Monthly Archive for July, 2015

How to get a bank loan: Part One

One of the markers of this post-recession, so-called recovery has been the practice of deleveraging. Across the economy, from consumers to businesses large and small, debt has become something to get rid of.

Out here on Main Street, this trend has manifested in a dramatic drop in bank borrowing by small firms. Indeed, for more than a half decade, survey after survey has shown that less than 5% of business owners report their borrowing requirements have not been met, while the majority say emphatically they don’t want or need a loan. Consequently, there’s a pretty good chance your business hasn’t made a loan request to a bank in a while.

But the economy will eventually kick into an expansion phase, and what has become no less than a de facto moratorium on borrowing won’t last forever. And since most small business growth capital comes from bank loans, even for well-capitalized firms, it’s always good to revisit a few banking relationship fundamentals.

But don’t worry. If you’ve never asked a banker for a loan, or if it’s been a while, getting a bank loan is a lot like the process of qualifying a prospective customer. For example, you want to know these three things:

1. Who decides?

You have the right to ask who is going to make the decision on your loan. Can your loan officer decide, or will it go to the local loan committee or somewhere else? Why do you care? The more people involved in the loan approval process increases the scrutiny of your deal, which means more questions and more time for you to budget from proposal to answer.

2. What do they need?

Your banker will ask for personal and business financial information. They might accept last year’s business numbers, but they could also ask for an interim report. Depending on the size of your request and what you’re using the money for, they may ask for a business plan. If the loan is for real estate, a current appraisal will be required.

Don’t give the bank more than they ask for, but give them everything they ask for. Remember, the quicker your banker gets the information, the quicker you’ll get an answer.

3. How do they want it?

Ask your banker what information can be presented verbally and what needs to be in writing, whether hard copy or electronic. Whether you’re borrowing $5000 for a computer, or $5 million to buy out a competitor, knowing as much as you can about the loan approval process will significantly improve your chances of not only getting a quick answer, but a yes.

Next time, Part Two: What motivates your banker.

Write this on a rock …

Qualify a bank like you do customers, and be sure to do your homework.

Dave was an entrepreneurial horse

Dave was the fifth of twelve children during the Great Depression. His father worked at a sawmill and was a part-time basket weaver.

Dave had some problems:  He was a stutterer, he had epilepsy, plus a learning disorder, all of which prevented him from graduating high school until he was 21. How do you like Dave’s chances in life so far?

But Dave was a good employee: first a Fuller Brush salesman and next a route man for two bakeries. Then, with all of his personal challenges, he purchased and successfully ran a restaurant and a grocery store.

Remember his father’s part-time basket weaving? Well, Dave started selling baskets: first from his father’s hands, and later from Dave’s factory. Oh, that’s right. You didn’t know Dave had a basket factory. Well, this was the basket factory Dave sold his two very successful businesses to buy. Turns out Dave had serious entrepreneurial sap rising in his bark.

Dave’s friends, family, and bankers were incredulous. Why leave a successful and sure thing to make baskets? By the way, they knew Dave didn’t know anything about how to make baskets himself. Would you have invested in Dave?

Turns out Dave also had vision. He envisioned a world that would need baskets—lots of baskets. And Dave Longaberger wanted to fill that need.

Over the next 25 years, Longaberger Baskets grew from selling a handful of Dave’s father’s baskets to millions of the woven wonders. Not too shabby for the stuttering, epileptic, learning disabled son of a sawmill worker, who took 15 years to get out of school.

What Dave lacked in education he made up with uncanny instincts.  Any lack of sophistication Dave had was more than compensated for by an innate leadership ability that made employees want to follow him and customers want to do business with him.

Dave liked to say, “Your success will ultimately depend on the relationships you build with people.”  There are a lot of highly educated folks who still need to learn that lesson.

Education is important. But an educated entrepreneur without instincts and leadership ability is like a jeweled Spanish saddle with no horse to put it on.  As we say of someone who possesses awesome ability, Dave was a horse — an entrepreneurial horse.

