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A Guide to Applying for a Loan - Dec 29, 2011

Posted by: Johnny C. Gates in Articles

A Guide to Applying for a Loan

Every business at some point will require outside financing.  This generally means obtaining some form of bank loan.  For many, this turns out to be a very aggravating and frustrating process.  You may be financing a new business or simply in need of seasonal financing, but proper planning will substantially enhance your chances of obtaining a loan.  An additional benefit may be that you will learn more about your business.

Various methods of outside financing include venture capital, or bring in another investor and bank financing (the most common method).  Many banks offer both conventional and SBA loans, talk with your banker to see which type of loan makes more sense for your particular situation.

Let’s take a look at the various aspects of applying for a loan and how they may affect you.

The Loan Process

Have an understanding of what your banker is interested in and anticipate questions that might arise during the loan process.  Most business owners think that having substantial capital is the only criteria that interest banks; however, banks are in the banking business and have no interest in running your business should you default on the loan.  All this means is that banks are more interested in how you will repay the loan in addition to the capital you may have.

Why Do You Need The Loan?

Although it may seem obvious to you why the loan is needed, the first step is to determine why you need the loan.  Your business may be a start-up which will require purchasing equipment, inventory or working capital or maybe even finance research development and product research.  If you are an established business maybe you are experiencing cash flow problems because you are undercapitalized or you may be experiencing a seasonally slow period.  No matter what the reason there are usually four common reasons for requiring a loan working capital, seasonal peaks, equipment acquisition and acquiring or starting a business.  Even though the basics for needing the loan are the same, your loan package should be customized to reflect the reasons for obtaining financing.

Cut Expenses, Reduce Debt 

You should have your business in the best possible financial order.  Pay close attention to expenditures.  Look at all your expenses and try to reduce them as much as possible, this will increase your cash and profits.  Accounts Receivables is another area that may require some work to collect any receivables that are owed to you.  You may want to consider restructuring existing debt to improve cash flow and working capital ratios.  Consider liquidating unused or redundant assets to improve working capital as well as increase cash balances.  Never forget to look at salaries even your own for a possible reduction.

Payroll Taxes are owed The IRS…..Leave Them Alone

If your company collects payroll taxes from employees, heed this warning: Regardless of what your financial situation is do not borrow from the tax withholding fund.  The IRS will crack down hard on you if the money is not there when due.  I have worked with clients who have fallen behind on paying payroll taxes and in two cases the amounts were sizable.  In one instance the company ended up declaring bankruptcy and in the other the company had to seek the help of a tax service who specialized in handling tax workouts.  Both of these situations not only cost the business owner back taxes, but additional fees for the outside legal counsel and tax advice. 

There are times when businesses face a cash shortfall.  While it may be tempting to look at tax money owed as an easy fix to the shortfall, “I’ll send it later you say”.  However, when it comes to bad ideas, this is one of the worst.

If the money is not sent when the due date arrives…..the IRS will take action against the responsible parties.  “That money belongs to employees and is meant to be held in a trust fund until deposited to pay income tax, Social Security and Medicare taxes.”

Assuming that the corporate veil will protect you or other corporate officers is a misnomer.  The one area where you cannot escape personal liability is payroll taxes.

Let’s take as an example a business, which has five corporate officers, falls short in paying taxes by $100,000.  One decision the IRS must make is who willfully failed to make the payments.  However, the IRS will go after the party who is the easiest to collect from.  You may not have any knowledge that the tax payments were not made, but if it turns out your four partners flee, you may be held responsible for the entire amount.

Did you know the IRS can attach your business bank accounts and assets if there is not enough money to pay the bill.  The IRS can even shut your business down, seize your assets and auction them off to satisfy the shortfall.

Pretty bad news, right?  There’s more.

How hard will the IRS be? The fine used to be called the 100 Percent Penalty until the IRS changed the name calling it “The Trust Fund Recovery Penalty”.  An officer or other responsible employee can personally be assessed 100 percent of the amount and that amount does not include interest.

How hard is it for the IRS to impose the penalty? The IRS has to prove that you willfully failed to pay the withholding taxes.  “In one case, the Court ruled that willfulness was evident simply because the taxpayer made payments to other creditors ahead of the IRS.” (Edward J. Loew, 2002-1 USTC 50, 126; U.S. Court of Appears, 9^th Circuit)

Gary Dannar

President

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Are You Managing Your Cash Or Is It Managing You - Jan 11, 2010

Posted by: Johnny C. Gates in Articles

ARE YOU MANAGING YOUR CASH OR IS IT MANAGING YOU?

By Johnny Gates

I recently saw a survey concerning the degree to which business owners are managing their cash flow. The results might be surprising to many in that only 20% of business owners felt they were in control of their cash flow. This means that over 80% of owners manage their business without having the necessary control over cash. Unfortunately the lack of financial control of your business can lead to devastating consequences. Compare this situation to driving down the road at night and your headlights go out. You can’t see any cars or obstructions on the road. The only hope is that you reach your destination before you are involved in a serious accident.

Anyone running a business needs a clear vision of how their business decisions affect the finances of the company to achieve the success they desire. “Cash is King” and every business owner should have a clear understanding of the financial implications of their business decisions to increase the chances of success. If you don’t take control of your cash, it will most certainly take control of you.

