The Cash Flow Blog

On the heals of yesterday’s post on limited commercial lending, here’s a Reuters article that adds further frustration to the topic.  According to the article, stimulus money intended for small business isn’t reaching potential buyers because the lenders don’t want to take it — the strings attached aren’t considered good business for the banks.

The problem?  Paperwork and potential restrictions from the government on dividends and payroll of the banks making loans.  That and some banks are concerned of a potential stigma of being known as an institution that took stimulus money.

The middle-man in the deal doesn’t like the deal.  And that may mean businesses who can benefit from a loan — if not have a necessity for one to survive — may not get one.

Bankers said they are hesitant to take capital injections from the government because of the stigma and the potential restrictions on dividends and compensation…The bankers said the SBA loan program has promise but involves a lot of paperwork and takes a long time to process the loans.

Here’s the rub

As shared in yesterday’s post, banks are cranking out new credit card programs left and right to bridge the gap in lending.

So, what’s a business to do?  When it comes to access to commercial lending, it appears small businesses are facing the reality of damned if you do, damned if you don’t — taking credit where you can get it or throw-in the towel.  Even if it means taking money with up to 30% interest.

What do you think about all of this?

According to this CNNMoney.com article, small business lending has all but dried-up and gone away.  Replacing it is good ole’ credit cards — with up to 30% interest on repayment.

Here’s the money quote (no puns intended):

Brooks applied for two business loans with Chase, first in 2007 and then again in 2008. Both applications were denied. While he had always had credit cards, Brooks never had to depend on them before: “We just never really used them — they were just there.” But toward the end of 2008, Brooks started paying bills and suppliers with his cards.

Now, he’s hit the limits on nearly a dozen cards. Brooks isn’t sure where to turn to next to keep his business running.

Criminal.

If a business can’t get a loan, why is it so easy to credit cards instead?   We know the answer, but it doesn’t change the question.

Regarding the quote above, maybe Brooks’ business shouldn’t continue operations.  Maybe the crime is credit cards somehow allowed it to exist beyond it’s time.  The weak should die?

But it’s hard to tell.  We don’t know enough to have a good opinion on the operations of Brooks’ business.  Judgment on his business isn’t the point I want to raise.

The point of the CNNMoney.com article that caught my attention is banks cutting their volume of small business loans, while increasing their credit card programs to small businesses.  Small businesses are being forced to increase their use of credit cards because that’s increasingly the only form of credit they can access.  That’s the criminal part.

A rhetorical question:  With stimulus and bail-out money being thrown around everywhere, why isn’t it funneling through  banks to small businesses in the form of small business loans?

It’s a mind-numbing and highly frustrating formula:  Limit small business loans by increasing lending requirements in an effort to reduce the portfolio of risky loans, then increase access to credit cards to fund small business,  while increasing credit card rates to protect the issuer from losses due to maxed out cards and rising rates of default.

This is insane.

Agree or disagree?

The first report is in — Utah’s experiment with a 4-day workweek appears to be a success.  In the first year of the program, the state reduced it’s operating expense by $4.1M.  That may not seem like a lot to some, but it’s significant as a result and begs the question of how much greater a return it can net?

Savings were found where you’d expect — for example, energy and janitorial. The surprise came in the reduction of overtime.  Preliminary conclusions are working four 10-hour days reduced the need for overtime by allowing more work to be produced in a given day.  Interesting.

Employee moral was reported up as well.    Although the article didn’t mention it, I’d be curious to see what affect there has been on sick-days — Do people who work four 10-hour days a week take less sick time than employees who work five 8-hour days?

Regardless, changing your work schedule should be considered as a way to smartly reduce cost.

What do you think?

In case this post is read years from now, let the record reflect times are tough for a great number of businesses and businesspeople — I’m writing this is October 2009.

The date of this post has nothing to do with the information that follows.

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I’ve maneuvered through a number of layoffs.  In fact, I’ve not only closed many offices on behalf of a company and personally delivered the layoff message one-on-one to dozens of employees, I’ve actually laid myself off.  But that’s another story.

I’ve seen a number of businesses struggle to survive.

Over the last year or two, countless people have lost their jobs. Some soon after lost their homes.  Both are terrible losses.  Life changing.

And the more you cut, the more you put those left behind at risk.  It happens more than it’s talked about.   It’s death by a thousand cuts.

What happens is a business reduces expenses in an attempt to survive.  The expense cut is staff.  Things look good for a while, then not so good.  And another staff reduction is exercised, and so on.

There is a limit whereby cutting expenses doesn’t work.  The point of no return is when operational capacity is pierced.  At that point, the cuts you make to staff limit your ability to produce, deliver, and support in your market.  Revenue falls.  And expenses need to be cut again.

Yes, this is over simplified.  But it’s true nonetheless.

The point is in an attempt to manage a cash flow problem and faced with a staff reduction, be sure you understand what’s being cut and the result.  Be sure to review and revise revenue forecasts, as well as your ability to produce and support the products and services you offer.  Then cut deep enough the first time to get ahead of the problem.

Don’t let your business slowly die one cut after another.

What say you?

That’s how bootstrapping was characterized in this post from The Wall Street Journal Small Business website — simply, doing more with less.  It’s a fair characterization.

Bootstrapping is self-funding your business.  Putting off the temptation to borrow money or take on investors.  It’s the old fashioned way to grow a business — offer something for sale, sell it, and use the money to fund offering more stuff, etc. Wash. Rinse. Repeat.

Bootstrapping is a common and legitimate means of business growth.  It’s how I grew my business.

There are two things to point out about bootstrapping that’s not often considered:

1. Bootstrapping doesn’t mean you have to stay small or a self-proprietor.  Bootstrappers can grow substantial businesses, employing many people and making lots of money — profitably.
2. Self-funding your business venture with your retirement plan or credit cards is risky at best.

The second point is the one I’d like to drive home in this post.

Bootstrapping is attractive for many reasons, not the least of which is limited access to money and desire to retain control over your business.  What results is many people tap into their retirement plan, savings, and available credit to fund their dream.  The problem is when the dream becomes a nightmare of unrealized expectations and underperforming cash flow — with more money going out than coming in to cover expenses.

Obviously, this is a greater topic of discussion than I’ll give in in this post.  But one thing I’d like to touch on now and elaborate thoughts on late is if there’s a fault of Bootstrapping it’s that it’s too easy to move forward without a well thought plan.  A benefit of outside investors and commercial lending is you have to explain things to others who vet your idea.

Bootstrapping is often the more risky venture because it’s too  easy for too many people.  Being in total control of what, why, how, and when you grow may be the rub.

Access to your money is easy, maybe too easy when it comes to bootstrapping.  Be cautious.  Find someone to vet your plans and ask the tough questions about how you’re going to make it month to month.  Understand how and when you’ll be cash flow positive.  And be sure you know how and when you’ll repay the money you accessed to fund your business.

The point of this post isn’t to say bootstrapping is a bad thing — it’s not.  The point is to remember to vet your ideas and plans when bootstrapping to reduce the risk of self-funding.

It’s something to consider.  What say you?