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View Full Version : Opinions needed on if a loan is right for me?



ECC52
08-26-2015, 03:24 AM
I'm in search of some opinion if a buisness loan is the right thing to do.

A little over 2 years ago I took over a failing motorcycle shop. The previous owner had kind of a bad name around town but I was determined I could turn that around. I started into the buisness with about 30k. 20k of it went to purchasing some equipment from the previous owner as well as some new stuff we were in need of. After the first year the 10k I had left over had drained down. It was a steep learning curve for me and I believe it cost me my "working capital".

So this brings me to where I am now. My buisness is running and is generating revanue but I continue to struggle every month to be over my break even point. It seems like every month I make exactly what I need and no more no less.

Up to this point I have not put more then $500 into marketing. I made my website, google account, and have made some flyers to pass out, and got suckered into a couple soliciting calls that turned out to not help. All my buisness comes by word of mouth and my location is on a very busy street.

This is where I am struggling to decide if a loan would be right for me. Iv searched elsewhere for funds for marketing and working capital and have no other avenues except a loan. I want to put more into marketing and I would like to have a "cushion" to fall back on in the slow months if needed. To this point I am in debt about 15k on a buisness credit card and I own all my equipment and parts inventory. How much debt does a business usually carry? I can't help but think that there is no way that every buisness out there starts at zero every month and I feel like this is what's holding me back.

Please give me advice, if I left anything out please ask any questions.

Freelancier
08-26-2015, 08:16 AM
How much debt does a business usually carry?
Depends on the business. Many businesses will get a line of credit from a local bank to smooth out cash flow issues that inevitably occur in an inventory or payroll heavy business. With that, you pay for what you use (although sometimes you also pay a fee just for having the line of credit that you don't use).

In your case, depending on how much inventory you have, you might consider getting a line of credit against that (since it's a large chunk of cash sitting there waiting to be sold).

On the other hand, the part where you're a year in and only breaking even each month says you may have a cost structure imbalance that needs to be addressed first.

Fulcrum
08-26-2015, 08:18 AM
You've got 2 main problems as a I see them right now.

1) Marketing - get on it and get it started ASAP. Business cards, flyers, door hangers, (maybe David Hunter can weigh in here). Wear out a pair of shoes beating the pavement looking for guys on bikes. Hold road safety seminars in which all drivers and bikers are invited (there's been at least 10 motorcycle accidents in my area recently with most fatal). That's the best I can do for marketing advice right now. Websites are good and you should start planning one, but I don't believe it will give you the boost you need now.

2) Credit card debt - get rid of it. NOW. YESTERDAY. If this means you gotta eat Ramen noodles and drink nothing but water for the next couple of months you should still get rid of this debt or at least shift it to a low interest credit line (providing you aren't going to go out and rack up the cards again). I realize the cards are needed, but only if you can find a way to pay them off every month.

tallen
08-26-2015, 06:34 PM
Anyone who would give you a loan, or extend a line of credit, is going to want to have confidence that you are going to be able to pay it back -- even if you provide collateral (generally it's a pain to foreclose on your collateral, so they try to make sure that they won't have to).

So ... you will have to come up with a business plan for how you would use the loan proceeds (or credit) to expand/improve your business and generate enough new revenue that you will be able to pay the loan back.

If you are operating at break-even (plus or minus), somehow you are going to need to change what you are doing or how you are doing it, so that you can start making a profit -- basically you need to enhance revenues while controlling expenses. What is it that you need in order to do that? How will an infusion of capital help you get there? You suggest marketing (which I would agree is critically important), but what is your marketing plan, exactly? Ultimately, you need to figure that out before seeking the additional funding...

TriStar
09-01-2015, 12:29 AM
Just a few points from my perspective. I am on both sides of the coin as far as having owned businesses and worked with them on the lending side.

You mentioned that you bought a failing shop from a seller with a bad reputation in the area. Being a service business perhaps the best marketing plan might be to do a re-launch under a new name? I don't know your whole story, but is it possible that much of your problem stems from having to overcome the previous owners reputation? And if you did take out a loan for the express purposes of launching a marketing campaign to bring the business to the next level, it might be more cost effective to launch a new brand without the bad reputation, rather than spending more trying to overcome that reputation.

Another idea might be to analyze your current financials to see why your breaking even every month and not getting over that hump into profitability. Many business owners are great at what they do as far as the service they provide or product they make, but fail to manage the business from a financial perspective. I was in that boat myself many years ago on a restaurant I owned. I wanted to serve great food at a very reasonable price. My strategy worked in the sense that we tripled the previous owner's sales in just a couple years and had a waiting list most nights. I focused on making he customer happy and serving great food, but was always in that same position you described as far as barely having enough money to cover the bills.

