Are you looking for small business financing?

So are many other of our small business owners so we did some research–a lot of research. What we found is that there are a lot of bad people out there in this market. People ready to take advantage of small business owners. So as we looked into it we identified over 30 sources of funding that covered the spectrum of need. Some are for the poor credit, lots of problems people and some are for those who have good credit and few problems. Their terms range from very high interest with daily drafts from your bank account and personal guarantees to competitive rate lines of credit. Contact us and we will gather information and submit it to the appropriate array of lenders and very quickly identify what can and cannot be done for you. Generally this is done without initial credit checks that “ding” your credit. In some instances you will need to present your story in its’ best light–prepare a package for presentation–in which case we can help and in other cases an applicant is strong enough not to need this work. Regardless, if you are looking for loans in the $25,000-$250,000 range you should give us a call to assist.

303 338 9300

How to raise money

Most business owners understand their product but lack expertise in raising money through debt or equity. Obtaining proper capitalization is critical to growth and the long-term success of your company.
There are basically two ways of increasing your availability to funds—equity and debt. The advantage of raising money through equity is that you don’t have to pay it back. It is infusion of funds—most likely large amounts of funds—that immediately provides cash for your use. The obvious downside is that you give up some portion of your ownership. The first place to look for quick equity is to friends, family (and fools). The owner is the best salesman and representative of the company and they often develop a “deck” to assist them in this venture. A deck is merely a power point slide show that the owner can use in presentations that they are making. For this purpose they are often very good but don’t be fooled—these “investors” are not buying into your company because of your dog and pony show—they are actually “buying” you. They know you, they believe that you can be successful and are willing to invest because of that belief. It certainly helps if you can have other collateral materials to support your cause but chances are you are the reason for their investment. To move to capital markets to raise real money you need the use of a professional investment banking firm that can take your compelling story to another level and attract professional investment rather than emotional investment.
Debt is the second way to raise cash. There is good debt and there is bad debt. Good debt is matching long term needs with long term payments and vice versa. Good debt is a mortgage on your house—bad debt is mortgaging your house to pay off your credit cards. Debt can be raised from either commercial banks or a secondary market. If possible banks are by far the best option. Banks have the best interest rates and create advantageous long term relationships. Unfortunately banks are regulated by the federal reserve and if you do not meet their required ratios or are in an undesireable industry you simply will not be their customer. They may never say no. Instead they may just constantly ask for more information until you give up. Regardless, you are not going to get your money. Secondary markets are in many ways the wild, wild west. Many brokers lack the expertise to get your deal done. The litmus test should be in the information that they require and in how they use those materials in compiling the package that they use to present your compelling story to market. Lacking a professional package you will not receive serious consideration from credible lenders. As a minimum the package needs to include significant financial information; third-party validation of the business plan; market and competitor analysis; demonstrable evidence of management team and operational competency; financial projections; corporate regulatory compliance; and analysis of off-balance sheet assets. Thien this must be packaged in a professional format acceptable to the professional readers. Often times good deals are not financed simply because they didn’t make the investment do the work that is needed to properly present them to market so be wary of brokers who do not speak this language.

Cash, Debt and Equity

Proper capitalization is critical to a business’ success. Most small businesses were started with an idea, a commitment and a credit card. If they survived and prospered they created profit and cash flow but often lacked a capitalization strategy.
Capitalization is the combination of both equity and debt. Equity is acquired through either external or internal investment. Does your company have a strategy for the accumulation of equity? Probably not. The most obvious method of increasing equity is through cash retention. Some percentage of all cash intake needs to be retained—this is the purchase of an asset—the purchase of cash. Cash is just like any other asset—you have to buy it—and it is one of your most valuable assets. Despite its’ value many business owners fail to purchase (retain) cash. It won’t happen by itself. You need a strategy for cash retention if you expect to build a strong, secure business.
Credit is also an important component of capitalization. Banks will not lend you money when you need it—they lend you money when you don’t—therefore you need to actively seek credit when you don’t need it. You should also diversify your credit. Utilize multiple lenders. In today’s environment with institutions combine and your “personal relationship” with your banker is a thing of the past. Just like over-reliance upon a single customer or vendor is a red flag so is your over-reliance upon a lender. Don’t be held hostage.
How much and what combination of debt, cash and other assets should you have? Make this a topic of your on-going planning.

