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Dispensing Strategies: Take That To The Bank

Need a plan and good working partnership with your bank


February 3, 2009
By Michelle Brisebois

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Wouldn’t we all just love to get our hands on the U.S. bankers and fat cats on Wall Street responsible for the current economic downturn?

Wouldn’t we all just love to get our hands on the U.S. bankers and fat cats on Wall Street responsible for the current economic downturn?

We can rant, rave and ruminate all we want, but like it or not, now is the time to bring our A-game to work. It’s economic conditions like these that separate the men from the boys. Staying profitable is the clear cut objective and to do this you’ll need a focused plan and (gasp) a good working partnership with your banking partner.

To grow you need to invest in new technology and initiatives and that may need financing. Credit is becoming harder to get as banks tighten their purse strings but financial institutions will be more inclined to give credit to those businesses that have a good relationship with them.

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In banking terms, a good relationship means knowing clearly where you’re headed and how you will use the capital to get there. It also means demonstrating a way of paying the bank back.

The Big Three auto companies recently went to Washington asking for bridge financing supposedly required to avoid massive economic hardship for large numbers of North Americans. The first pass didn’t go well because what they were lacking was a plan. You don’t have to be a member of the Big Three to get the financing you need; just nail down the answers to a few key questions.

How much does it cost you to do business?
To be successful, you must diligently track your bottom line. This also involves realistically assessing your financial situation in terms of cash and cash flow.

Begin by drafting a monthly cash flow analysis, projecting out one year, which will allow you to identify those times when cash flow will be restricted and then determine if you have financial solutions that will cover those tight cash times.

What sales are you forecasting?
Given the economic climate, it may be appropriate to assume sales decline by 10, 15 or 20 per cent. Take a deep breath and determine what effect this type of decrease will have on your cash flow.

Look at your sales volume and determine what kind of a reduction, percentage-wise, you can take in sales and still remain profitable. If a dip in sales is likely, continue to go after those big opportunities even if you’re afraid you can’t handle the resulting demand.

In tough times, it’s easier to outsource to create strategic alliances than to get new business into your operation. This is a good problem to have.

Have any white knights?
Look at all your discretionary expenses and tighten as much as possible in any area you can.
Anticipate what is going to happen.

Determine how many months of losses you could survive with your existing cash position, and be ready to look at options like non-traditional lending sources. Once you’ve realistically assessed your financial situation, it may become clear that you need to gain access to cash.

The first way to do this is to approach your bank to see what kind of loans or lines of credit for which you qualify. By partnering with your banking contact early you’ll be ahead of those folks sticking their heads in the sand. It will demonstrate your desire to survive and bankers like survivors.

Traditional lending products may be unavailable to you because of your company’s lack of history. Don’t despair: Your bank may be willing to partner with an alternative lending source that can offer products to bridge the gap until you are in a position to qualify for traditional lending financing.

As interest rates come down, you may be able to refinance some of your assets through an alternative lender, giving you access to cash. A short-term solution like this is often all your small business needs to weather an economic crisis until you can qualify for a line of credit or other traditional bank-based product.

It is possible for you and your bank to work together to transition to an alternative lender and, later on, back to the bank.

Why are small businesses key to the economic turnaround?
The SME (small and medium enterprises) sector is expected to weaken along with the rest of the Canadian economy in the next six months, says Benjamin Tal, senior economist at CIBC World
Markets. Many SME owners seem to agree with him.

Nearly 30 per cent expect their companies’ performance to be somewhat weaker over the next year, compared to 18 per cent in the previous month, according to the Canadian Federation of Independent Business. The good news is that SMEs actually outperformed the rest of the Canadian economy between 2005 and 2007, and Tal has indicated that this trend will continue.

“From a long-term perspective, I’m still very bullish on the sector,” he says.

Tal indicates that Canada’s aging population is “creating new consumer demands that small businesses are better positioned to serve since they are more nimble than large corporations. They are also increasingly tapping global markets.”

Invite your banker to your business, be open and honest with them and remember – bankers don’t like surprises, so make sure you’re on top of your own situation and giving them every reason to trust you. The larger the loan, the higher the stakes.

To quote Jean Paul Getty: “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”


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