Next time you feel deficient because you don’t have an MBA, ask yourself what Dave would have done. When you’re tempted to have a pity party because you’ve had it tough, imagine what Dave Longaberger would have said if you tried to lay a whiny attitude on him.

Write this on a rock… I’ll let Dave handle this one: “Your success will ultimately depend on the relationships you build with people.”

Jim Blasingame is author of the award-winning book, The Age of the Customer: Prepare for the Moment of Relevance.

Business Growth: An Irony in the Marketplace

Here’s a scenario that plays out in the marketplace every day in Small Business, USA:

“My business is really growing these days,” a small business owner confides to his friend, “but we’re still experiencing negative cash during the month.”

And then, with that deer-in-the-headlights look on his face, he completes his concern, “I thought by now, with sales and profits up, cash flow would be the least of my worries. I used to be afraid I couldn’t grow my business; now I’m worried that our growth will collapse it.”

This entrepreneur’s lament is one of the great ironies of the marketplace: A small business in danger of failure as a result of extreme success.

Beware Blasingame’s Razor: It’s redundant to say, “Undercapitalized small business.”

This maxim is especially true for growing small companies, because sales volume growth depletes cash in two dramatic but predictable ways:

1. When the business is growing, organizational upgrades are to be expected in order to handle the new demands ­ new vehicles, staff, technology, etc. Of course, you must fund these things, often while the exciting new sales growth is merely on paper, and not yet in the bank.

2. Selling to customers on an open account - where payment for work or products is collected after delivery - is essentially making loans to customers. And while it’s true that your vendors may let you do the same, typically they allow you less time to pay them than you allow your customers to pay you. This difference between when you pay and when you collect mathematically creates negative cash.

Here’s how to manage these two challenges:

1. Growth plans must be compatible with the ability to fund that growth. Too often we think that the big growth hurdle is to get customers to say yes. But we must consider the impact of sales growth on cash flow before delivering a proposal. And don’t be surprised if the answer to this equation shows that you actually have to turn down some business.

2. Don’t use operating cash to fund acquisition of capital assets that have a life expectancy of more than 2 years. Capital purchases should probably be funded by bank debt, and the interest you pay is the wages of Blasingame’s Razor.

If you don’t like debt, or paying interest, that should motivate you to leave profits in the business as retained earnings, which is ultimately the best way to overcome Blasingame’s Razor.

3. Do a better job of collecting receivables on time. Understanding the relationship between Accounts Receivable Days and Accounts Payable Days is an “ah-ha” moment for any small business owner. Sustained growth cannot happen without continuous and regular monitoring of this ratio.

Write this on a rock…. If your business is growing nicely, congratulations. But beware Blasingame’s Razor. It is possible to succeed yourself right out of business.

Climbing the hill

In a former life, whenever I felt deficient in my ability to meet a particular challenge, one of my mentors would say to me, “This is no hill for a climber,” followed immediately by, “and you’re a climber.”

Today, whenever I’m feeling deficient in my ability to meet the challenges of my small business, I say these words to myself, “This is no hill for a climber and I’m a climber.”

In an even earlier life, growing up on a farm, we had an old two-ton Studebaker truck. This was a brute of a truck, with a very special feature: one really low gear. My dad called that gear “grandma.”

Whenever we had a heavy load to haul and a steep grade to climb, Dad would say, “Put it in grandma.” When that truck was “in grandma” it wouldn’t go more than a couple of miles an hour, but it would pull or haul anything, anywhere. Even when the pulling got really tough that truck might jerk and buck, but it never stopped pulling.

Small business owners have a special gear similar to the one on that truck. Our “grandma” gear is made up of the cogs of grit and determination, and the sprockets of courage and passion.

There are many hills in the life of a small business. Next time you’re faced with a hill that seems too steep to climb, tell yourself, “This is no hill for a climber and I’m a climber.” Then “put it in grandma” and keep on climbing.

