08 Jan Need Cash Now?
If your business needs cash now, then it might very well be too late. It is our experience at REI Commercial Capital that by the time many businesses see that their cash needs are immediate, they have gone too far down a road from which there is no return. We would like to see things work better than that. That is why we are spreading the word.
The first thing to know is that needing cash is perfectly natural for a business. The reason is simple. Money moves through businesses at different speeds. Accounts receivable have a halting pace, while accounts payable are as regular as clocks and calendars. Beneath this simple observation, though, there are other issues so complex that most business leaders are not equipped to navigate them alone. Even accomplished accountants, CPA’s, have proven to have too narrow a view to avert all these hazards, despite their expertise in accounting. Don’t get us wrong. Our hats are off to CPA’s and the expertise they provide.
However, the point of view that is required to keep a business from finding out too late that they need cash, is a broader point-of-view than accounting. Let’s have a look at a few of the dimensions that make the job of counseling business leaders on finance a bigger job than accounting alone.
Yes, REI Commercial Capital has the awareness, expertise, contacts, experience, and resources to access cash for operations or capital when a business needs cash – and to access that cash on the most favorable terms possible. But this is merely the most obvious benefit of doing business with us. The best way to use us is broader than that.
The Vital Dimensions for Business Success
Viewing the vital dimensions in chronological order, the first issue to arise is the initial source of operating funds. The surprising fact is that most businesses today are not just under-capitalized, they actually start with unsecured debt rather than capital. Yes, credit cards are the most common source of operating funds at the outset of an entrepreneur’s journey. This is an artifact of the enthusiasm – even inspiration – that fuels the start of a business. That inspiration is certainly an essential ingredient, and yet it too often comes with side-effects that are impossible to outgrow for greater than half of all business startups.
When a business starts by paying 16% to more than 25% interest on the funds it uses to begin, that is a very hard legacy to overcome. Even with the most favorable reception in the marketplace, and the most careful composition of a business plan, most businesses overestimate how fast income will be earned and how soon their investments in facilities and operations will pay off. And that’s in a perfect world. In a world where business startups are charged on credit cards, the outcome is almost pre-ordained, and it is not a favorable outcome.
The second dimension to which we might point, as an example of why your financial counselor should be broader than a CPA, is that of matching maturities. It is not just the cost of money that the business leader must be concerned with, but also the terms. One key term that we call critical at REI Commercial Capital is the length of the loan. Matching maturities is what we call the principle of making sure that the loan payoff follows closely the useful life of the asset. The ideal is to pay off the loan that funds an asset on the same day that the asset is retired from use. This form of pay-as-you-go is one way to ease the pressures that arise from the differing speeds at which money moves in a business. A CPA can account for depreciation and loan maturities, but rarely does a CPA help you see these issues in advance and provide solutions that avoid them.
A third vital dimension of business finance – as we see it at REI Commercial Capital – is what’s called “the capital stack.” This part of the balance sheet is where we can see the fundamental story of a business. By knowing how to look and where to look, the capital stack spells out the business’s risk and reward. That story is nothing less than the value of the business. Seeing it calls for know-how that extends beyond accounting alone. With that know-how, the strength of the capital stack can be envisioned and designed. A sound capital stack can be worked toward continually, from the earliest days of a business.
The Big Payday
This purposeful mapping of the capital stack is what leads to “the big payday,” the day when a business can be sold at multiples of its annual earnings. If it is succession, rather than sale, that appears on the horizon, then the value spelled out in the capital stack adds clarity and eases tensions in the transition of a family-owned business. Supporting either outcome, return-on-equity is one of the pictures projected from this part of the balance sheet.
In this sense, return-on-equity is a kind of chicken-or-the-egg factor. In other words, the cause and the effect are in a sense simultaneous. It is hard to say which comes first. The reason for this is that the strength of the capital stack comes from taking intentional steps that result in an efficient return on equity, and at the same time, the story reflected in that capital stack can actually enhance the value of the business, adding to the return-on-equity at any crossroads, up to and including sale or succession.
REI Commercial Capital is the preferred source of the money your business requires, because our unusual combination of experience and point-of-view makes, it possible for business leaders to focus on their strengths, the work that they are in business to do. Let us take all your key success factors into consideration, then bring your requirements into the world of finance, and come back with the funds you need on the terms that will serve you best. Just call us at 843-541-2966, or visit http://www.reicommercialcapital.com/ for more information. We look forward to getting acquainted.