Managing Working Capital

The Fremont Group would like to share a NYT article about non-bank sources of working capital – the cash needed to run your business while wating for invoices to be paid. New online lenders are proliferating, often extending credit based on invoiced revenue. One online lender we support is The Finance Store. Bank loans cause you to lose time and waste effort filling out miles of paperwork and then they leave you hanging on for a decision. Online lenders are much more flexible, leaving you to use your time most effectively – running your business.

What you want, what you need and what you can afford

There is a Starbucks in your neighborhood—I know that because there’s a Starbucks everywhere.  Walking by that Starbucks are two people.  The first is a homeless person.  He has 5 one-dollar bills, 3 quarters and a dime in his pocket.  He looks into the Starbucks, sees the $4 cup of coffee and says to himself, “I really want that $4 cup of coffee but I don’t need it” so he walks on.  The second person is a suburban house wife.  She has lots of cash in per purse lots of money in her checking account.  She looks into Starbucks and sees the same $4 cup of coffee and says to herself, “I need that $4 cup of coffee.”  She goes in and buys it.  Your business might be doing over one-million dollars a year in revenue.  Unless you are a drug dealer you cannot imagine what that $1,000,000 would look like piled up on your desk.  All you know is that you have a lot of money but you are frugal and only buy what you need.  The problem is this: The difference between a want and a need is the balance of your checkbook and you can’t even really imagine how much money that you have!  We all know people who as their income increases their expenses go up even faster.  The cell phones, video games, big screen tvs—all those things that they only want they now think that they need and only because they have more income.  You cannot run your business based upon what you want or need you must run your business based upon what you can afford!

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Consultants—Your Client can Finance your consulting project

 

The Fremont Group can now refer to you a financing program that will allow your client to finance your consulting project and their other needs.  48 hour response and 80% approval!  Whether its working capital, unsecured finance, term loans, revenue loans, equipment finance, SBA, retirement funding or custom funding packages, your clients will receive fast approval and rapid funding. Many of your clients will qualify for multiple funding opportunities giving your clients their choice of options. We recognize the need for you, the advisor, to help guide your client/borrower in their selection of the type of financing best suited to the clients’ situation. Your clients depend on you for advice, strategy, compliance and planning and you may very likely be responsible for helping to pick one of the several options that will be offered. Their dedicated staff will assist you and your client in choosing the best funding or financing option.

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Fremont identifies source for Small Business Financing

 

 

 

In today’s banking environment, a significant percentage of potential borrowers are turned away by their banks at a time when either opportunity presents itself requiring capital investment, or available cash resources are insufficient. In either case, the potential borrower is left to fend for themselves.  We endorse and will refer you to Cascade Pacific Capital, LLC.  Whether its working capital, unsecured finance, term loans, revenue loans, equipment finance, SBA, retirement funding or custom funding packages, you will receive fast approval and rapid funding. Many of your clients will qualify for multiple funding opportunities giving your clients their choice of options.  The Fremont Group will work with you through this process.

You will receive “real time” status of your progress including approval amounts and requirements to keep things on track. The system also provides real-time visibility of all important correspondences and communications throughout the process including calls, voice mails, faxes, messages. A Senior Funding Specialist will be assigned to you and  to assist and educate you through the process.

Within 48 hours of submitting the completed application and documents, you will issue a prequalifying approval. Final approval is normally made inside 5 business days although certain loans like SBA loans can take substantially longer.

Contact The Fremont Group at 303 338 9300 to discuss your financing needs.

How do you use your Budget?

This question is asked of all of our clients.  The usual answer is a blank stare.  Sometimes the response will be something like, “we tried it and it didn’t work.”  Obviously companies need a budget.  The issue often lies in defining it.  A Budget is a financial plan designed to produce a predetermined, desirable result.  Most importantly, the budget isn’t supposed to work!  Man Plans; God Laughs!  Having a financial model of your desired outcomes creates benchmarks from which you can evaluate your progress.  Budgeting is not an annual task rather it is an on-going journey.  It is also critical in small businesses to budget percentages and not dollars.  Give us a call–we can provide a webinar on the topic.

ACCOUNTING 101 FOR BUSINESS OWNERS

By Dirk Dieters, Executive Director of The Fremont Group

 

This document is a basic primer for business owners with no accounting background (or particular aptitude!) Have your own Income Statement and Balance Sheet in front of you while you read this. Pick out the different parts on your statement as they are presented.[1]

Your financial statements

A company keeps two basic financial statements—an Income Statement (also known as a Profit & Loss Statement or P&L) and a Balance Sheet. These should be produced internally for your review at least monthly. To understand the difference between the Income Statement and a Balance Sheet look at a photograph on your wall. What do you see when you look at that picture? You see the “things” that were in front of the camera lens at the moment that the picture was taken. Imagine that instead of a camera the photographer had had a video recorder. What would you see then? You would see the “activity” that took place during the period of time that the camera was on. Your Balance Sheet is the photograph; your Income Statement is the video.

