Re-structure bank debt improves working capital

By: Tony Busch

Cash Flow Matters…

August 12, 2005

Several months ago I paid a visit to the owners of a small metal fabricating business to discuss how they wanted to improve their business. This call originally came to me from their banker. He suggested that I might be able to offer them some meaningful suggestions to improve their business.

After a couple hours of discussing the issues facing the company, I was able to identify the immediate issues and present the owners with an initial outline of how the issues might be resolved.

Specifically, this company was facing the difficulty of funding significant growth at a time when the bank was not prepared to advance more funds under the working capital line of credit nor advance a term loan. The cash flow of the company would not support additional loans to provide important working capital to fund the imminent expansion. Collateral values were totally used for the existing debts. No investors were waiting in the wings to inject additional funds. And there was not enough time to market this investment opportunity to the investment community.

So, what was the strategy going to be? What could the company do to generate additional working capital to fund this growth? After all, there was a lot of business coming their way and they couldn’t find additional borrowed or investment money.

After reviewing the financials, evaluating the collateral situation, and examining the debt structure already in place, I worked with management to identify potential areas where saving could be realized. After a brutally honest review of all expenses, management was able to reduce medical benefits by shopping the health care plan; they did not renew a lease on an adjoining building; after a very careful analysis of the staff, management determined that two positions were not needed, even in the face of the additional work coming their way; and, we requested the bank to double the amortizations of two business loans from 3 and 4 years to 7 and 8 years. In addition, management requested the bank to suspend principal payments for six months.

Management then began to thoroughly review their financial information. They prepared a cash flow budget using Priora® Cash Flow Manager with supporting assumptions. Armed with this upgraded and current financial information, they approached the bank to discuss the increased amortizations and the interest only payments for six months. After a careful and thorough evaluation, the bank agreed to all the loan restructuring requests of the owners.

While the bank did not actually make more funding available for the owners, they were a partner in a strategic plan to improve the working capital of the business. These savings totaled over $8,000 monthly. That increased working capital, coupled with some very strict profit and cash flow management strategies has enabled the owners of this company to position themselves to improve their business dramatically.

If you are looking for strategies to improve your business, please call Priora® Cash Flow Management, LLC at 920-734-8531 or email us at tony@prioracfm.com. We would be delighted to talk with you.

Why do businesses fail?

By: Tony Busch

Cash Flow Matters…
Why do businesses fail?

May 1, 2005 3RD Volume

There are many risks entrepreneurs face as they launch or grow their business ventures. Knowing why businesses fail can be a fair warning to business owners to avoid making the same mistakes others have made.

One study conducted by a group of professionals who surveyed several dozen individuals and organizations including the SBA and SCORE found that the reasons for failure can be categorized in four areas. This list represents the most frequent reasons why businesses failed or were failing to grow.

General Business Factors 78% - Lack of a well-developed business plan, including research on the business before starting it (on the market’s willingness to buy, costs, etc.). 73% - Being overly optimistic – about achievable sales, money required to do the things that need to be done to be successful. 63% - Insufficient relevant and applicable business experience. 70% - Not recognizing, or ignoring, what they don’t do well and not seeking help from those who do have expertise.

Financial Factors 79% - Starting with too little money. 82% - Poor cash flow management skills and/or poor understanding of the cash flow of the business. 77% - Not pricing properly – failure to include all necessary costs when setting prices (break-even).

Marketing Factors 64% - Minimizing the importance of promoting the business properly and effectively (marketing). 55% - Not understanding who your competition is or ignoring competition. 47% - Too much focus on reliance on one customer/ client.

Human Resource Factors 58% - Inability to delegate properly and effectively. 56% - Hiring the people with insufficient skills.

In reviewing this list of the most common reasons why businesses fail, it is critical that the entrepreneur manage all aspects of the business on a regular basis. Clearly, the top reasons why a business fails lie in the Financial Factors area. The number one reason business owners fail is due to their lack of understanding of the principles of cash flow and, more specifically, the impact of business decisions on their business cash flow

Many entrepreneurs are very good at what they do in their business, but they do not always have a sound understanding of their financial situation (cash flow) and they do not know how to effectively communicate the performance and the challenges of their business to their lender.

Each day the business owner is asked to make dozens of decisions regarding the business. These decisions can be as simple as whether or not to negotiate a price with a customer for a relatively small transaction to deciding whether or not to hire more staff, add or discontinue a product line, or increase the marketing budget for the next month. Large or small, all these decisions add up to make for a profitable or non- profitable business venture. Clearly, as the table above demonstrates, if the business owner is making these decisions without sufficient financial information, there is a greater risk of significant damage to the business or, eventually, failure. Many business owners find that an annual budget with monthly measurements to that budget are vital to their success.

If you are having a difficult time gaining an understanding of the cash flow of your business, please consult with someone who can assist you with this critical dimension of your business. Such advice is very important to the continuation of your business, to improved profitability and to effectively communicating the performance of your business to your lender.

At PrioraTM Cash Flow Management, we will work with you and your staff to educate and advise you as to how to improve the cash flow of your business in order to achieve greater profitability and to effectively communicate that information to your lender.

