit Reports

11.   Principals’/ Company Financial Statements

12.   Company/Project Budget

13.   Company and Project Cash Flow Statements

14.   Collateral/Project Appraisals and Valuations

15.   Project Proposals and Contracts, Lease Agreements and Escrow Agreements, if applicable

16.   Tax Returns:  Personal and Business

17.   Project Strategic Plan and Time Line, if applicable

18.   Project Construction Plans, Specifications, Drawings, Surveys and Maps, if applicable

19.   Project Construction Cost Breakdown, if applicable

20.   Project Construction Cash Flow Statement, if applicable

21.   Project and Company Advisors, Consultants, Contractors, Construction Team, Legal Firms, Accounting Firms and Engineering Firms

If you have questions or need help please contact me at larry@upyourbusiness.biz

I recently passed a terrible accident. A truck carrying cement block smashed itself half way into the back of a bus. Thankfully, there were no people on board the bus, but the driver of the truck was severely injured. I later saw on the news when the truck driver was interviewed in the emergency room of the hospital, he was asked what happened and he replied, “I was looking in the rearview mirror.”

I also see people doing this on the road of their businesses…

At a recent networking event last week, a woman was telling how she was struggling with her business and related several stories to the small group surrounding her how things were several years ago in her business. Someone inquired, “What are you doing now to make things better?”  Her response was, “I keep trying to recall what I did several years ago that worked so well and try doing those things today.”

At the same networking event, a young man told blow-by-blow stories about his adventures as a new entrepreneur, which seemed by his expressions and body language to be failing. Someone ask him what he was doing to make corrections and his response was, “I sit down with my father who was successful several decades ago in his business and is retired and he tells me what he did back in the 60’s and 70’s with his business and I try those things.

Curiosity got the best of me and when the group surrounding both business owners broke up I seized the moment to connect individually with both by introducing myself and asking, “What are you doing that gives you forward visibility in your business?” They both looked at me very quizzically, then related what I heard them say in response to questions posed of them during the “group” sessions about recalling the past. I asked both if they were using cash flow projections in their business. Both responded by asking me, “Isn’t that something an accountant does?” Sensing their discomfort with this subject I excused myself to get something to eat.

There is nothing more damaging to your future business’ potential than spending your present looking at the past. Let the past instruct you so you can be wiser moving forward, but don’t let it continue to take you backwards. The past can be a school master. Look back for lessons, and look forward to answers.

Keep your eyes on the road ahead by preparing, using and updating monthly your cash flow projections and not fixated on your review mirror or you too, might find your business accidentally smashed into an object you didn’t see just in front of you.

How do you keep from constantly looking in your rearview mirror of business?

Cash flow projections may or may not save your business, but they can sure give you great visibility and a clear vantage point to the future.

To find out more about this forward looking vantage point to business contact me at larry@upyourbusiness.biz.

There continues to be a lack of traction for most small to medium size businesses in their effort to obtain loans in this current economy.  Fortunately, according to reports I read, some banks say they have available money to lend and are open and willing to look at loan candidates. 

Here are some tips, or what I definitely would call uncommon tactics, to help you, the business owner, in your thirst and quest for capital to fuel your business and to expand your operations:

1. Show the bank and banker the LOVE. To be shown the money in this market I say you must first show the love. To establish trust in you and your business it is important to look at their welfare, well-being and needs first. It is not about you, it’s first about them (the banker).
2. Date the banker. You want the right fit and bank for you, your business and its needs. Visit (date) different banks and bankers, ask questions, and find out what their story is all about. As in a marriage, so with a bank, getting the right fit and complementing one another is a key ingredient to a successful relationship.  
3. Romance the banker.  Recall, and begin to use with your banker, those tactics and techniques you used when dating your spouse and when you were first married: you sought first to understand, brought gifts they liked and could remember you by; communicated often; discussed feelings as well as facts; showed how polite and mannerly you were by your little gestures of kindness and meeting their needs and showed and spoke unconditional love.
4. Get clear where you stand with your banker. Each loan is credit risk graded. Find out how yours is graded and why; what loan exceptions are currently outstanding;

• are you creating extra work for your banker (thus losing trust and favor) by not paying your loan on time;
• creating overdrafts in your account;
• not providing financial statements and other documentation required on a timely basis.