We Began With Freedom and We’re Better for It

The first Plantagenet king of England, Henry II, is important to contemporary small business owners because he’s considered the founder of a legal system to which entrepreneurs owe their freedom to be.

Ambitious and highly intelligent, Henry’s attempts to consolidate all of the 12th century British Isles under his rule created the need for order. And while the subsequent reforms were intended more for his own political expediency than to empower the people, they actually gave birth to a body of law, now known as English Common Law, which replaced elements of the feudal system that included such enlightened practices as trial by ordeal.

Six centuries after Henry’s death, the legal and cultural tide of personal freedoms and property rights that evolved from his reforms were being established across the Atlantic. In the colonies, a group of malcontents, now called America’s Founders, envisioned, created and fought for a new interpretation of Henry’s legacy. Their plan was different because it was sans kings.

In The Fortune of the Republic, Ralph Waldo Emerson wrote, “We began with freedom. America was opened after the feudal mischief was spent. No inquisitions here, no kings, no dominant church.”

In Origins of the Bill of Rights, Leonard W. Levy noted that, “Freedom was mainly a product of New World conditions.” Those conditions, as Thomas Jefferson so artfully wrote in the Declaration of Independence, were, “…life, liberty, and the pursuit of happiness.”

These were 18th century words for freedom and embryonic conditions for which the 56 signers of Jefferson’s document put their lives and liberties at risk on July 4, 1776.

But America’s founding documents weren’t perfected until they perpetuated rights that were, as John Dickinson declared a decade earlier in 1766, “…born with us, exists with us and cannot be taken from us by any human power without taking our lives.”

By definition entrepreneurs take risks. But only when freedom is converted into the liberty to pursue success are those risks acceptable. Thank you, Henry II.

Research shows that there is a direct connection between the rate of new business start-ups and economic growth. And the American experiment has demonstrated that a healthy entrepreneurial environment fosters national economic well-being. Thank you, Founders.

Without their vision, courage, passion, and sacrifice, it’s doubtful that entrepreneurship as we know it would exist today. And if capitalism is the economic lever of democracy, entrepreneurship is the force that renews the strength and reliability of that lever for each new generation.

We began with freedom. Freedom to dream and to try; to succeed and to fail; to own and to enjoy; to accumulate and to pass on to the next generation.

We began with freedom and entrepreneurship was born. We began with freedom and capitalism was made to flourish.

Write this on a rock … America began with freedom and the world is the better for it. Happy Independence Day.

Dealing with Pessimism

Do you know what a jet fighter is? If you said airplane, you’re only half right. In the strict nomenclature, a jet fighter is actually a weapons platform. Its job is to deliver ordinance to a target, not to fly the pilot around.

In that sense, the human body — this vessel of protoplasm we drive around — is not really what a human is. It’s actually a delivery platform for the will of our spirit; the true life force that is who we really are.

One of the things I have observed about humans is that we often don’t understand, and therefore tend to under-employ, the power of our spirit. We seem so obsessed with the body that we don’t spend enough time contemplating the presence and power of the spirit.

Someone once told me how little of our brain’s power we actually use. I don’t remember the percentage, but I do remember it was astonishingly low. I wonder if there is a connection between under-usage of the brain and limited awareness of the spirit.

Author and philosopher, Colin Wilson, wrote, “We possess such immense resources of power that pessimism is a laughable absurdity.” The power he’s talking about is that of the spirit.

Pessimism can’t be overcome by our bodies. Dealing with frustration and overcoming disappointment are both tasks performed way above the pay-grade of protoplasm. If you are a small business owner you either already understand this, or are acquiring that understanding a little more every day.

I’ve been a small business owner for a long time and have observed others far longer. I can’t imagine how any of us could do what we do without a strong spirit. The challenge is to become more aware of our spirit and flex it — like a muscle — to our advantage.




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