If you are a business lender, you may not be able to say ‘Yes’ to a loan as readily as you would like right now. But you still want to help your business borrowers.
Perhaps it is time to provide them with some resources. It could be an email or, better yet, a letter from you with some tips to share on finding the cash that might be tied up in their balance sheet.
Even better, stop by their business. You better call first, though, and let them know you are bringing them something. A lot of business owners are worried right now if their banker shows up unannounced.
Download the PDF
If you don’t want to take a chance on ‘lender liability’ for the advice, say you found it at Linda Keith CPA’s website.
To business owners and managers…
Time to find the cash that might be tied up in your balance sheet. In this post, I’ll focus on the assets starting with the most liquid first:
Cash
1: 13 week cash forecast
- Keep a 13 week cash forecast and update it weekly. This is a terrible time to be surprised by a cash shortfall. The sooner you know it is coming the sooner you can work on plugging the hole.
2: Horde cash
- While some businesses have excess cash, more do not. And most do not yet have a clear picture of how long the down-turn will continue, or how slow the recovery will be. When in doubt, build up a cash cushion.
3: Keep it simple
- This is not a time for unusual investments. Keep the cash handy.
Accounts Receivable
4: Accelerate receivables
- Consider accepting charge cards
- Consider encouraging cash sales with discounts
- Consider factoring (borrowing on receivables)
5: Collect aggressively
- But keep in mind these are your customers and you may want to help them through the recession along with you
- Check their credit
- Call immediately when the bill is overdue
- Consider asking about the quality of the product/service first
- Keep on it but consider negotiating with a valued customer who you think will make it through and has troubles of their own
6: Monitor Receivables
(Get help from your accountant if you do not know how to calculate these.)
- Accounts receivable aging
- Days in receivables
Inventory
7: What isn’t selling?
- Consider heavy discount to get rid of it
- Be sure you are purchasing the right products
8: Monitor Inventory
- Days in inventory
- Stock outs
9: Fine-tune your orders and reduce delivery time
- Order the amount you need in smaller volume (considering any volume discounts you might lose)
- Work with suppliers to reduce delivery time
I do this with my printer. He knows about how many manuals I’ll need over the course of a year for sales and for the training I do with lenders. If he has idle workers, he can have them do a print run of my manuals. He keeps them until I need them, but generally not too long. I make smaller orders and only pay for what I need. It works for both of us because we communicate.
Equipment
10: Do you need everything you have?
- Consider selling unneeded equipment
- Be careful if the equipment is collateral for a loan
11: Purchase smart
- Carefully consider capital expenditures
- Consider operating lease instead of purchase
- Consider outsourcing
- Consider collaborating with another business to purchase equipment together
Intangibles
12: Do you have funds tied up in intangibles?
- Consider licenses, patents or intellectual property that could be sold.
Liabilities
13: Negotiate
- Yes, it is tough in this environment but it does not hurt to try.
- Consider equity in place of debt for private debt holders.
14: Watch your covenants
- Know what you have agreed to
- If you are going to miss a covenant, communicate with your banker right away and let him/her know what you plan to do to fix it.
Communicate with everyone
A lot of the resources I see about finding cash in your balance sheet will say to slow down payables and accelerate receivables. But isn’t that exactly what your customers and vendors are doing?
I have a better idea. Communicate closely with your vendors and customers. You all want to make it through in good shape. Talk with each other and find ways to make it work for the entire chain.
That is a good idea with your lender, too!
