The title for this course, Keeping the Financial Wheels On, came from a comment made by my boss at Ford Credit as we were allocating some more equity capital to the six little divisions whose financial affairs I oversaw.

As you grow, you should generate enough profits to sustain your growth, at least after the first year or two while you’re in launch phase.

You might find yourself in a situation where your margins are good, but your growth rate is higher than you expect, so the financial wheels might fall off.

And you might have to get to markets before your competition does, meaning higher growth than your margins can sustain.

So, you need to be aware of all the financial methods to finance your growth. And you need to keep a good financial face on your business, because your competitors might spread lies about you. No kidding, I’ve had this done to my businesses.

So, we’re going to run down some of the financial vehicles that you might use.

Top of mind is having a bank that gets you and can finance your growth. You want bankers who are looking out the windshield with you, not in the rearview mirror.

Generally, our clients have had better results with the small regional banks than the money center banks, but it depends on who your banker is.

  1. Bank or Credit Union Loans: Good source, inexpensive, for capital equipment and buildings. Make sure your worst-case return on the project is two or three times the interest rate, just to be safe. In these times, interest rates might go up during your project life, reducing returns.
  2. Revolving Lines of Credit: Good to use when you have a rapidly expanding business, because it can be quickly expanded. Normally secured by your receivables, which banks like. Also, good when you have a one-time opportunity, such as buying a competitor.
  3. Receivables Factoring: Relatively expensive; normally 5-10% of the value of your receivables is the fee (which might drastically reduce margins), but quick to use. May portray financial weakness to your competitors, but odds are they’re not looking unless they get a Dun and Bradstreet report on you, in which case they might be afraid of you.
  4. Production Financing: An unusual type, where your raw materials are also financed. Normally not too expensive and useful when you’re rapidly growing. Most banks won’t do it, but smaller regional ones will, as will credit unions.

Note: If you’re doing a lot of export sales, these receivables take longer to pay and aren’t really financeable because they’re foreign companies. But if your customers are quality people, you can normally offer them a discount for wiring you what they owe in shorter times, or making a partial payment upon shipment.

At some point, you’re going to outgrow your bookkeeper and/or QuickBooks and need someone who can run cash flow projections, negotiate with the lenders, and help you look down the road. You need a CFO type but might not be able to pay CFO money right away. So, make the next step up: hire out bookkeeping, or use someone like CFO to Go who can help you look down the road.

Keep in mind that your job is growing the business, and you’re more valuable growing it than worrying about cash flow. That’s how you succeed.