Business failures: They don’t have to happen
Unfortunately, the psychology of disengaging from a credit is often exactly what it shouldn’t be: adversarial. How can this be managed in a win-win way? How can you tell a business owner you can no longer support him or her without sounding like you are leaving the business in a lurch?
The good news is that there is a way you can join hands with these businesses and be part of a successful solution that also helps you keep a valued customer relationship. Even if you have to exit the credit, you can still keep the business’ deposits while referring them to experts who know how to help improve their financial situation and cash flow.
Bring in the Experts
Asset-based lending (ABL) and factoring emerged from the need for better cash flow for businesses that are either too new to get traditional bank credit, or that need to exit a bank because they are no longer in compliance with loan covenants. In either case, you can refer your customers to an asset-based lender or factor that can administer the line of credit while you continue to meet all of the business’ other needs, such as deposits and cash management services.
Since asset-based lenders and factors are accustomed to dealing with these kinds of financial problems, they can often increase the availability of cash while the other issues are being addressed. They can also be a part of the solution when a credit has been over-extended and things are still not improving.
Creative debt restructuring is very common, and asset-based lenders and factors are very well versed in how to handle these situations. In short, they are a great referral in the right situation.
Another expert that can help troubled businesses is a type of management consultant known as a turnaround expert. Even though they are an added expense when cash flow is already tight, they can more than pay for their services if they are good at debt restructuring and negotiations.
It Takes a Team
It often takes a team to help businesses succeed during tough times. The business may need an injection of cash that can be achieved with asset-based lending or factoring, as well as a good business advisor to teach them about the financial side of their business.
Finding quality business professionals who understand this niche can be the tough part. The Internet is a vast and scary space when business owners don’t know what they’re looking for. The terms used to describe these consulting services are not taught in school, and most owners don’t know how to find this kind of help. This is where you can provide invaluable advice and assistance—asset-based lending, factoring and quality management consulting are all referral-dependent.
No business has to fail due to financial mismanagement or a lack of expert financial assistance. But owners need advocates surrounding them who are proactive in identifying when they may need a helping hand—and then making the right introductions.
Tom Klausen is the president of First Vancouver Financial Services, Ltd., and a consultant in the small business field. He works with small business owners, lenders, consultants and accountants throughout the U.S. and Canada. Visit http://www.fvf.ca or reach Tom by phone at (604) 988-1490 (in Canada) or (206) 947-0912 (in the U.S.) or by email at TKlausen@fvf.ca.