Daniel Joseph
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Finding the Right Type of Loan
Despite the intimidating procedures involved in negotiating a loan, your banker wants to lend you money. That’s the institution’s business. He has to be certain, however, to keep the bank’s money under control. One way to impress your banker is to speak his language; structure your loan proposal so that it fits neatly into one of the many loan categories that the bank uses.
By Daniel Joseph 2 years ago in Trader
The ABCs of Bank Borrowing
Asked why he robbed banks, Willy Sutton, a wily stick-up man, once said, “Because that’s where the money is.” If you’re a small company, you probably do nearly all your financing through bank loans, which means that you’ll be taking on debt. There are sound reasons for financing the growth of your company by using debt rather than the other principal form of financing—selling shares in the company. Debt-service payments are a deductible business expense; dividend payments are not. When you issue new debt, you leverage your company to increase earnings potential. Issuing new common stock dilutes your earnings. Most important, new debt does not weaken control of the company, as would an equity financing.
By Daniel Joseph 2 years ago in Trader
Where to Look for Funds
Companies raise money for expansion in three ways. First, businesses can use retained earnings, which is the money they earn through their operations and do not distribute as dividends to share¬holders. This simply means paying for an expansion project with the cash you generate through profits, similar to the everyday personal purchases you make. The second method is borrowing, and the third is equity financing (the selling of shares to investors).
By Daniel Joseph 2 years ago in Trader
If Your Banker Turns You Down . . .
Most businesspeople have been turned down for a business loan at least once in their careers, and it can be a wrenching experience. If your loan request is refused, don’t panic. Your company will probably prosper, even without the extra cash. However, you have some work to do. The first task is to find out why you have been turned down. Ask your banker directly. Ask for specifics; don’t settle for a vague answer, such as “undercapitalization.” You can’t correct the situation unless you know what is wrong. Most loan requests are turned down for one of the following reasons: 1. Poor communication. If you and the banker don’t hit it off, the chances for your loan drop precipitously. Solution: Ask to be serviced by another loan officer. You have a right to expect that the person serving you will be empathetic about your problems. 2. Uncontrolled expansion. Banks shy away from a company with a revenue growth rate that surpasses its ability to finance necessary expansion. Solution: If you want to finance an expan¬sion program, make certain that your business plan includes a full explanation of how your company expects to keep pace with sales growth. 3. Overly optimistic business plan. Your bank will check your sales and earnings forecasts against industrywide forecasts and may also match your projections against those of a company in a similar business. If your forecasts appear too optimistic, your loan will probably be turned down. Solution: Keep forecasts realistic, even conservative. 4. Past misuse of loan funds. If you use funds for a project not in your statement of purpose and the bank finds out, your chances of receiving another loan from that bank are slim. Solution: If circumstances beyond your control make it impossible to fulfill loan conditions, inform your bank at once. 5. Rapid inventory buildup. To a bank, a sudden surge in inventories means one of two things: poor planning or an unanticipated drop in sales. In either case, there is reason to hold off new credit. Solution: Make sure your inventories are in reasonable shape before you apply for a loan. Don’t expect the bank to finance inventories above the range you normally carry.
By Daniel Joseph 2 years ago in Trader
The Loan Application
A lender will make you fill out a loan application. Typically, the application asks for a great deal of information, some of which will be contained in the business plan: ● The loan amount requested. ● How, when and from where it will be repaid. ● Description of collateral. ● Names, personal financial statements and income tax returns for anyone who will personally guarantee the loan. ● General information about the business: name, addresses, phone numbers, tax ID numbers, year-end statements. ● Type of business and history of the busi-ness. ● Structure, management and ownership, including résumés. ● List of other businesses that the owners control. ● Complete audited financial statements for the last three years, including bal¬ance sheets, income statements and projections through the end of the year. ● Cash‑flow projections for the term of the note. ● Recent aging of accounts receivable. ● References from financial institutions with which your business has any kind of relationship. ● Customer references. ● Report on any significant developments for the business. ● Any additional material you want to include, such as brochures to help the lender understand the business.
By Daniel Joseph 2 years ago in Trader
The Cash-Flow Statement
Another way to keep your cash flow under control is to monitor it correctly. But be sure to use the right cash-flow yardsticks. Because it can be difficult to derive cash-flow information from the usual financial statements, many managers gauge their cash flow either by adding depreciation back into net income or by using working capital from operations as a substitute. Both measures, however, are often at odds with actual cash-flow performance and can give off confusing, or even misleading, signals.
By Daniel Joseph 2 years ago in Education
Adapt Flow-of-Funds Analysis
Adapt Flow-of-Funds Analysis Just as the receipts-and-disbursements analysis provided a framework for a short-term cash forecast, the flow-of-funds analysis technique can be adapted to long-term forecasting. However, unlike the short-term forecast, some changes in the format used for the flow-of-funds analysis are necessary to separate the impact of operational and financial decisions.
By Daniel Joseph 2 years ago in Journal
Preparing a Short-Term Cash-Flow Forecast
Short-term cash-flow forecasts are designed to predict your company’s cash flow for periods up to a year. In its final form, your forecast will look much like your receipts-and-disbursements analysis. As with that earlier exercise, the amount of detail you include in the forecasts is up to you and will largely depend on your industry and your own information requirements. Under most conditions, however, a relatively short list of headings, covering primarily those items that are subject to management control, will do. The best way to prepare short-term cash forecasts is on a rolling monthly basis—that is, the first forecast of the year covers January to December; the next, February to the following Janu¬ary; the next, March through the following February and so on. In that way, you will receive the earliest possible warning of a cash emergency.
By Daniel Joseph 2 years ago in Education
A Question of Purchasing
Have our inventories, compared with sales volume, gotten out of line with those of others in our industry? Which of our products, in these terms, are showing the best and worst records, and why? Traditionally, management has been advised that “20 percent of your products probably account for 80 percent of your inventory,” so look to make the biggest cuts where most of the inventory occurs. In many cases, this approach can accomplish more harm than good and can hinder sales and deliveries of products that are among the most profitable. At the same time, it may overlook other situations that collectively account for much of the excess inventory.
By Daniel Joseph 2 years ago in Journal
The Income Statement
The income statement (also called the earnings report or profit-and-loss statement) reflects the results of operation over a period of time, in contrast to the balance sheet’s snapshot view of the company’s financial condition at a given instant. Again, every business must prepare an annual income statement for tax, legal and other purposes; nevertheless, semiannual, quarterly or even monthly statements can be extremely useful. The items included in the simplified income statement on page 6 will often be needed to create the financial ratios used in your analysis and covered in the next section. Briefly, here is a description of the items contained in a company’s income statement: Sample Income Statement Gross sales or revenues $ 605,000 Returns, discounts and allowances 30,000 Net sales or revenues 575,000 Cost of sales or goods sold 470,000 Gross margin or operating profit $ 105,000 Selling and administrative costs 60,000 Depreciation 5,000 Net operating profit $ 40,000 Interest income or nonoperating income 10,000 Interest expense or nonoperating expense 3,000 Net profit before taxes $ 47,000 Provision for federal income taxes 10,000 Net profit after taxes $ 37,000
By Daniel Joseph 2 years ago in Education
Three things to consider before you dive into Metrics That Matter
Use the time frames that make the most sense for your startup. Generally, the longer the physical-channel sales cycle (think enterprise software), the longer the “space” between calculations should be.
By Daniel Joseph 2 years ago in Journal