Success Stories

You're going to pay the rent anyway

Recently a retired business owner described selling her retail business for about $400,000.   That’s impressive, but is that enough for her to retire?

In the 30 years she ran the store, she bought and paid for the building. Yes, she gets $200K annual rent from owning the building; which was paid for by the business.  Now--that’s a retirement!

Should you buy the building if you are going to be in the same location for decades?  

If you do…

The first 5 years will be difficult.  The payment will be higher than rent.  The next 5 years will be about breakeven.  By the 10th year, you should be earning back the negative cash flow from initial years.  Somewhere around year 15, you should be grinning.  At month 300, plan a mortgage burning party in your parking lot.

If money isn’t reason enough, consider as the building owner, you control your destiny, the look of your building and the level of maintenance.

Who shouldn’t buy a building?

  1. You have equity investors.   Most VC-funded companies would never allow their portfolio companies to buy real estate; that would be a drag on the company’s growth.  If your startup’s growth can’t beat real estate returns, why would they invest in you? 
  2. You expect to outgrow the space.  Hard to buy chunks of buildings.  If you did, it would be too little too soon, or too big too soon—you won’t win.
  3. You’re afraid.  If you are not confident that your business will make it, don’t “buy the farm”—because if you do, you’ll become familiar with the alternative meaning.
  4. You’re broke.  Buying a building requires great credit, a 30% cash down payment and the capacity to make the payments.
  5. You work from home.  OK, you own your home, right?
  6. Your team works remote.  Think of something else; a beach house maybe?

Did you know McDonalds is one of the world’s biggest real estate companies?  You and I buy the burgers that pays for the buildings.  Brilliant.   Think about that next time someone asks you what business you’re in?

My most successful individual-owned business clients own their facility. 

I’ll help you figure out if real estate ownership is wise for you.   Twenty-five years is going to pass by either way.

Frustrated with your current accounting situation?

Recently a client expressed a number of concerns about his accounting.  He asked:

  • Were they overpaying for what they were getting?
  • Should they expect financials to take 6 weeks to complete?
  • Were his receivables that out of control compared to his peers?

Successful business owners depend upon accurate, timely information.  He wasn’t getting that.

If you measure it, you can improve it.

First thing we did is create a weekly dashboard of:

  • Revenue progress
  • Their # 1 controllable cost 
  • Receivables status
  • Near term cash forecast

Armed with this real-time information, he was able to make faster course corrections.  

Next, we added new, efficient software that sped up processing and booking of entries.  It now takes less than a week and the financials are accurate.

How’d we do it?

First, we define their needs—level of skill, time commitment, in office or remote, and cultural fit.  I wrote the job description.

I advertised and searched my network to identify three top candidates for him to interview.  Since I’ve already assessed their skills and suitability, his question was—who do you like best?  

Once we selected the top candidate, I checked references and background, negotiated salary, benefits, and the start date.

When our new accountant came on board, I coordinated the first-day on-boarding, training and integration.   Over the years, we’ve refined the dashboard, added more technology and focused on adding new informational resources that supports the staff at several level.

Having the right person in the accounting seat made all the difference.

The more we sell

A few years ago, I was referred to the owner of a newly formed, consumer products company.  

When I met with the owner and his team, they told me of the great response the product was getting in the market.  Yet they couldn’t understand why they were struggling financially.  It seemed the more they sold, the worse it got.

My alert-radar immediately went off.  Could the issue be that simple?  Yes, it was.

I had them tell me about the product, the selling/pricing strategy and a bit about their manufacturing and assembly process.  It was a great product with great features and innovative design.  

When it got to the manufacturing cost, the conversation broke down.  They didn’t know their variable costs.  Each sale was like stuffing twenty-dollar bills into each package. Yes, they were selling at a negative margin.

I wanted to ask if they thought they could make it up with volume but was afraid of the answer.

We did a deep dive into the actual costs of manufacturing and reviewed the overhead.   It took a while, we turned the company around by putting a lot of attention on cost reduction, labor efficiency and right-sizing overhead.  Because the product was so popular, we were able to raise the price significantly.

By the next year the company achieved record sales and profit.   Buy me a beer, and I’ll tell you the rest of the story.  It wasn’t pretty.

Second time was the charm

A number of years ago, a relatively new and rapidly growing startup came to me with a problem: the bank turned them down for a loan.  Because of their rapid growth, they were having cash flow issues. Payroll and vendor bills were coming due before they could collect enough of the receivables. The big surprise was the failed bank audit—what happened?

Turns out the accounting system wasn’t keeping up. Checkbook accounting was fine for the first year or so, but when the company hired a number of new people and expanded their services, the old system couldn’t keep up nor give the bank enough comfort that the owners had enough control to meet the bank’s monitoring requirements.

A straightforward fix. We installed new software, put procedures in place, upgraded the skillset of the people doing the bookkeeping and created meaningful reports that the bank expected and management then understood.

A few months later, the auditors were back and we gave our banker a much more coherent business plan along with a near-term cash forecast. Shortly thereafter we celebrated our newly granted asset-based line of credit.

With this line of credit, we were able to finance our receivable growth as long as we didn’t allow many past due accounts. The loan covenants kept management on their toes and focused on quality customers. Unfortunately, the bank had a fairly laborious reporting and deposit processing system. I used to joke that I needed the bank’s permission just to sneeze.

Since we performed well and stayed in compliance, we were able to increase the percentage of receivables that we could finance. They also agreed to increasing the loan amount to include 50% of inventory.  That was unheard of.  As a direct result, we were able to skip an entire round of equity financing that significantly enhanced the foundering team’s ownership position when we finally sold out to a much larger company years later.

Our growth rate was directly related to managing the margins, keeping the overhead appropriate, and ensuring constant year-to-year profit. That kept our bankers happy.

Happy to have a conversation, phone calls are always free