Happy Friday! Enjoy some banking humor. We hope you have a wonderful Memorial Day Weeekend!
We've built a blog that consistently feautures posts banking and finance issues that we feel will help business owners, CPAs and attorneys better understand the banking industry and how to improve the finances of their company.
We do our best to anticipate what questions you may have, but there's no way to cover everything. Today, we want to hear from YOU. Leave us a comment and let us know what banking or finance questions you have.
Has your banker said something recently that confused you? Are you having trouble reading the trends in your company's finances and knowing what they mean? Or is there an area of banking or finance that you would like to learn more about? Let us know and we'll be happy to address your comment in a post soon. Don't be shy! Look forward to hearing from you.
Is your business going through a difficult time right now? Your people are stretched, money is tight and you don’t have the resources you need to properly execute your business plan? If you do, it’s probably all-good. But, you may be experiencing growing pains. You had adequate resources in the past. But, they’re now stretched to the max. I have two clients experiencing this right now.
I have one client that has made a significant investment in people and systems in the past two years to increase his revenues. It’s taken him two years, but he now has identified his typical/ideal client. He knows what his conversion rate is on opportunities and he can tell you with certainty what his revenue forecast will be based on his current pipeline. With more revenues comes more profits and more profits comes more taxes. But, that’s a nice problem to have.
The second client and I just finished a strategic planning meeting recently. He grew 50% last year and his first quarter is up 40% over last year. His April was up 100% over April last year. The CEO is doing CFO duties. He needs a larger bank line of credit and we spent a great deal of time going over his organizational chart. With a larger company, the job responsibilities of each individual become a little narrower. The CEO is close to burn out and needs to reallocate duties. He needs to consider a full time IT person because his data is not backed up regularly. He probably needs an office manager because all the HR duties for the inside staff fall to him. Is the company doing great? You bet. But, he is experiencing growing pains and most of them are falling to him, not others in the firm.
Here’s how to see if you’re experiencing growing pains:
- If revenues are growing significantly, that usually means a like investment in people and systems. Have you made any?
- Check your blind spots: Do you have adequate people and systems in place to cover sales, operations and financial management currently and in the future?
- Review your trends regularly: Are growing pains affecting your profitability, leverage or cash flow? Quarterly is a good rule of thumb for a review like this.
How do you handle growing pains in your business?
Here are a few helpful articles on this topic:
Has a lack of capital had an adverse effect on your ability to expand your business? Statistics from the SBA recently found business owners have found capital in large banks, community banks and off credit cards. However, more than half of the responders state that lack of capital has had an impact on their ability to grow their business.
I have a client that has been using a factor to finance his accounts receivables. He has a new business and hasn’t successfully been able to find bank financing. However, we just got him a $1 million line of credit from a bank that will close in May. This will reduce his borrowing cost by at least $100,000 per year.
The company is growing rapidly. One thing I noticed is his interim financials show about an 8% decline in gross profit margin year over year in the first quarter. When I asked him about it, he was totally unaware of the decrease. Here’s why a financial health checkup is important:
- If growth is having an adverse effect on your gross margin, you need to know that sooner rather than later.
- While this company will benefit from the reduced borrowing costs, their margin decline will eat in to that savings.
- If you’re in a growth strategy, you better make sure that all the growth is good growth, meaning at equal or better margins.
- If you are discounting to get business in the door, make sure you have a long term strategy of how to recover that discount later.
- The checkup also reveals issues with leverage, liquidity and changes in collections of AR.
This client has a blind spot that bigger is better. The truth is that the incremental increase in sales has had a 8% negative effect on his gross margin. He has to work 8% harder to make the same amount of money.
If you have blind spots, join the club. We all do. However, doing a quarterly or annual financial health checkup will help you see what blind spots you have and avoid an adverse impact on your business.
What process do you use for a financial health check up on your business?
Here are a few helpful articles I’ve published on this topic