Tweet

Looking for Financing

Guest post by: Bill Boyer

Article Overview: Before you go to a bank or another funding source, you must have your "act" together.

Looking for Financing

We either know from experience or from various sources of information how difficult it is to get financing today. Many of the rejections are due to current constraints on financing that are stricter than they were a few years ago. But how many of the "turndowns" were due to an ill-prepared presentation? Get ahead by being fully prepared and communicating the proper information when you have your first meeting with a potential source of financing. This makes a great impression. The first thing that banks or other financing organizations are going to want to see is at least three years of prior financial information and some will want five years. They may also want to see your accounts receivable and accounts payable detail. Some financing organization will only use the historical information. If you are considering financing in the future be sure your tax accountant is aware of that. There are some very legitimate ways that taxes can be deferred. But if these actions reduce your profitability, it could cause problems for the bank in evaluating your request.

And while past results are very important, some financiers will also be interested in seeing a business plan for the next few years. You must have a plan to pay back the indebtedness.

Developing a good business plan is not easy. In my conversations with many financiers, they comment on how often business plans are not well thought out. These plans must present the amount of financing requested, and forecast your plans for payback to the institution. Projected profits and losses, balance sheets, and cash flows are necessary.

You must be able to convince the financing parties that you truly understand cash flow. Do not forget that "Cash is King" and many profitable companies have failed because they could not manage their cash. You will have to prove that your business is liquid and can survive. How quickly can you generate cash if necessary? Know your current debt maturities, credit terms and the cash that is or will be tied up in assets.

Before you start these conversations, be absolutely sure that you understand all of the common terms used in financial reporting. What are gross profits, margins, net profit, EBITDA?

In addition to your financial statements, a narrative will be required. This will include:

• An explanation of your market. Focus on what is currently happening in your market, how you expect to deal with it, and the reasoning behind your plans. While this is a projection, be sure to have some alternative plans in case the market does not react the way you expect. Markets can change. You must show that you are familiar with your market and the things that influence it. That knowledge will be the basis for your alternative plans.
• If you are in different markets, be sure you can explain each market and how you will react to fluctuations in each one of them.
• Be able to define your current clients and prospective customers. How long have you been doing business with your current customers? What is the quality of your client base? How will you expand your customer base? Why would they want to do business with you?
• Understand your competition and know what differentiates you from them. How do your customers compare you to the competition?
• Is your business cyclical? Explain how you will handle the ups and downs. Knowing how to deal with the cycles is critical to managing your cash. Be able to explain your methods for controlling your inventory levels. What can be done to speed up collections? Will you be able to delay payments to your vendors?
• Analyze your risk. Be able to discuss the severity of the various elements of risk and the steps you can take to mitigate that risk.
• Be able to identify cost reduction actions that could be taken if your projections do not materialize.
• Be able to discuss the ability of current ownership to supply additional capital if it becomes necessary. If this becomes as issue, you should be prepared to explain this if current ownership is unable to contribute additional funds. Would you be open to additional capital investors?
• Understand the real strengths of your balance sheet. You may have assets that are either valued higher or lower in the current market, especially property. How does the value of your inventory compare to the current market? Do you have exposure to leases or other guarantees? Does the reputation of your company give you intrinsic value?

Obtaining financing is difficult today, but presenting a well thought out and prepared request will improve your probability of success.

Related Articles
  How to Finance Your Franchise Business Opportunity
  Finding Information on Small Business Loans
  Working Capital Financing
  0% Financing May Not Be The Best Deal
  Canadian Business Financing - Tips on Securing Financing For Your Business
  Canadian Lease Financing - Maximizing the Benefits!
  Equipment Financing Canada – One Big Mistake Not to Make
  Franchise Business Financing - Canadian solutions
  Canadian Franchise Financing – Made in Canada Solutions!
  How to Get Financing For Your New Small Business by Sharon Fullen
  Business Inventory and Purchase Order Financing Canada
  12 Types of Business Financing in Canada - Which Do You Need? Commercial Loans & Cash Flow Finance
  Preparing For Financing Accounts Receivables in Canada - AR & Contract Finance Must Knows!
  Equipment Financing Specialist – Canadian Leasing Solutions
  How to Get a Car Loan Financing With Bad Credit
  How Merchant Advance Capital Works in Canada And Why Retail Merchant Financing Produces Cash Flow Today
  Canadian Film Tax Credit Financing
  Quick Guide On Financing Your Business
  The Unknown Secret In Canadian Accounts Receivable Finance - C I D Business Factoring And Financing in Canada
  Are Inventory financing lenders and P O Factoring solutions your best business financing bet ?

Article Tags: banks, capital acquisition, Financing, Funding, lenders



Related Forum Posts
grants for restaurants - Well friend I don’t have any idea about government grants for restaurants, but I will recommend that you may try on some banks who offer loans for small business where the government will have some guarantee. Beside that Restaurants business is very risky so some of banks who gave some Financing Loans they will look at on it if there is enough solid business plans.
Re: How to finance your independent movie - Hi, The video doesn't come up with its own URL... But it's the very bottom video on the page. Here's the description of it: Financing, Production and Social Impact of Feature Films Host- Carol Atwood - Founder, Spartacus Media Enterprises Panelists: Bill Johnson - Co-Founder and Partner, Inferno Distribution Steven Haft - Producer, Media Consultant Michael Goorjian - Actor, Producer, Writer
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
Re: What Franchisors Want From Franchisees - Thanks for the follow up Russell. I found the following tip to be especially helpful: [quote="RussellWebb":2vqd3szf]Financing arrangements will vary - if you can show that you have 20% above all of your start-up costs, this would help. The more assets you own the better.[/quote:2vqd3szf] By the way, is there a way for someone to achieve a close to "1000" credit score? I've always paid off my Visa bill and car payments on time... but I bet my credit score is not even between 800-1000. I wonder what the secret is to 1000?
Re: Kevin's Case Study #8 - How do you attract a finance expert? - I think the best way to find any reputable accountant would be by recommendation. If you cannot get one by recommendation then you should put those you narrow down your search to through an in depth prescreening process. Check the out their firm with BBB and make sure they are licensed & registered. Always check credentials and make sure they graduated from the schools they claim to have attended. Financing should be found in accordance to the type of financing you need and the type of business you are financing. You should always get prequalified before commiting to an application. You should seek out those financial institutions that specialize in the type of financing you are seeking and then check to enure they can finance your type of business.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

When the Going Gets Tough, the Tough Log On

Sales is a Flawed Model

Secrets of Successful Business Partnering

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.