Balance Sheet

The Balance Sheet is a summary of the things that your company owns (things including debt) at a particular moment. It can change the next moment if you sell something that you own or bring in more “something.” The Balance Sheet has 3 parts: Assets; Liabilities; and Shareholder’s Equity. Assets are anything that you own. Liabilities are anything you owe. Shareholder’s Equity is a subtraction problem. Imagine that you have a house worth $250,000 and a mortgage of $200,000. What would be your equity? $50,000. You obtain this by subtracting the value of what you have from what you owe on it. This is how your Shareholder’s Equity is obtained. It is as “real” as the equity in your house. The report is called a Balance Sheet because it has to “balance.” In other words, the Assets minus the Liabilities equal the Shareholder’s Equity. Conversely, Shareholder’s Equity plus Liabilities equal Assets. It “balances.”

Your Assets and your Liabilities are sub-divided into two parts—Current and Long Term (or Fixed). An Asset is anything that you own. A Current Asset is an Asset that in the normal course of business would be converted into cash in the next six months.[2] Current Assets will include: Cash (obviously cash is already “converted” to cash); Accounts Receivable[3] (you will collect your AR from your customers in the next six months); Inventory (you will convert it into product which will sell); and you might have one or two other categories. The total of your Current Assets indicates how much cash your company will have to use in the short term.

 

A Fixed Asset or Long-Term Asset are those things that you own that in the normal course of business would not be converted into cash—desks, chairs, computers, trucks, equipment, etc. Most of these Assets are not sold, rather they wear out and therefore each year your accountant lowers their value. This is depreciation.[4]

A Liability is anything that you owe. A Current Liability is a debt that you have to pay in the next six months. A Long-Term Liability is a debt that you don’t have to pay in the next six months.

Who Cares?

You should care because the Shareholder’s Equity is akin to the equity in your house. It is the “book value” of your company. One of your objectives should be to increase the Shareholder’s Equity of your company. Other than yourself (and shareholders) there are three other people who care—buyers, bankers and bonders (the three B’s). Potential buyers care because your Balance Sheet details the things that they are buying. Bankers care because it gives an indication of whether or not you can repay a loan (see Current Ratio). Bonders care because they need to make sure that you are solvent enough to complete a bad project.

Current Ratio

If you take only one thing away from this discussion of your Balance Sheet, learn to understand your Current Ratio. Review our definitions above. One category indicates how much money your company has scheduled to come in during the short-term. Another category indicates how much money your company has going out in the short-term. The Current Assets show the money coming in[5] and Current Liabilities shows the money going out. To calculate your Current Ratio, divide your Current Assets by your Current Liabilities. Obviously we want to have more money coming in than going out (and so does a bank before they lend you money!) Therefore if you divide your CA by your CL you want the quotient (answer) to be greater than 1.0. If it is a decimal below 1.0 then you have more money going out than coming in—this is one of the tests of insolvency. In most companies a Current Ration of 1.5 to 2.5 is best but it varies so be sure to discuss this with your consultant. Although your bank will not tell you this, your Current Ratio can also be too high. As a business owner you would prefer to have a lot of Fixed Assets as these are the things that make you money. Equipment, trucks, computers, etc are tools that drive the business. You really don’t make money off of Current Assets—cash, receivables, inventory, etc. However banks want to see a lot of Current Assets (very high Current Ratio) to assure them that their loan payment will be made.

Income Statement

Most people pay more attention to their Income Statement because at the bottom it shows your profit or loss. We all know that we want profit so we look there first. As the Balance Sheet is divided into three parts, the Income Statement is divided into four[6] parts: Sales (or Revenues, or Income); Cost of Goods Sold (or Direct Costs); Overhead (formerly General & Administrative Costs); and Profit (or Loss).

Most small businesses keep their books internally. They make entries with each transaction and classify them according to the type of expense or income. Their program then automatically generates the Income Statement and Balance Sheet reports. Unfortunately GIGO applies—garbage in; garbage out. The reports are good enough for your accountant to take the data and do your taxes but generally not good enough for managerial purposes.[7] After we explain your Income Statement, you will understand some of the managerial purposes that it can serve if it is properly structured. As the transactions are entered they are placed on the reports according to your Chart of Accounts. Your Chart of Accounts determines which of the sections of your Income Statement or Balance Sheet the transaction is found. If you Chart of Accounts is inaccurate, your financial statements will not help you run the business.