I had managed several places before that first restaurant too, so knew the numbers, and even what they should have been as far as expenses, etc. But I had become so focused on getting butts in the seats, I stopped watching the numbers on a regular basis. In the end I hired a CPA that had very extensive experience doing the books for the restaurant industry and it was the best money I ever spent. We would meet every couple months, go over the numbers, and he would tell me where I was getting out of line on the expense side of the equation. He basically was my anchor to the numbers and forced me to deal with them, and ultimately showed me how to bring them in line and be profitable on the revenue I already had. No big marketing campaign needed.

Just a thought. I wouldn't go out and hire an expensive consultant or anything. For me a good accountant was all I needed. You could try your local SCORE chapter for free advice and have them dissect your business and make some suggestions. Whether that means a marketing campaign, cost cutting, or whatever. I have never been a big fan of borrowing money to do big marketing campaigns to drive sales either, and like you rely mostly on word of mouth for my business. And like Fulcrum stated, there are a ton of cheap and easy ways to market your business without spending a fortune.

We have a young guy in our area that started his own motorcycle shop a few years ago and his business has exploded to the point where after a couple years of doing it out of his moms garage he just bought a nice new shop and hired extra mechanics. His only advertising was to come to places where the bikers were such as the taverns (where he would have a soda with us), our bike rallys, etc. He would hand out his card, offer advice, and invite us to give him a try. He always asked new customers how they found out about him. In my case, I had given his card out a couple times and he would repay me with the little extras when I brought my bike in. You can bet that every time he gave me an oil change at cost (since he had my bike on the lift anyway), I felt obliged to get his card into even more hands.

Another great idea is to make yourself available for local charity rides to handle any quick/minor repairs that can be done if a bike runs into trouble during the ride. It doesn't happen all that often, but I bet the charity rides would put your name on their advertisements that they have a mechanic on call for the ride. We have a local dealership that does this and has a trailer at the ready if a bike breaks down. Most times he isn't needed and he just hangs out with the riders and gets free publicity. But when something happens, not only is he there to get the business, but the other riders notice how quick he was able to help them out. Just a thought.

Sorry for the book. I love riding myself so got a little carried away.

TAAccounting
09-01-2015, 09:31 PM
Congrats on the business acquisition! I know your story all too well -- I work as a "Turnaround Accountant" in the Midwest.

The majority of time, I see clients that are in your exact position. And I am happy to say; if you're breaking-even, your business can almost, always be made profitable. The danger you are facing right now is, which way your business will tip. Adding more debt that can't be repaid will surely throw you into the red and you go from breaking-even to losing money.

In situation like this, I recommend finding ways to increase your organic cash flow first, that way your business is pushed in the right direction -- raise prices, offer different services, cut costs, and/or lower overhead. Once the organic cash flow begins to grow and you start profiting, you know now if you can afford a loan repayment. And, more importantly, if a loan is needed to expand and grow your business now that it's on the uptrend.

Lastly, remember the three P's -- People, Process, and Products. Analyze which of these are causing you to break-even. Shoot me a message directly if you'd like me to come out and look at your business. I'd be happy to lend you my expertise.

KnightNguyen
09-07-2015, 02:55 PM
I think the most efficient thing to do is make sure you are capitalized correctly. There are ways to gain capitalization off of "Gross Sales" so you can use that capital to improve your margins. Of course you have to have careful planning and make sure that you have what we like to call at our firm "Parametric Tracking". That is a fancy way of saying you can track the dollar spent versus what it makes you. As a licensed financial advisor we specialize in capitalization for expansion capital. Equity is possible but sometimes it is not the right fit for everyone. From your message it looks like you might need anywhere from around 20-50k to simply allow you to find more cost effective ways to increase margins. Hope this helps.

stevenfies
11-24-2015, 11:52 AM
I'd say this is pretty good and targeted advice. The only way to drive more revenue and ultimately cure the cash flow/profitability issue is to get in front of more potential customers, some of which will eventually become actual customers.

One of my friends who owns a screen printing/embroidery business spent the first couple of years operating at a loss, but beat the pavement hard and made lots of connections. Fast forward to six years later and he can't keep up with the inflow of new and existing business, which is growing almost all by itself at this point. It's a good problem for him to have, and now he gets to be concerned about things like optimizing margins, logistics, and a more long-term growth plan.

To the OP, you might also consider radio ads in your area for this type of business as well. Radio conversion rates are hard to track, but it would seem to me that some of your target market might actually be listening to the radio.

strtj
01-07-2016, 09:23 AM
If you accept credit cards at the business you might at least look at an MCA. If you have some cash flow via the CC payments you can get some cash advanced on those receivables to put toward marketing or another area you determine to be critical. Stay away from the daily ACH repayments in your case as those are fixed and will not help where you are at right now. The % of CC sales will allow the advance to be repaid only as you get paid via the CC terminal. You may have to switch processing companies to one of the providers choosing but they can usually get you a better rate (as that is in their best interest) and they have a larger monetary relationship with the provider.