You can reach us at 920-734-8531 or email us at tony@prioracfm.com. Visit our web site at www.prioracfm.com to learn more about our services. We will be happy to give you a free consultation.

Managing Expenses

By: Tony Busch

Cash Flow Matters…
Sleep well. Your cash flow is under control.

March 31, 2005

This issue of the newsletter will focus on the benefits of successfully managing the cash flow of your business. Successful management begins with a basic understanding of the cash cycle of your business. This means that you understand the cash cycle of your business.

What is a cash cycle? Simply, it is the process of how and when the cash flows into and out of your company. While this is a pretty basic concept, the devil is in the details. For example, if your company purchased inventory and converts that inventory into a finished product, how much must you spend on inventory, how long will that production cycle last, when does the product get shipped, when is the customer billed, and how long will it take your customer to pay you?

Sure, these are common questions and challenges facing every business. The question is, how do you manage this information? Do you have a system that allows you to compare what is actually happening in each of these areas to what you budgeted should be happening in these areas? Without such a system, the business cash cycle will always be controlling you, instead of you controlling the cash cycle.

Obviously, a critical part of understanding your cash cycle is to understand your business expenses. In today’s world, it is not always easy to increase sales to improve business profits. Competition from many corners of the market will prevent you from simply increasing your sales price. Most business owners come to realize that the most effective means of increasing profits is to critically examine expenses. Often they discover more waste than they thought was happening. Impulsive spending is also a detriment to the successful management of expenses.

Effective control of expenses starts with a budget. Write down the expenses your business is expected to incur next year. Support those expenses with well thought out assumptions that explain each expense in writing. Keep those written assumptions close by for reference during the year. Look at the projected numbers and the supporting, written assumptions monthly. Each month compare the actual numbers to the budgeted numbers on both a month-to-month and year-to-date basis. Examine the variances that develop from this analysis and address those negative variances immediately. Pursue the positive variances and keep doing it the right way.

If you are looking for a comprehensive cash flow budgeting and management system, please download a free copy of the DEMO version of PrioraTMCash Flow Manager available at this web site, www.prioracfm.com.

With proper planning and management of the cash flow of your business, you too can feel more comfortable about the health of your business and you will sleep better knowing that many of the details are being effectively managed.

If you have specific questions about managing business expenses, or, if you have any suggestions or would care to share an experience you have had about managing the expenses in your business, please call or email your information to me.

Cash Flow Matters...

By: Tony Busch

"Cash Flow Matters..."

March 9, 2005

Welcome to the first newsletter from Priora Cash Flow Management, LLC named "Cash Flow Matters..." This is an appropriate name because cash flow does matter.

"Cash Flow Matters..." for maintaining financial performance, improving the financial performance, determining the break even point, reviewing and upgrading pricing of products and/or services, capital acquisitions, and communicating the performance of the company to the lender. There are many more valid reasons to budget and manage the cash flow of a business. We will touch on these and other reasons in future issues of "Cash Flow Matters...." The number one reason most companies fail is because the cash flow was not properly and sufficiently budgeted and managed.

The business owner must pay close attention to the cash flow of the company on a regular basis. To ignore the adequacy of the cash flow of the business is to unnecessarily risk failure. Business owners do need to understand the basic principles of accounting and cash flow. They do not have to have an MBA. Budgeting and managing the cash flow of a business is much more effective if the business owner uses a system designed for that purpose. Such a system must also include the assumptions that support the numbers in the budget. For example, don't just put numbers on a spreadsheet and call it a budget. Write down the reasons for the numbers in the budget. These reasons will justify the numbers and enhance the chances for success.

A sound cash flow budgeting and management system can be used to communicate the performance of the business to the lender. In fact, if your lender is not interested in seeing how your business is performing on a regular basis, perhaps you should re-evaluate the commitment of your lender to your business. After all, if a business owner needs to borrow additional funds from the lender and the lender is not regularly informed about the financial performance of the business, how efficiently will that lender be able to respond to the additional loan request?

In this newletter, reference has been made to an effective cash flow budgeting and management system. Priora Cash Flow Manager is such a system. A free DEMO of this system can be downloaded to your computer from the web site www.prioracfm.com. More information about the system can be obtained at the same web site.

Or, please feel free to call Tony Busch at 920-734- 8531 or email me at tony@prioracfm.com
with any questions about Priora Cash Flow Manager.

Please note that on the Tuesday evenings of March 29 and April 5 Priora Cash Flow Management, LLC will present a three hour workshop entitled "Successful Cash Flow Management Terms & Strategies." The workshops will be held at the New Horizons Computer Learning Center located at 1331 American Drive in Neenah. Seating is limited to 10 students.

Each student will have a computer to use to enter their business financial information into Priora Cash Flow Manager. The cost of this workshop is $50 per student. Additional information is available at www.prioracfm.com.

Finally, if you have any questions about cash flow that you would like addressed in future issues of "Cash Flow Matters...", please email them to me or call me at 920-734-8531. I would like this newsletter to be informative and helpful to the business owner. It is my hope that by providing you, the business owner with relevant and meaningful cash flow information and techniques, that you will find you are making better informed business decisions resulting in improved business performance.

Do you know anyone who does not want these results?