How This Dealer Could Have Survived!

We all know that making the right moves at the right time can spell the difference between success and failure.  Nothing could be truer when it comes to the financial management of your company.  Find out why.

jumperTake a company that has seen its fair share of adversity over the last few years.  It started with a loss of a major product line and moved on to a significant change in demographics in the market area, a recession that none of us could predict and heavy involvement in racing.  This obviously led to severe pressure on the survival of this company.

The combination of all of these factors on a high volume dealership resulted in obvious cash flow problems.  So the proposed solution was to refinance, which led to the demands of the financial institution to do a performance analysis and business plan by their consultants at an exorbitant cost.  Ultimately, the process fell apart because there was an inferred guarantee of financing when the plan was completed that was never met.

Lesson 1:  Be prepared before you agree to expensive consulting fees by a lending institution for the promise of refinancing.  If the numbers don't work, the financial institution will not lend because you don't fit their model.  There is also the concern that the person conducting your analysis is not industry savvy.  There are a number of unique factors that are specific to the industry that will affect the overall picture of your analysis and must be taken into consideration.

Lesson 2:  The factors leading up to the severe cash flow problems happened over a long period of time.  Waiting until you can't meet payroll or pay your creditors is a death sentence!  As soon as the pieces of the puzzle are no longer fitting, you need to address the problem.

bankWhen this company contacted me for advice, I completed a Financial Performance Analysis for a fraction of the cost of the bank proposal and the problems were immediately apparent.  Yes, there was a substantial cash flow problem.  But there were a number of things going on in the business operations that needed to be addressed before financing solutions could be pursued. There were accounting issues, gross margin problems and expense problems all relating back to the initial causes.

Unfortunately the owner maintained a singular view for the solution to the problem and was not receptive to the recommendations that were generated by the financial performance analysis.

Lesson 3:   Borrowing more money to supplement cash flow without addressing the underlying operational problems is simply throwing good money after bad.  It is like sitting at a Black Jack table and you are down a lot of money but you continue to gamble thinking you can win your money back.  It's never going to happen because the odds are always in favour of the house.

Lesson 4:   Probably the most difficult thing for entrepreneurs to do is admit they need help.  Sometimes we have to swallow our pride to gain a different perspective on our business.  The ability to act on good advice is the most important asset you have.

Lesson 5:  The moral of this case is to be "Prepared in Advance".  "Get your ducks in a row" before you make the commitment to borrow more money.  If you are analyzing your business on a monthly basis you will know where your problems are originating before you get in too deep.  Back this up with a financial business plan at the beginning of the year so you have a road map to your destination.  If you get off track you have the tools and knowledge to make changes to get back on the correct route.

Unfortunately, this company is no longer in business and I wager to say this did not have to happen given enough time to make the right adjustments to the operations. 

If you are not preparing a business plan and/or analyzing your monthly statements, stack the deck in your favour and give me a call.  You have nothing to lose but, potentially, a lot to gain.  Contact me.

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