Articles

All I Need is Another Loan!!

All I Need is Another Loan!!!

May 2025

Richard T. Hendee, Editor
The Silver Fox Advisor

Something I have seen in my years of experience in advising small businesses that is often very disturbing is a business owner who is not able to identify or accept that the business either has a revenue issue or an expense issue (sometimes both) and then seeks to borrow additional money to keep the business going. There comes a point when the cash flow generated from a business operation simply can not cover the debt obligations. 

 Typically loan payments are made from the profits a business is able to generate. If the business is losing money month after month, then it is not generating the profits needed to pay loan payments. Therefore, adding an additional loan payment is not the answer.

 Further, when obtaining a new loan is not possible, many business owners seek to find an equity partner. While this can potentially be a workable solution, raising capital through an equity partner can be a very expensive process. An equity partner is looking for a rate of return that is higher than what can be earned in the open market. Let’s say a five-year Treasury Bill has a rate of return of 5.0%. Treasury Bills are considered a risk-free investment. Investing in a small business has risks associated with it, so an investor wants to be compensated for that risk. Thus, an investor may want to realize a 10.0% or even 15.0% annual rate of return. In addition, most investors want that return to be an after tax return, so if the investor is in a 34% tax bracket, that would mean for the investor to net 15.0%, the annual return rate must be 20.1%. Then, if the investor doesn’t get paid anything back for five years, that 20.1% annual return would need to be multiplied by five. This all results in a $100,000 investment turning into a $200,000 plus repayment after five years.

Instead of obtaining another loan or seeking an investor, what the business owner needs to be focusing on is increasing more profitable sales, cutting the cost of goods sold to improve the gross profit margin and/or reducing operating expenses.

There are also some moves that can be made to reduce the amount of debt on the business’ balance sheet, like selling off old inventory to generate cash, selling some fixed assets for cash that are not longer being utilized, collecting a note receivable that has been outstanding for some time. All these examples plus a few others could be used to generate cash that could be used to pay down or pay off debt, thus reducing the amount of monthly loan payments.

 If you need assistance in reviewing and identifying some customer experience  factors that you can build on, I recommend you seek a business advisor, consultant or mentor: Contact a Silver Fox Advisor. Remember, having experience on your side always helps. We encourage you to visit our Website at www.silverfox.org to select a Silver Fox Advisor and also to learn more about the Silver Fox Advisors, as well as our great programs and community outreach endeavors.              

Business Tips From the Editor - May 2025

BUSINESS TIPS FROM THE EDITOR

May 2025

Richard T. Hendee, Editor
The Silver Fox Advisor

“The Need for Good Monthly Financial Statements”

Financial Statements are the scorecard of any business operation. A business that does not have good financial statements is like playing a round of golf just for the fun of it, or two baseball teams playing a game and not knowing which team won or what any of the players' individual stats were. That may be o.k. if that is what you want to do, just have fun, but in the business world, playing the game is only part of operating a business. Having good financial statements lets the business owner know how much the business is selling, how much it is generating from those sales, and what it costs to operate the business, and ultimately provides the owner with a return on his or her investment and, oh yes, a livable income.

I have seen too many small businesses where financial statements have not been produced for several months. Or, if they are produced, the owner can not depend on the reliability of the numbers showing on the statements. But yet, the business owner lives with the situation because the internal bookkeeper has been with the business since it started, or is a relative of the business owner, so the lack of good financial statements gets accepted. Then one day a situation occurs that causes the business and everyone involved much pain, stress, and anxiety.

Typically, these situations simply do not get better with time, they only get worse. What results is a long, expensive and messy clean-up that could have been avoided if the situation were addressed earlier.

Generally speaking, most people know when they are in over their heads but are reluctant to speak up for fear of losing their job or disappointing someone they respect or love. What I have seen when these situations are addressed in a business-like and professional manner, usually the result is everyone experiences a sense of relief.

If you need help with making changes in your business, I would recommend you seek an experienced business advisor, coach, consultant or mentor with a financial or business background for your Company: Contact a Silver Fox Advisor. Remember, having experience on your side always helps.

We encourage you to visit our Website at www.silverfox.org or www.silverfoxadvisors.com to select a Silver Fox Advisor and also to learn more about the Silver Fox Advisors and their businesses, as well as our great programs and community outreach endeavors.