Find out what you need to do to bring peace to the relationship and favor to yourself in the relationship with your banker.

1. Think for your banker. Determine what your banker’s concerns and issues are for your specific business, industry and individual relationship.

• What are the problems, weaknesses and issues from the lender’s point of view? Set out to address each need and area of concern.
• Find out what the lender needs. Give the lender all the information and ammunition they require and need to adequately support your loan relationship. 
• Know what the C’s of credit mean for your business and tie these concepts into verbal and written communication with your banker to enable them to better help you.

These are just a few of the uncommon, but highly effective, tactics I discuss in my book “Romancing the Loan” and that I learned while being a commercial lender for over 30 years. If you would like to read or hear more strategies or need help in employing them you can contact me at larry@upyourbusiness.biz.

In Part 1 & 2, I made the case for cash flow being your most important business asset.

 As humans we are all capable of irrational behavior, thinking or actions from time to time.  One force or pull that might cause irrational actions and thinking is:

Loss aversion – ones tendency to go to great lengths to avoid possible losses. I’ve witnessed business owners exhaust all cash reserves thinking and praying that things would get better. They didn’t believe in or practice the use of cash flow projections. Each sheepishly admitted, “I just knew the economy would improve or turn around tomorrow or I’d get a contract so I wouldn’t have to face you.”  

As humans we associate with the pain of a potential loss more vividly than we do with the joy of experiencing a gain. Understanding how our aversion to loss plays out in our decision making is key. Pre-occupied with resuming a schedule or recovering losses, we blindly focus on getting back to even and become oblivious to the risks we take. We ignore signs, put on blinders and proceed with a singular purpose to recover as much of the loss as possible – many times risking everything.  Cash flow projections, if actively used, would have prevented the extent of their losses.

Also, like a private investigator, you should analyze the impacts and changes in your cash position profit and loss, receivables, inventory, payables, capital expenditures, loans and debt service each make in order to get and maintain control of your cash.

Two basic principles of cash flow management are:

• Keep money moving to make more money; money at rest (tied up in accounts receivable, inventory and capital expenditures that aren’t producing something) incurs opportunity costs.
• Money makes the most money when it turns over fast; this is the principle of turnover.

Key to understanding and applying these principles is the cash conversion cycle. Here’s the basic story: a business firm starts out with cash. That cash is used to purchase inventory. Next, the inventory is sold or a professional service is delivered. Usually the business gets little or no cash at the time of sale because the buyer typically acquires the goods or service on credit. The seller exchanges inventory or professional activity for accounts receivable. Sometime in the future, hopefully sooner rather than later, the firm collects the accounts receivable and then has cash again.

Inventory and receivables must be financed (paid for) either with the business’ own cash on hand or by borrowed money, which can be costly. The object is to reduce the cycle – shorten the time, as much as you can, between paying out cash and getting cash back.  Use and evaluation of the cycle answers the question, “How long does it take to get the money back into the bank?”

A visual explanation of the cash conversion cycle looks like this:

                                                Days outstanding              Amount outstanding

            Receivables              30 days sales                                    $100,000

            Inventory                  60 days sales                                      200,000

            Trading cycle             90 days                                              $300,000

            Acct’s payable          15 days sales                                           50,000

            Cash cycle                  75 days                                                 $250,000

The cash conversion cycle can easily be used by setting up an excel spread sheet like the following. With this tool, the business owner can see and understand the average length of time of the business’ operating cycle, determine what the cycle, time wise, would be if the business did a more efficient job reducing the collection period of their receivables or shorten the time inventory was in the warehouse – thus freeing up cash. Many times business owners see their businesses growing and know they are making money but are always short of cash. This simple, but effective tool helps show them were their cash is hiding.

