Time to Buddy Up With a Lender

As I go about my efforts to bring you useful info, I have a sense of the obvious. So, with that in mind, consider this: If you don’t have a lender to get you working capital, it’s time! Business owners need a lot more capital to run operations than you did 5 or 10 years ago. Yet returns haven’t kept pace. If you’re feeding your business with internal capital, it might be in full retreat mode, at least as the cash market is concerned.

That’s just working capital… Our definition of working capital is current assets less current liabilities. A lender’s definition is the portion of the equation you bring to the table when you sit down with your lender to discuss your operational needs. It takes 20% more capital in the form of credit to operate in than it did just 2 years ago, and 60% more than 10 years ago. But you already know that. So if I have any hope that you’ll read the rest of this article, ask yourself this: How well positioned, given the information above, are you to compete in the years to come? If you have a lender that you work with Great! If you don’t I suggest you find someone that can give you that competitive advantage.

If a market is stable, the top end of operations are profitable and growing, the average are hanging in there, and the bottom end are losing money and exiting the industry. Logic would indicate that in times when the market is not in equilibrium, such as now, those distinctions are even more acute.

Clearly, positioning yourself to be in the top end takes a diverse approach, both from a cost and revenue perspective. Right off the bat, I’ll tell you that working capital is the key! This is not an environment to be highly leveraged in.

With that in mind, and given that standard costs will likely continue to rise, I believe you need to buddy up with a lender that knows your business and can provide you with a safety net that you can fall back on. So, if you’re keeping everything in your line of credit – your equipment purchases, AR, soft cost. You may be structuring your balance sheet wrong. In today’s industry cycle, make sure your balance sheet is right, make sure you’re amortizing the things you are buying, and make sure you can pay for them through depreciation.

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