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You, Your CPA, and Getting Out from being Under(funded).

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Created on Monday, February 12, 2007

By Don Paris, CPA, MST
www.donparis.com
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Inarguably, many business professions are challenging their traditional "boundaries" in order to take advantage of technological advances, greater control of their clients' situations, and capitalizing on additional profit and revenue streams by expanding their services. What very much used to be one-stop-shop operations (professions) now involve a number of additional add-on areas that you may or may not need. Should your investment house or bank be selling you insurance? Should your attorney be your realtor? Is there such as thing as having too many of your (nest)eggs in one basket? You bet.

In this era of professional services homogeny and potentially conflicted interests, apply all of the caveat emptor you can to your particular situation. Do what makes sense and cents. Spread your business and your risks, but be astute enough to recognize safe economies. And, despite how many clumped "services" your counsel, advisor, or representation offers, consider evaluating each one independently before signing on. An attorney with an impeccable record of serving your legal needs for decades may be a judicial fish out of water in the real estate market. Some economies, upon reflection, simply aren't.

And there is one way to successfully analyze the efficacy of trends running in this direction: Assess what the returns to the key advisor or service provider are. Is the person or company seeking to cross sell you something doing it for their profit or your prudence? We've all happily referred others to those whom we know and trust to do a good job, and most of us have been the recipient of such referrals. But to what degree is it in your best interest or theirs?

As a Certified Public Accountant, I pretty thoroughly involve myself with my clients' financial situations. For some, yes, it's simply tax preparation and financial statements. But others recognize that although they know their businesses thoroughly, CPAs understand more of the business of the business: its accounts receivables and payables, worth, tax situation, and overall health. And given the hundreds of businesses I've represented over the last almost 30 years, there is one main area that regularly surfaces as a special challenge, concern, stress builder, and block to growth: being under funded.

It's interesting how some of the oldest chestnuts sometimes turn out to be the truest. Consider "Cash is king." For anyone who's been on the short end of the cash/liquidity situation, this no doubt resonates with you. What more helpless feeling is there than there will not be enough cash to expand, meet payroll, pay taxes, pay for inventory, or handle and emergency - to say nothing of strongly positioning yourself against a competitor situation? Under funded is under prepared. And don't discount how close all of that terminology is to "going under." It's just not pretty, and you and your business have no business being a part of it.

But what to do, and back to who can help? Successful business professionals cultivate successful relationships with other successful business professionals. Trust who treats you well and professionally, but don't ignore your gut. And keep an eye and an ear to both motivation and competence.

If there is one area where a qualified CPA should be able to help you, it's with your banking and lending relationships. In business, money is more than just profit (or loss). It's the lifeblood of the entire business organism. Money determines everything from who you do business with to who does business with you to where you are located, how broadly you reach, the quality of your team, and the presence of your brand. You're in business, you know that. Now, how do you gain a better relationship with its sources?

Start with your CPA. A qualified, experienced, established CPA should be able to offer you the insight and the relationships you need to get closer to the money you need. No one wants to be overextended and yes, money can cost money, but having your CPA work with you to understand your specific needs and then help you arrange those relationships is like, well, money in the bank.

With many of my clients and client prospects, I am asked many of the same questions. For your benefit, I have listed some of them here with the responses I have found to be the most successful.

Who do I speak with at a bank about my business borrowing needs?
Branch managers are some of the most enterprising, knowledgeable, and supportive people in business. But they may not always be the best target for you when exploring help for your business. That is why most financial institutions have commercial lending departments. Don't be afraid to ask your branch manager about theirs. The commercial lending department is focused on businesses. They will speak your language and you, theirs.

Should I ask my financial institution what information they will need from me?
Trick question! And the answer is no. You are in business; begin the process confidently by anticipating what they will be looking for. Place the shoe on the other foot: What information would you require from someone seeking to borrow money from you? Here is how your CPA can help you. Not only are they an advocate for you with the financial institution, they can help you prepare. Think fresh financial statements, tax forms, projections, aging reports, inventory reports, personal financial statements. Consider that if officers of the company are not prepared to personally guarantee the loan, there is less of a chance that the bank will approve the loan.

Is it alright to take the loan request to just my regular bank? Aren't they all the same?
No, and no. And again, here is how a CPA can help you. I customarily shop my clients' situation, in complete confidentiality, to up to 25 banks. Weed it down, or have them weed you down. Get it to a manageable number with manageable terms. When it gets closer to five, examine the term sheets of those lenders with your CPA. See what your money will cost and if you can afford it.

If I am asked how much I need, I should ask how much they can give me.
Wrong. Have a specific purpose and amount in mind. If it is for a capital improvement, know the costs and get estimates. Make certain that you are in a position to demonstrate you will have the cash flow to handle the obligation. Banks are in the business to make money with the lowest possible risk. Keep that in mind, and be realistic.

With all of the ancillary services, hybrid businesses, and pursuit of profit taking place in the course of commerce, it's easy to lose sight of the importance of core competencies. Wouldn't you rather do a few certain things exemplarily rather than multiple things with mediocrity? Shouldn't everyone?

Your Certified Public Accountant is or should be your trusted fiscal advocate, sounding board, objective internal observer. Let them work for you in the areas they best understand. Your company's strength should be in their best interest. Don't hesitate to ask for their help and for them to prove it.