Have you been shopping in the marketplace lately for a commercial loan or to find a new lender to replace your existing loan officer? To the typical entrepreneur or small businessperson, this experience can be equivalent to a championship Wimbledon tennis match, where you're being served up 110-mph shots and then thrown off balance by lob shots, draining all your energy. Chin up! Obtaining a loan today for your business need not be as painful as passing a kidney stone.
Among the most cited challenges by business owners is having adequate capital and establishing and maintaining financing and credit relationships. The banker often counters this dilemma by pontificating that entrepreneurs typically have visions greater than their pocketbooks and overly concentrate on sales, sales, sales as the answer to financial growth, rather than concentrating on financial stability (controlled growth). Prior to seeking a loan increase (even after a loss year), or changing lenders, follow these key critical financial paths to ensure success:
First, establish a top quality financial infrastructure that demonstrates planning for profitable and sustainable growth:
* Monthly and timely internal financial statements. Ensure your Chart of Accounts is sufficiently detailed. For example, instead of Net Sales, start with Gross Sales, and track Customer Discounts and Returns & Allowances, to generate Net Sales. Separately capture Overtime in the financial statement vs. a single line item in Direct Labor. And further break down Indirect Labor from Direct Labor for purposes of breakeven calculations. QuickBooks (or Quicken) may be the current software for your business, but determine if you have outgrown this software application.
* A/R Agings. Keep to a minimum accounts receivable over 90 days (which most banks frown on regarding collectibility). Clearly demonstrate your company's ability to evaluate customer credit risks and ability to collect outstanding receivables.
* A/P Agings. Provide back-up information if over 90-day accounts payable have extended negotiated payment terms and/or payment plans.
* Computerized Inventory Listing. Acknowledge any slow-moving inventories with specific plans to turn into cash--even if at cost or below. Identify slow moving goods by SKU or by product category; separately identify seasonal inventories.
* Keep current on all taxes, including personal property and real estate, Michigan SBT and sales taxes--or payment...