Your Income Statement is not developed by the computer—it is built through your actions. This is a critical concept. Every time that you make a sale or pay bills, your are “building” your Income Statement.

REVENUES = the total amount of all of the invoices that you give to customers.[8]

COST OF GOODS SOLD = the direct cost of providing the good or service—the things that you bill the customer for. Included are the Labor, Materials and other costs that you would not have if you did not do the job (or make the sale). In a sense Direct Labor is a good thing—you have paid someone to produce your product which you sold to make money.

MARK UP = is the amount that you have charged your customer in excess of what it cost you to produce it. This amount is then applied to Overhead and Profit.

To summarize, every job (or sale) you make pays the cost of producing the product or service (COGS), allocates some of the mark up to overhead and some of the mark up to profit.

Your Chart of Accounts must put each transaction in the proper section. Labor for example must be divided between COGS and Overhead. A company without an accurate Chart of Accounts cannot properly price their product.[9]

As I have shown, your Income Statement is “built” through your transactions. It is produced in the following format:

REVENUE

– COGS

 

GROSS PROFIT (subtract COGS from Revenue)

– OVERHEAD

NET PROFIT

Your Overhead is your fixed costs. These are expenses that you will have even if you don’t make a sale. (The expenses that you have because of the sale are COGS.) Your GOGS is a percentage of the Revenue. Your Overhead is fixed. Gross Profit is the amount of each dollar that comes in that you are able to spend on Overhead and Net Profit. For example if you sell a product for a dollar that costs you 50 cents, you have a gross profit of 50 cents or 50%. You now have that 50 cents to apply to Overhead and Net Profit. Since your Overhead is a fixed amount, your break even is the number of 50 cents you have to bring in to pay that fixed overhead. If your overhead is $100 it takes $200 of sales to break even.[10] Therefore your break even is your fixed Overhead divided by your Gross Profit percentage. Knowing your break even is not optional—how else can you develop a rational sales and marketing plan? And without accurate numbers how can you determine your pricing structure?

Budget and Cash Flow

Your Income Statement is used to develop your Budget. Your Budget tells you what you can afford; your Cash Flow Forecast tells you when you can afford it. The Budget is critical in pricing and in developing excess-profit based incentives for your employees. Your Cash Flow Forecasting is how you run your business. You need to have developed a six-week cash forecast that shows your expected cash balances at the end of each of the next six weeks. There are virtually no generic software programs which adequately budget or project cash flow.

 

Profit Plan

 

There are four “expenses” that have to be paid out of Net Profit. Therefore each company has a certain minimum, mandatory percentage of profit that they require in order to remain viable. The net profit must be enough to pay: (1) your debt service; (2) new asset purchases; (3) the amount of cash you plan to retain; and (4) your taxes. The funding of your Profit Plan for these four items is for break even purposes just another expense.

 

Summary

In order to have financial control of your company you must have an accurate Income Statement, Balance Sheet, Budget and Cash Flow Forecast. These are tools required for Pricing, Sales and Marketing Plan, Employee Accountability and Incentives, Cash Management, and other managerial uses.


[1] You may notice that in some cases your statements may not match the presentation. These are adjustments that should be made in your chart of accounts. Until these adjustments are made, much of the analysis of your financial statements is impossible.

[2] Much of this document is an over-simplification. It is accurate enough for our purposes.

[3] This assumes that you are keeping your books on an accrual basis and not on a cash basis. Your internal books should be kept on an accrual basis as this more accurately shows your true financial position. You can keep your internal books on an accrual basis for your management and allow your accountant to file your taxes on a cash basis which is often more advantageous. The difference is when you post income and when you post expenses. On a cash basis you post income only after you have the cash and post expenses only when you pay them. On a cash basis you would not have AR or AP. In an accrual basis you post income when you have earned it and expenses when you incur the obligation. This creates AR and AP.

