All I need is money
This is first of a series, co-authored by Ron Sturgeon and Greg
Morse, founder and president of Worthington National Bank.
If you ask most people what their greatest
business need is, they’ll answer “money.” Whether that business
has been around for years, is a start-up venture or is still
a plan written on a scrap of paper, many entrepreneurs believe
that the only thing holding them back is a bigger supply of money.
That’s probably the furthest thing from the
truth. If you give a struggling business more money, chances
are good that all it’s going to do is lose more money. Why? Because
that business hasn’t figured out what its true business issues
are. The owner hasn’t taken the time to address the genuine problems
facing his or her business – so more money is only going to feed
The truth is, there is plenty of money in
the world today. Banks are sitting on money, investors are sitting
on money and individuals are sitting on money – all waiting for
the right opportunity to put that money to work. And while there
are millions of ideas for businesses out there, very few people
can take those ideas, connect them with the money and turn them
into successful ventures.
Lesson 1: Know what you need – and why you
Greg: As a banker, I constantly see people
who think all they need is more money. For example, I had a prospect
that came into the bank who owned an ice cream store. He and
his buddy had gone into business together and each of them had
put in $100,000, and now they’re both broke and don’t know what
to do. They were delinquent on payroll, owed back taxes and had
no business plan. A business plan needs to be clearly articulated,
to include directions how one will reach their vision.
What he did have was a big pile of receipts
– a pretty good sign that he didn’t know where he had been or
where he was going. He thought they had a competitive advantage
with this ice cream they were selling, but he hadn’t even thought
about how many scoops of ice cream he had to sell just to pay
to finish out his building! If you can’t put your competitive
advantage into numbers, is it really a competitive advantage?
You have to know how much money you need
now. You have to know why you need it. And you have to know how
much you’re going to need going forward.
Ron: So, he hadn’t figured out what his metrics
were? Metrics are the numerical measurements of performance for
a business. The simplest might be sales per month, but many more
are needed to understand your business, such as more complex
ones like average client acquisition cost.
In [my book] Green Weenies, we had a question:
“How big is the hole and how are we going to fill it?” In other
words, how big is the deficit, and what plan can we devise to
erase it? It’s an estimate of how much sales or income you’ll
need to solve the problem.
Greg: That’s a good point. I asked this prospect,
“How much money are you going to lose every month?” and he said,
“I don’t know that we do lose money every month.” He had no idea
what his financial statements said.
Ron: Customers who are heading to the bank
looking for a loan need to look over their financial statements
and meet with their accountant to make sure they understand what
all the numbers mean. And if you don’t understand them, you need
to bring someone to the bank with you who does!
If a banker gets a sense that you don’t understand
the financials, then the banker wants to know that you have someone
credible working for or with you who does understand them and
can give you that information. But to go into a bank and not
understand what’s going on with your financial statements is
a critical mistake.
Doing the work to get there means taking
the idea from your head and putting it into a solid plan. It
means creating a business plan that is honest and viable and
defines your objectives, possible pitfalls and your action plan
for making it happen.
In the next article we’ll move on to business
plans, managing your credit, the optics of presenting your loan
and much more that you may not have known about how banks work,
from the credit approval process to some big traps to avoid.
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Remember, only you can make BUSINESS
Ron Sturgeon is past owner of AAA
Small Car World. In 1999, he sold his six Texas locations, with
140 employees, to Greenleaf. In 2001, he founded North Texas
Insurance Auction, which he sold to Copart in 2002. In 2002,
his book “Salvaging Millions” was published to help
small business owners achieve significant success, and was recently
reprinted. In June 2003, he joined the new ownership and management
team of GreenLeaf. He also manages his real estate holdings and
investments. You can learn more about him at WWW.autosalvageconsultant.com
He can be reached at 5940 Eden, Haltom City, TX 76117, firstname.lastname@example.org or
817-834-3625 ext 6#.