Interest and bank costs. It pays to ask! Client saved 60% on interest!
Consulting helps small business owners see more clearly the reasons for the pains and challenges they face. This clarification opens new roads and opportunities to make changes and grow your business to the next level.
This month’s case is one I see too often. Fast growth, but not the best credit nor having the time to check for other options... leading to the mind set... get it done so we can move on.
This business hit the rough road a few years back. The owners needed a small line of credit. The banker, after hearing their situation, requested financial statements in addition to their tax returns. Well, this family always had their taxes done, but neither the husband nor wife had the time to keep the business books regularly. They could barely squeeze time to collect information to give to the tax man, who didn’t do bookkeeping, just taxes.
Their banker had worked with them satisfactorily in the past and offered a ready reserve with a 21% per annum on the daily balance for funds used. This seemed ok at the time as they needed the funds to get back to work.
Well, the short period of time soon turned into years. The business became more successful with the addition of employees taking some of the workload off the owners. However, their bookkeeping methods remained the same.
At this point we were engaged to do consulting to “streamline” their bookkeeping method. Rather than boxes, files and random notebooks used in the past, we helped them go to a computer system which tracked accounting/bookkeeping functions, including payables, receivables, and invoicing. Along with a monthly profit/loss and a still being assembled balance sheet multiple holes in their finances became apparent.
One problem was the bank service charges and interest. A quick review showed they were paying thru the nose for bank services. We suggested they make an appointment with their banker to discuss the situation. Armed with current financial statements including profit and loss, balance sheet, cash-flow statements, and a report we provide clients, The Business Pulse Manager (which helps their bookkeeper become a CFO Assistant), they headed off to the bank.
The banker was impressed with their progress and complimented them. Hearing the complement, the wife with renewed confidence, asked why they were paying so much in interest. There must be a better solution. The banker noted the bank product they were using and suggested with their better records he could switch them to a regular line of credit and drop their interest rate to about 7.5% per year from the present 21%. This cut their annual interest payments by over 60%.
It pays to have good financial records and a relationship with your bank. Take the time to dig deeper in your business. It’s well worth it as this case indicates. What lurks in your numbers? Stay tuned.
By Ken Stavast
A serial entrepreneur, accounting and payroll software developer, marketer and consultant to small to mid sized business operations. Can be reached at AffordableSolutionsForBusiness.com or BusinessLogicUSA.com or HomeRunmarketing-USA.com on the contact page.