CFO Magazine recently published an article about “How to Talk about Layoffs“. It includes some valuable anecdotes about layoff processes that don’t work.
Here are several key themes that bear repeating:
The North Bay Business Journal, a publication of the New York Times, is a weekly business newspaper which covers the North Bay area of San Francisco – from the Golden Gate bridge north, including the Wine Country of Sonoma and Napa counties.
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Article published – February 23, 2009
BUILDING A BUSINESS: Ideas for your business you can take to the bank
“Money is better than poverty if only for financial reasons.” – Woody Allen
I’ve received a lot of questions lately about banking issues and the “rules of the road” for dealing with your bank in a troubled economy. All of us are facing an economy that I refer to as the “Double V” – an insidious environment comprised of big volatility and little visibility. These twin engines will predominate for the foreseeable future.
This week’s column will start with Banking 101 as we make our way toward more subtle concepts. Unquestionably, this process is more artful than scientific, and while there are mechanical tasks and financial metrics that apply, managing your banking relationship requires both judgment and discretion.
• No Surprises. It’s no surprise that “No Surprises” is at the top of the list. (more…)
The New York Times today carried an article about the resiliency of family business. While it contains some unrealistic happy talk, it highlights the broad resources and the strong commitment…
For many of you, it's not news that banks want your cash management business. In some cases, it's been a quid pro quo for any new banking relationship, and according…
The North Bay Business Journal, a publication of the New York Times, is a weekly business newspaper which covers the North Bay area of San Francisco – from the Golden Gate bridge north, including the Wine Country of Sonoma and Napa counties.
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Original Article published – Oct 6, 2008
BUILDING A BUSINESS: Finally, you are prepared to meet bank’s expectations
by Lary Kirchenbauer
(Editor’s note: This is the concluding column of a continuing series on accelerated growth and the relationship between companies and their bankers.)
“Now you have a friend, your friendly banker. If the banks are so friendly, how come they chain down the pens?” – Alan King
Congratulations on the bank proposals you received this past week, John,” I said to John Wilson, CEO of Ace Business Stuff. “It seems like you and your team made a good impression on them. That’s terrific.”
“Thanks, Lary. We’re very happy, too. Thanks, too, for looking at the terms sheets. Any comments on those?”
“On balance, John, the terms sheets are reasonable and contain the terms and conditions you typically see. There are a few things, though, that you might want to look at more closely.
“As we’ve discussed, you’re entering into an asset-based lending facility in which the ‘borrowing base’ or ‘eligible collateral’ determination is critical. So, while the advance rates are reasonable, you need to be careful because how to calculate the eligible collateral is one of the trip wires in these kinds of agreements. The borrowing base is the number to which the advance rates will apply, and while the book value of the AR and inventory underlies this measure, it is calculated quite differently than book value.
“In essence, the bank asks you to adjust the book value in accordance with several provisions. You’ll note, for example, that AR over 90 days is not counted in the borrowing base. You should also note, however, for customers that have more than 20 percent of their AR that’s more than 60 days past due, that none of their AR is considered eligible. This is a little more subtle condition that is often missed.
“On the inventory side, you’re also pledging that there is no obsolete inventory included in the inventory values you provide and that the inventory doesn’t contain any consigned or defective merchandise.
“The covenants are also important, of course. The current ratio is a common measure of liquidity, and I think your forecast indicates that you’re well within those parameters. With respect to the Debt/Worth ratio, however, your forecast shows that you could be close to the edge at certain times of the year.”
“What about the cash flow covenants, Lary? We haven’t paid much attention to EBITDA determinations over the years.”
“You’re right, John. This cash flow measure is an important metric you need to watch carefully. The proposal defines a term called ‘Total Coverage.’ It’s designed to measure the cash available before interest and principal to estimate how much room the company has to make timely payments to the bank. In your case, the bank is looking at a Total Coverage Ratio of 1.30, which means it wants your available cash to exceed the interest and current payments of long-term debt by 1.3X. While many firms are unfamiliar with EBITDA, it is widely used these days as an approximation of the cash available to service debt.
“I think that’s it. It’s been quite a ride for you, I know, but I think you’ve now found a solid course that will help you meet your objectives. Good luck.”
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Lary Kirchenbauer is the president of Exkalibur Advisors Inc., providing practical business strategies for family and other privately owned businesses in the middle market. He can be reached at 415-602-7870 or lary@exkalibur.com. His Web site may be found at www.exkalibur.com. (more…)
