Salvaging Millions
Covering the bases from the bottom up
This is the fourth in a continuing series, co-authored by Ron Sturgeon and Greg Morse, founder and president of Worthington National Bank

Ron: One thing that I like to do is called bottom-up planning. These days, it’s really easy to create a spreadsheet and create a top line where advertising costs are 5 percent, labor is 20 percent and so forth.

But what about the metrics? Like with the ice cream shop: how many scoops of ice cream are they going to sell? Once they’ve figured that out, they need to extrapolate that into how many cups and cones they’ll need to buy, how many freezers they’ll need, how many employees they’ll need to scoop all that ice cream. And if they’re going to sell 10,000 scoops a day, how many tables will they need, and how big will their lobby need to be to hold all those people, and how big a parking lot it would take to accommodate all those cars.

I would say that 98 percent of the business plans I see haven’t been looked at that way.

Greg: That’s a problem we see a lot. I know of a couple of brothers from a foreign country who wanted to open a restaurant in a small town. When they opened a checking account at a local bank, the banker told them that in order to be successful, they needed to be able to make a great chicken fried steak. When they left the bank, the brothers asked each other, “What’s a chicken fried steak?”

Ron: And it’s not just new businesses. Once I was in a bank and overheard a conversation in the next booth. The guy sold parts and provided services for 1964 through 1966 Ford Mustangs, and he’d been doing this for several years. He’d been blindsided because all of a sudden his business had slowed down.

All I could think was, “How stupid is that?!” There are a finite number of 1966-1968 Mustangs, and how many people are out there to fix them? He hadn’t thought to expand into servicing modern Mustangs, or adding some other car. So now he was in the bank trying to get a loan to get out of this bad situation he was in.

Greg: One of the problems we see a lot is that people are managing for the quarter, not for the quarter century.

Ron: I am amazed at the bankers who’ve told me stories about a customer who comes in and says, “I need some money but I’m not really sure how much. How much do you think I’m going to need?” That banker is absolutely not interested in giving them any advice — and probably won’t lend them any money!

Greg: Another thing we don’t want to see is three years’ worth of monthly historical financials. When someone brings us a business proposal with thousands of numbers in it, we get lost. Bring us annual or, at the most, quarterly statements. I don’t usually need to see monthly statements.

Ron: What else do bankers want to see? You want to see some skin in the game, right? What does that mean in terms of down payments and equity and those kinds of things?

Greg: Never go in and ask a bank for 100 percent financing on anything. I want the customer to have some skin in the game; maybe put down 20 percent on whatever it is he or she needs.

Let’s say someone comes to the bank and wants to finance a new bulldozer. The day it’s driven off the lot, it’s not worth the $100,000 it cost, it’s worth $80,000. As a banker, I’m already down to having something that is only worth what I just financed. And if the customer has some skin in the game, I know they’re going to lose some money if they have that bulldozer taken away.

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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 He can be reached at 5940 Eden, Haltom City, TX 76117, or 817-834-3625 ext 6#.