Funding Your Future Beyond Banks: Creative Alternatives to Funding Your Startup or Business Initiative

By Paul T. Ayres

I have dealt with thousands of people in my 35-year banking career. Paul is one of the most precise, thoughtful, and prepared clients I have experienced. This kind of commitment to details is rarely seen in our industry. Paul is qualified, through his vast experience and achievements, to share on the subject of creating a strong business plan and acquiring financing for a business. Thinking outside the box is a strength of Paul’s and shows that securing traditional means of funding is not the only path to success. Adhering to Paul’s guidance in this book will provide a solid foundation for other entrepreneurs and business owners. Paul Kohler – (Past President – Charter Bank) – Senior Vice President & Western Banking Manager – Nicolet National Bank

• Language: English
• Publisher: Balboa Press
• Release date: Dec 11, 2022
• ISBN: 9798765236932

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Copyright © 2022 Paul T. Ayres.

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ISBN: 979-8-7652-3692-5 (sc)

ISBN: 979-8-7652-3694-9 (hc)

ISBN: 979-8-7652-3693-2 (e)

Library of Congress Control Number: 2022921850

Balboa Press rev. date: 12/07/2022

CONTENTS

FOREWORD

INTRODUCTION

Opening Thoughts on Funding

True Free Cash Flow

There Are Many More Cash Sources Than Banks

CHAPTER 1:    Is Your Business Fit?

Gut Check

Top Line Revenue

The Factory

Discretionary Spending

Income & Expense

What’s Already on Your Balance Sheet?

Profit Accounts

CHAPTER 2:    To Bank or Not to Bank?

It’s A Collateral Business

Hedging

Real Cash Flow

The Bank Will Have Ratios

Which Bank?

What is Your plan?

What Else Is There Besides Banks?

Close It

CHAPTER 3:    Get Your Operational Fundamentals Right

What Are Your Measures Saying Now?

What is the Magnitude of Your key Measures?

CHAPTER 4:    The Stakeholders in Our Life

Whose Money Is It?

CHAPTER 5:    Debt is a Taskmaster

Debt; a Motivator or a Demotivator?

Is Your Financial Situation Fit?

What is Too Much Debt?

Discipline Matters

Faith Matters

Honesty Matters

Full Stop – The Concept of Stop Loss

Communication with your Bank Matters

More On ‘Accounts.’

CHAPTER 6:    Real Risk Assessment

CHAPTER 7:    Fund Your Business with Your Vendors – Power By The Hour

Equipment Leasing

Asset Intensive Businesses Have an Edge

Power by the Hour

CHAPTER 8:    Fund Your Business with Your Customer – ‘Wisconsin White’

Long Term Contact – ‘Wisconsin White’

CHAPTER 9:    Fund Your Business with Your Business!

CHAPTER 10:    Summary & Conclusion

APPENDIX A

How Can Thefitprofessional1 Help You

APPENDIX B

The Summary of Various Sources Listed in the Text

APPENDIX C

Funding Startups And Business Growth – A Guide

To Obtaining Bank Loans

1)   Find Bankers

2)   Establish Business Objective and Strategy

3)   Find Comparison Companies

4)   Find Your Magic Market Graph

5)   Establish Key Measures For Your Business That Are Not Dollars

6)   Create Your Projected Revenue Line

7)   Create Your Cost Of Goods Sold Forecast (COGS)

8)   Create Your Selling, General, And Administrative Forecast (SGA) & Identify I & E

9)   Combine Sales, COGS, SGA & I&E Into Your Income Statement

10)   Determine The Funds You Need From The Bank – Including Working Capital

11)   Create The Balance Sheet And Cash Flow Statement – Layer Your Project Financials

12)   Assess And Update The Quality Of Your Non-Dollarized Indicators

13)   Update Your Income Statement, Balance Sheet, And Cash Flow Statement Based On Final Indicators

14)   Assess The Viability Of Your Project & Its Ability To Pay Back Bank Funds

15)   Contact Your Bank To Set Up An Opportunity To Present Your Project And Request Funds – Get Standard & Current Bank Loan Pricing

16)   Create Your One-Page Summarized Business Plan

17)   Fabricate The Bank Presentation

18)   Roll The Proposals Into Your Pro Formas & Check Results Against Requirements

19)   It Is Time To Choose Your Bank

20)   Final Thoughts – Funding Your Future With A Bank Loan

21)   The Hard Work Starts Now

ACKNOWLEDGEMENTS

FOREWORD

As one of Paul Ayres’ bankers, I am honored to write the forward for his most recent project. Paul is the true definition of an entrepreneur. I’ve seen firsthand how the strategic development of his business plans has impacted the success of his endeavors.