[4] Note that the government allows you to “expense” your depreciation. This means that you are able to reduce your income by the amount that your assets reduce in value. (In reality there are tax schedules that dictate how fast your Fixed Assets “wear out” or in other words how much of a deduction you are allowed to claim for tax purposes.) This creates a “book value” for your asset which is often different from the “market value” and is almost always different from the value of the asset to your operations. For example, a truck might depreciate over 5 years. This would allow you to deduct one-fifth of the value of the truck each year from your Income Statement for tax purposes. On your Balance Sheet the value of the Fixed Asset would reduce by one-fifth each year until it reached zero after five years. Obviously the truck would still have “market value” (you could sell the truck for something) and obviously the truck would have value to your operations, but for tax and Balance Sheet issues, it would no longer have any value.

[5] This ignores your operations and just gives you the current status.

[6] In some instances it is appropriate to add a fifth part to segregate selling costs.

[7] The best analysis of this is found in “Minding My Own Business” by Dirk Dieters available on The Fremont Group web site from the publisher (best price) or on Amazon.com. The relevant section discusses “managerial accounting.”

[8] This of course is on an accrual basis.

[9] Every company has a “product.” In a typical service business that “product” is a unit of time. The charge for that unit of time determines the price.

[10] Now you should be able to see why you must have a proper chart of accounts. Without it you cannot properly compute your break even—nor do some of the other critical management calculations.

How do you Forecast Your Cash Flow?

By David Evans CEO of EastSeat, LL and reprinted from Inc Magazine LINK

Cash Is King: 5 Simple Rules for Creating a Cash Flow Plan

Cash is paramount for running a business. Here are five easy rules for creating a positive cash flow plan for your company.  With Opening Day of Major League Baseball over, I breathe a deep sigh of relief as a ticket broker. It means my company, EasySeat, has started shipping all of the baseball tickets that it has been purchasing for the last 7 months.

That means cash flow will soon turn positive again.

In EasySeat’s business model, cash is king, and ensuring that we have enough cash to fund inventory and operations is critical to our success. Successfully managing, and understanding, cash flow is not a skill reserved for MBAs. Every business owner should understand their cash flow.

Here are five easy rules for creating a simple cash flow plan:

1. Project monthly sales (and curb your optimism) When projecting sales for cash flow purposes, don’t be the optimist. Use worst-case-scenario estimated sales figures or historical monthly averages. Any sales figure used for cash flow planning should be something that is readily achievable. Remember, this process is used to make sure that the business has sufficient capital to operate, not an exercise in projecting success.
2. Remember receivables. Not every sale is created equal when it comes to cash. Cash and credit card sales are available for ongoing operations immediately, but sales with terms can take 30, 60, or even 180 days or more to turn into usable funds. Factor this timing into any projections, and most importantly, remember the potential impact on cash flow before extending terms to new customers.
3. Consolidate predictables. Every business has a core monthly cash burn that includes things like rent, payroll, and telephone service that are consistent and predictable. Consolidate these numbers into one operating expense figure that reflects how much cash must come in the door every month to stay in business.

4. Adjust for growth. It’s critically important to account for the capital required to grow. Many successful businesses fail by not having sufficient cash to fund their growth. New sales often require new expenditures for equipment, employees, and marketing. In most cases, the expenses come before the sale which requires that the cash is available in advance.

5. Plan for the unforeseen. To quote Donald Rumsfeld, these are “known unknowns.” For example, if the Yankees make the World Series, it’s a huge opportunity for increased sales at EasySeat. At the same time, it will mean extra inventory to purchase, and therefore, extra cash to buy those tickets. Scenarios such as this need to be factored into any cash flow forecast to ensure that, when opportunity arises, the business is in a position to capitalize. If there is a place to be optimistic in planning cash flow, it’s here. If the situation never materializes, it simply leaves the company in a much stronger capital position.

These five simple rules can be used to create a basic cash flow plan, but it’s important to understand the ramifications of the numbers. The monthly “predictables” (#3) is the amount of cash required to run a business status quo. To grow, enough cash must be available to fund the new expenses that will drive growth.

Whether the plan is status quo or growth, any cash flow forecast must include a contingency plan or “slush fund” to account for potential new opportunities or challenges. Keep a running total of monthly cash flow, sales minus expenses, and the lowest net total is the amount of extra cash required to run the business or achieve a sales growth goal. If this amount is negative, it must be available to the company in the form or credit or existing capital. Once planning cash flow has been mastered, cash will still be king, but it’ll be more of a figurehead.

The Fremont Group has developed a cash flow forecasting system that is available to all members at no charge.  When becoming a member at any level, request our Excel-based program.  Predicting your cash flow on a weekly basis, understanding the way your money travels around your company, and taking proactive steps to maintain a positive cash flow are all done through this program—possibly the most important tool a small business owner can use.