As a business owner you probably wear many hats: Administration, HR, Marketing/Sales, Finance, Operations and anything else necessary to ensure the success of the business. I have seen this situation many times in working with small to mid-size businesses. At some point the work that needs to be done is put off; the accounting and finance segment is usually the area that receives little attention. Over time an owner will notice he is not sure about the financial condition of the company or where the cash is going. Have you ever asked yourself the question “I am making a profit but I don’t know where the cash if going?” To find an answer to this question you spend more and more time dealing with cash flow issues rather than driving the business and increasing sales.

So what is the solution to this problem? Let’s take a look at a few areas that can help improve your control over cash.

Accounts Receivable – You need sales to replenish cash for future expenditures, but sales are not sales until they are collected. Do you have customers who are continually late in paying their invoices? If so, you have become a banker for your customer. In today’s economy, companies cannot afford to allow customers to stretch credit terms. Have new customers fill out a credit application. Information obtained in this process will alert you to possible bad pay habits and potential bad debts. Ask for credit references and check them out. Make sure your customers understand your credit terms and have them stated clearly on your invoice. Call the customers within one week of the due date of the invoice to see where it is in the customer’s payment process. A monthly statement can help with customers who have delinquent invoices, but frequent follow-up phone calls will achieve greater success for payment.

Managing from your Bank Balance – Sometimes when I ask owners if they know their cash balance they tell me certainly and state they check the balance online at the bank daily. This is an activity that will ultimately result in failure, mistakes and frustration. Remember, you reconcile your bank account and don’t manage from it. You must obtain your cash balance from your accounting system and not the bank. Your bank will not show checks that have been written and not cleared the bank nor will they show receipts that are deposits in transit to the bank. When a check is written, it is deducted from your cash balance on the books (computer or manual)….this transaction has not cleared the bank. Reconcile your accounting system with the bank account monthly to ensure that all transactions have been properly recorded in the accounting system and bank. If you follow the process as outlined, you will avoid serious and expensive mistakes.

 Limitation of Financial Statements – Monthly financial statements are very important to a business as they provide a historical view of what has transpired in the company and gives the business owner a better perspective of what has contributed to a profit or loss. In fact financial statements are a must for any company. Banks and investors require you to provide them and you cannot succeed without them. However, accounting rules for creating financial statements focus on measuring profit and loss….not cash flow. The financial statements may show a loss, but have a positive cash flow and t....

Read more...

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Testimonial - Fort Mill Housing Authority - Sep 24, 2009

Posted by: Johnny C. Gates in Testimonials

Johnny was great to work with; took my task serious and worked hard to achieve the job given.

L. Thomas Rowe
CEO

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Testimonial - Rae Management Services LLC 645 - Jul 6, 2009

Posted by: Johnny C. Gates in Testimonials

I was referred to Johnny this past spring. We talked and he gave me Mr. Mills first book "The Danger Zone".  I could not put it down.  "Core Values" really hit home, and the ground work was complete.  Finally a book written for the crazy business owners of America!  Johnny and I hit it off form the word go.  These words cannot do him justice! In a nut shell, I am convinced I was in "The Danger Zone" and I have solely Johnny to thank for leading me out.  Had it not been for Johnny, my 2nd generation business would be another failed statistic. I owe so much for the advice and countless hours he has served.  The most important aspect to understand is Johnny and I share common ground, and all the effort we have made fixing my business is NOT work. We made it actually a fun challenge drawing energy from each other, again find people with the same core values and committment to change without letting pride get in the way. Now that is hard to swallow.  Great job, B2B CFO and Johnny Gates! 

Angus Rae, President, Rae Management Services, LLC

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Wells Fargo Insight Series Navigating Cash Flow In Todays Economy - Jun 17, 2009

Posted by: Johnny C. Gates in Articles

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Testimonial - Bb T - Jun 11, 2009

Posted by: Johnny C. Gates in Testimonials

"Johnny and I worked very closely together over a number of years when he served as Executive Vice President of Anderson Hardwood Floors. My involvement with Johnny focused primarily on financial issues. The Bank found that he was a key driver in regard to business strategy, focusing on key financial measurements, acqui¬sition strategies, due diligence, and financial restructuring when required. BB&T relied on Johnny to provide an accurate depiction of financial performance, and was always satisfied with the information presented. We also understand that Johnny was responsible for building profitable financial infrastructures, teams, systems and processes, and internal controls. Our experience tells us that additional strengths include solid problem solving, decision making and communication skills. I am very comfortable with recommending Johnny in nearly any capacity. We hope you feel the same."

Tom Eller, Senior Vice President, BB&T

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Testimonial - Pinpoint Geotech LLC - Sep 13, 2008

Posted by: Johnny C. Gates in Testimonials

"Our experience is with Johnny Gates and B2BCFO has been very positive.  Johnny has positioned himself as one of our top most valuable resources.  He is procative, patient, thorough, detailed, and has taken to this startup business as if it were his own.  He has gone the extra mile (literally and figuratively) to be sure that we are well postioned for growth and prosperity.  I cannot say enough about how valuable he has been to me and my partners.  If we could afford him full time, he would be in our front office!"

Jim Oswald, CEO

www.pinpointgeotech.com

 

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Testimonial - Thurman Flooring Distributors And Jrc Trucking - Sep 13, 2008

Posted by: Johnny C. Gates in Testimonials

"Johnny Gates has been a great help to our company. His genuine concern for our company makes him feel like someone who has been with the company for years. His knowledge of accounting, operations, procedures and financing has already made a difference. His billing has been more than fair and he watches the costs like it is his own company. This is a relationship I will depend on for years to come."

Jefferson F. Smith, President