I have dealt with thousands of people in my 35-year banking career. Paul is one of the most precise, thoughtful, and prepared clients I have experienced. This kind of commitment to details is rarely seen in our industry. Through his vast experience and achievements, Paul is qualified to share the subject of creating a strong business plan and acquiring financing for a business. Thinking outside the box is a strength of Paul’s and shows that securing traditional means of funding is not the only path to success. Adhering to Paul’s guidance in this book will provide a solid foundation for other entrepreneurs and business owners.

Paul starts by explaining what he’s learned through his entrepreneurial journey, and his advice should be well heeded by new business owners. He has a number of nuggets of wisdom, such as sticking to what you’re good at, creating a strong business plan, getting help when you need it, knowing your competitors, and basing your assumptions on evidence.

An emphasis of this book is the importance of building relationships. Paul explains that creating connections with bankers and banks rather than simply focusing on pricing will limit the opportunities for a strong partnership. As a banker, I appreciate how he prepares readers for the hard reality of what banks are looking for from borrowers. A business owner’s relationships with other stakeholders such as spouses, business partners, and family members are critical to maintaining their support.

Paul highlights numerous personal characteristics such as discipline and honesty that add value to the financing process. Clear communication and asking good questions are vital to ensuring capital for the viability of a company.

The book is full of real-life examples from Paul’s experiences. His utilization of vendors and customers to fund his businesses is a unique perspective that is not often practiced. Being aware of trends and capitalizing on situational awareness shows his focus on maximizing opportunities often missed by others.

Paul’s practical, direct style provides a readable manual for all business professionals. Funding your business can be challenging, but following the advice in Paul’s book provides clear direction and pragmatic strategies to create a path to success.

Paul Kohler is the President and CEO of Charter Bank in Eau Claire, Wisconsin. He has been a critical key component of the bank’s growth to over one billion in assets. He is also a key change catalyst for the recent acquisition of Charter Bank by Nicolet Bank out of Green Bay, Wisconsin. The combined entity is approximately eight billion in assets. Paul and his team are the model for community banks and will continue to do their part to create value for local businesses. I am grateful for the support and confidence Paul and everyone at Charter, and now Nicolet, have conveyed to me and my business. They have been a critical and important part of my company’s growth.

INTRODUCTION

OPENING THOUGHTS ON FUNDING

You have heard it, ‘cash is king.’ I’m going to tell you this is not accurate. Margin is king. There is not a durable source of cash without margin. Unless from an outside source, cash in your business primarily comes from the margin. We can sell assets to generate cash. However, if you sell all your business assets, you likely don’t have a business remaining. So, what is margin? Margin is something we all think we understand. In my experience, this is also not necessarily true with professionals. It’s one of those things, like water out of your tap in your kitchen; professionals tend to assume ‘it will just be there.’ Before we get into creative alternatives to fund your business, let’s take a second and make sure we understand just what margin is. Margin is the difference between your revenue line and your costs. Right, you are thinking, ‘I know this.’ Not just your cost of goods but also all the discretionary decisions you make regarding your business or organization ultimately cost money or use excess time. Too much time on a task lowers efficiencies and yields. All costs. This is where entrepreneurs, business owners, and professionals tend to enter the land of assumptions. Maybe even replace truth with hope. Hope becomes a reality that we count on and have faith in. Hope is the fuel for margin – for that magic spring of cash that shows up just when we need to pay bills, make payroll, invest in the next prospecting trip, and pay back the bank. Soon we realize hope doesn’t pay bills. But cash does, and there is only enough cash when there is something left over after all costs from filling the product or service order. When we are all done paying, what is left?

TRUE FREE CASH FLOW

The product or service is delivered, there are no complaints, the customer is content with the transaction, and the cash from the invoice is in the bank. All bills, not some, but all bills associated with filling the product or service order have been paid, monthly fixed costs like rent, car, heat, payroll, etc. are all covered, and there is still excess cash in the bank. Margin is not free. It will cost one or a combination of time, material, energy, rework, or wasted materials (yield issues from the order fulfillment process). Do you understand your margin? Make sure you do.

You do have enough skills to raise cash for your business. Yes, you do. The only question is, do you have what it takes to learn what you need to take the next step in your business? You possess other business and professional skills which might be required to get your funds right now – the knowledge and skills that pushed you to think about starting a business or executing a growth initiative in the first place. You very likely didn’t start with an ‘accounting idea,’ but a business idea you believe will produce income above costs to do so. It’s about the margin those skills ultimately can produce. It’s about your margin’s durability, the ‘real’ capacity to generate cash consistently more than what is required to pay back the funds. It doesn’t matter what source the funds were from. Yes, you must pay them back. Pay back? Wait, if it’s my money, I’ve saved in my personal savings, say 50 grand, why do I pay it back? Yes, your business must pay it back and cover a market interest rate. You may not have a viable market idea if you struggle to pay back funds with no interested rate, like those from mom or granddad’s retirement accounts. We do hear about low or no-interest family loans.

