Archive for September 2009
The recent increase in M&A activity would suggest the credit markets are beginning to thaw at the highest levels. Hopefully this means the small business market will see activity in 2010 though exactly when remains the mystery. Being prepared to act is therefore important. It’s a good time to review where you and your business stand on what the lenders call the “5 C’s” which is how they evaluate the creditworthiness of a business.
- Character: What is your company’s credit history and how likely is it the loan will be repaid? If you know you will borrow you then need to know what you will use the funds for and how you will generate the funds to repay the loan at the appointed intervals.
- Capacity: Will the company generate sufficient cashflow to meet current and future repayment requirements? As part of the process of applying for the loan a detailed cashflow analysis should be prepared. Ongoing the cashflow analysis should be updated monthly at a minimum. You don’t need any surprise cash shortages surfacing.
- Collateral: Do you have non-business assets that can secure the loan? For the small business owner this often means putting up the family residence which can be a scary proposition. All the more reason to stay on top of cashflow.
- Capital: Do you and your business have sufficient net worth to justify this loan? It will be important to have current and personal financial statements available. Also asking if the lender has minimums is important before getting too far in to the process.
- Conditions: What outside factors, for instance the economic outlook and competition, could impact repaying the loan? Knowing what is happening in your market(s) is critical.
Lenders are also looking at how quickly you collect your accounts receivable and pay your accounts payable. The aging of accounts receivable and accounts payable needs to be updated weekly and examined periodically throughout the week.
Taking time now to get your business in credit shape will pay-off for when the thaw reaches the small business loan market.
I am working on the final draft of the Advisory Board Kit*, a comprehensive guide for establishing advisory boards. I had the pleasure of interviewing several CEOs about their experiences with their advisory board.
I was struck by one CEO’s response to the question: What are some of the biggest challenges to having an advisory board? He said “hearing what the advisors have to say even when it hurts”. That got me to thinking…how many CEOs who say they want an advisory board are really open to hearing the truth?
I’ve talked to CEOs over the years who tell me they think an advisory board is a great idea and then never establish one. First I thought it was the usual excuse, the books and records were in embarrassing disarray or something along those lines. Now I believe it’s that many don’t want the constructive criticism.
If you are a CEO with an advisory board that responds glowingly to you all the time, I’d say you have the wrong advisors. You’re wasting your money and their time by not demanding their candid input.
What do you think?
* The expected publication date is November 2009. Information will be available regarding pre-order and a related teleclass in the next few weeks here on the site. Please check back.
Here is a great post by a leading authority on women & money, Barbara Stanny, on what college students need to know about money. I would argue high school students need to know it too.
16 Things I wish I Knew About Money When I graduated College.
What are you teaching your children about money?