The most valuable tool for your cash flow management is a cash flow projection template. If you don’t have one, please contact me for a free, simple to use template.

Cash flow projections need to become an active, live tool that is used daily to aid in making business decisions. The template should be updated and adjusted no less than monthly to provide you with good visibility of the future.

May Your Cash Flow!

Key to your business’ success is your cash flow management philosophy or mindset.  Cash is essential for achieving the profit potential of your business.  A dollar held in the form of accounts receivable or inventory cannot be reinvested profitably until you convert it back into cash. Receivable and inventory are necessary parts of the cash flow cycle, but cash makes the cycle revolve. Your cash flow management effort should seek the most rapid conversion into cash of your receivables and inventory. It is important to know and apply the fact that neither a rising sales volume nor a profitable operation spontaneously produces a positive cash flow.

What do you use to help manage your business?  What tools, from a financial point of view, besides your bank account, do you use to help make daily, weekly, monthly and annual decisions affecting the growth and viability of your business?

Many would say financial statements (balance sheet and income statement). How often do you have financial statements prepared? Do you receive them frequently enough so the material is relevant to helping you make business decisions now? What in the financial statements do you look at or use to guide you? Does your CPA, accountant, bookkeeper or internal accounting system give you a cash flow statement with the balance sheet and income statement?

Financial statements provide great value, if used properly. The primary fact about financial statements is they are backward looking. When driving your car, do you look through the rear view mirror the bulk of the time while trying to go forward? Certainly not!  You look through the front windshield in order to drive forward. What tool do you have in your financial tool box to give you the ability to see down the road a good distance?

The tool to be used consistently – is cash flow projections!  This tool is the only one to give you the forward visibility you need to know what is happening with your cash flow.

The foundational principle to your business is, after the fact that God is the real owner and you are just a steward of the business, CASH IS KING. If cash runs out everything you’re working for is down the toilet. If the business is important – then CASH has got to be important.

Over the years I would ask business owners, “How do you use or why do you get financial statements and cash flow projections.” They would always answer, “To give to my banker/lender.”  I hope that would not be your answer! With this article I hope to help you form a new mindset or philosophy about cash flow projections and their value to you as a business owner.

If I were to ask you the question, “What is your cash balance now?” Could you give me an answer?  Or how about if I were to ask, “What will your cash balance be six months from now?” The key to answering both of these extremely important questions is: do you have the mechanism, things, tools, systems, processes in place to give yourself the answers?

What do I mean by that? First, are you keeping the books current and accurate? Second, do you have cash flow projections that go out at least six months and are you adjusting them monthly by adding in actual numbers to the template and keeping a rolling projection, adjusting for what has just happened in your business, industry, local and national economy?

These forward-rolling, monthly-adjusted cash flow projections allow you the best visibility you can possibly have for your business. They allow you to act rather than react to factors and opportunities in your business.

What do you have or use to head off potential disasters in your business? What do you have or use to adequately gauge if you have the cash flow or wherewithal to take advantage of potential opportunities?

Cash flow projections are like an early warning system for your business. The US government spends billions annually on early warning systems of varying kinds – to protect citizens’ borders, electrical power, water supplies, airways, and waterways, to name a few. What early warning system for cash flow – your most vital asset of your business – do you have and use consistently?

In your business, there are vital signs that must be monitored daily – the primary one being cash flow. Look at cash flow projections that are updated and adjusted monthly and viewed almost daily as taking the heart rate and blood pressure of your business. Physically checking someone’s heart rate and blood pressure will give much different and more accurate information than just asking them if they are okay or how are they doing.

I hope you will join me for Part 3 of this series on:  What is the most important asset in your business?

May your Cash Flow!