Don’t fool yourself. You need a robust cash stream to survive in the market ultimately. Focus on developing payback with a rate based on the reality of the markets, recognizing the risk associated with your Startup or initiative. We’ll discuss this a bit more later. It’s all about the cash above obligations and your tendency to make discretionary decisions aligned with your business. Some discretionary decisions are nice, but are they necessary? Especially at startup, only focus on what is needed. Demonstrate this to the funding source, and you can make your move in business expansion. You will be more likely to find the financial support you need. Take note! One of the primary keys to procuring your funds is to demonstrate the ability to pay back. Not just the pro forma, either. But to demonstrate the cash engine and its ability to continue into the future. To demonstrate what makes the cash engine run and why you have a handle on what keeps the business running. Once you do this, you, too, get peace of mind. No more worries about whether you used too much cash or might have a surprise that washes all the progress away.

Let’s get into some of the hows and whys. If you feel like this is too much of a learning curve or task already, get help, there are many sources (see appendix). Getting help will save you time in other more productive margin-producing efforts. Many resources on the web can fill in the blanks if you’re willing to do the hard work. The truth is you can do this yourself. This resource is a high-level guide and will get you the what and a bit of the how.

Additionally, there is a myriad of sources of help in various forms of professionals, from accountants to consultants. Make sure if you take this route, your third party clearly can demonstrate their ability to understand your cash engine. My objective is always to help you prepare so when the next issue arises you are ready. Therefore, one of my objectives within this book project is to launch your knowledge, skills, and disciplines in the right direction to facilitate durable funding of your new or growing business far into the future. Not just a few tools to help you get your loan. Large or small, startups or established, these principles and general road map will produce results when combined with your consistent and effective effort. Those results will endure the test of time and be there for you in the future when you need yet another round of funds to launch yet another business growth initiative. There are no shortcuts. The biggest hack in business is to find someone you can learn from to shorten your learning curve and get you focused on the right things right now. That is, to not waste time chasing down the wrong task or worrying about the item that just doesn’t matter. Or worse, missing what does matter.

My objective was NOT to include all 100% of what I’ve used successfully obtaining credits over the 4+ decades I’ve been in business. And this is not to say I have so much fantastic knowledge stored in my grey matter either; I am always learning, and the markets change. However, what I’ve done works. And it is still working today. It is complicated, and so many business principles stemming from knowledge, skills, and disciplines across the entire business matter and must be considered. My objective includes a solid introduction and understanding of the fundamentals, or ‘hack’ in the modern world, to get you a solid road map regarding considerations likely required on your journey to fund your business. Again, there are no real shortcuts. But knowing what to do is in fact a bit of a hack, given you don’t waste time. There are many details you’ll need help with. The truth is you can find all of what you might need outside of these pages on the internet and various online courses and degrees. The question would be do you have the time and interest to do this? If so, great. The effort and investment in your business acumen will be worth it. If not, again, get some help, and you can start by checking the appendix with some resources to get you started. I believe the pages that follow will be a great start to help you ‘hack’ the learning curve and get to it with more confidence and precision. These are my objectives: to help you help yourself by creating those initial, but sustainable and repeatable skills and disciplines necessary to obtain funds to start or to run or expand your business. Let’s get to work.

I’m going to assume the reader is very serious about procuring senior debt from a bank (with a bank loan – senior means they are paid back first before any other loan you might take on the business; and if you have other loans, the bank will generally require those to be subordinated – they create an actual legal document requiring the other party to agree to be paid second if things go the wrong way). I’m going to assign some homework before we get into the rest. Right now, or as soon as you can, identify three banks you may want to do business with. Or three bankers you may know. If you don’t know bankers as individuals, then find them. How? You can make an appointment to say, ‘I’m thinking about getting a loan for my business, and I’d like to meet you to learn how your process goes.’ You want to do this before you have your meeting where you formally ask for the loan, give various presentations, and discuss the details of your plan. It is even better to know a banker from the golf course, kids’ school functions, Chamber of Commerce functions, etc. If you can, set down this book and get that step done. If you cannot immediately execute this step, have this done with three bankers on or before the end of three business days. The short education will be invaluable, as the bankers will help you. And you will have started your relationship with