6 Specific Steps for Retailers for Business Loans

"Rescheduling" a Bank Loan

How to Be Your Own CFO: Six Step Turnaround Plan for Retailers
Having problems meeting your bank loan? You’re not alone. Even the superstars of business seem to be having troubles these days. And they have enough assets to make your head spin.

Bailouts are not new—banks have always dealt with business turnarounds. Most banks have a specific department for the restructuring of business loans. They call this the "workout situation".

We asked our local veteran banker who processes commercial loans what usually occurs when a business gets behind in its loan payments. Our banker took a straightforward approach, saying, “I usually catch a delinquent loan no later than 30 days, though I like to discover them in 20 days.”

Our banker noted that a problem can be identified quickly once the owner of the business focuses attention on the matter. However, some owners refuse to recognize a problem for a number of reasons:

he or she might be embarrassed to admit to a problem;
he doesn’t agree there is one;
or she might simply be procrastinating.

This is the most important element to any business turnaround: recognizing that there is a problem. Falling behind in payments on your loan should be a clear indication. Don’t wait for the bank to call you.

Follow this six-step turnaround process for your retail business. The key: keep you in charge of your own future! The restructuring of any loan involves the following six essential steps.

1 Admit the Problem
This is undoubtedly the toughest step. Start by reviewing all aspects of your business. Why aren’t you making those loan payments? In your investigation, try to pinpoint exactly what the problem is so that you can address it squarely.

Even if you aren’t certain, don’t feel embarrassed to call your banker. And don't wait until you think you have the solution. "Lead time" is essential to manage!

2 Call Your Banker
Perhaps you are not down to the wire on your loan, but you foresee the potential for trouble. Don’t hope your banker won’t notice your tardiness. Bankers do notice.

Face the situation by first facing your banker. Your banker can help.

Begin by making an appointment to work out a payment-rescheduling plan. When you tell your banker your troubles, don’t expect him or her to be shocked. Anyone who has been in the lending business longer than a month has most likely encountered businesses with repayment problems. Don’t be afraid to explain where you stand and to propose that you work out the problems together.

3 Provide Up to Date Financial Statements
Before you propose a rescheduling agreement, however, put your financial documents in order. Before the banker can place any confidence in your ability to operate your business or follow a plan, you must demonstrate your ability to track your past performance.

When you submit the rescheduling proposal, your banker will want the same kind of financial information you provided for the initial loan. The bank will assess your prospects to accomplish a turnaround within a reasonable amount of time. To make that assessment, your banker analyzes:

your ability to manage your business;
your understanding of your market;
your ability to operate within a budget of sales, expenses and cash;
and your personal financial position.

Start with an up-to-date income statement. Often referred to as a profit and loss (P&L) statement, the income statement reports the financial condition of your business over a period of time. It includes gross sales, all related expenses, and the resulting net profit (or loss) for the selected period.

Our banker friend pointed out that he could quickly locate a problem by looking at three areas of the income statement: sales, gross margin and net income (or loss).

The balance sheet, on the other hand, shows your company’s financial condition at a particular point in time. It lists what your company owns (assets) and what it owes (liabilities). The difference between assets and liabilities is the net worth, or equity, of your company. This is simply the money in the business that is not owed to anyone, representing the owner’s interest.

4 Prepare Financial Projections
Because the income statement and balance sheet reflect your business’ history, you also will need to present your financial plans for the future.

Your banker will want to see pro forma (projected) income statements for the next 12 months. By using up-to-date information from your financial statement, you should be able to develop defensible projections. Remember, you must be able to substantiate your forecasts of sales, expenses and profit.

A sales plan analyzes you month-to-month sales trends from previous years and projects your expected sales results for the next year.
A cash flow budget (or plan) is your estimate of cash coming into the business, cash going out and your plans for the differences in months where you expect shortfalls or excesses.

Your cash flow budget is vital because it shows the banker how you plan to handle your cash and whether or not another loan is necessary to cover future costs. Let your banker know your planned adjustments if your store’s performance falls short of projections.

5 Show You Are In Control
Your strategy for controlling expenses will probably be the most important thing that you present to your banker. But you will also have to show that you have reviewed all aspects of your business relating to the flow of cash or other obligations.
Selling Expenses

Analyze your current selling expenses (those directly attributable to selling your merchandise). Can you cut back on your sales force? What if you down-sized your staff, not by elimination, but by assigning dual jobs to key people?

Can you curb advertising expenses? This is a time to really evaluate your advertising budget. Make sure advertising dollars are reflected by direct sales increases and that they are directed at your targeted customers.
Think of ways to reduce all your expenses related to sales: supplies, travel and entertainment. Seek efficiency ideas from your staff.

Administrative Expenses

Administrative expenses may be easier to juggle. If administrative salaries are difficult to cut, things like office supplies, long distance telephone calls and expenses related to training can be re-evaluated. Do it.

Occupancy Expenses

Rent is usually a hefty expense. It is also one that is difficult to change. Make sure you review all of your rental needs.
Maybe you could do with less storage, or perhaps the storage area could be put to better use as a selling area.
Know what your options are. Sometimes just making a change in your due date with your landlord can make a huge difference in your cash situation.

Inventory Control

Here is the Achilles heel of most retail businesses. Put into place immediately an inventory control system, and an Open-to-Buy (inventory buying) plan.
You should have up-to-date inventory records that tell you how much cash is tied up in inventory and what merchandise is moving.
Do you know your inventory turnover? Do you have a shrinkage problem?

Accounts Receivable

Get on the phone to the accounts that are past due. Often those same customers tie up your cash. Offer them a discount if they will pay by credit card. (Remember, cash is more important than profit at this time!)
Then review your general practice of extending credit. Do you contact delinquent accounts regularly? Would a computer or the services of a collection agency help? Collecting credit is not something to be shy about.

Capital Equipment

Do you need all the equipment you have? Learn to evaluate all of your current equipment needs (and future needs) based on a return on their investment.

Accounts Payable

Here’s when it pays to know your suppliers. Check to see if you can arrange alternative payment plans if need be.
Be sure to take advantage of early payment discounts, when appropriate. Right now might be the time to evaluate whether it is better to pay a modest penalty if it will help pass a tight spot.

6 Develop A Plan – and Stick To It!
Once you have gotten this far, it’s easy to develop a plan. By following these steps, a plan will emerge allowing you to restructure your loan if needed.

You will definitely now be able to show the bank that you can control your business’ future.
Your banker will want to receive monthly financial statements to compare your business’ performance with your projections.
Bankers will prefer to see you meet the new schedule, but they must watch for danger signals indicating a need to plan for a sale, merger or liquidation of the business.
The best way to allay your banker’s fears, of course, is to live up to your own expectations and meet your projections.

We hope you never need to reschedule a loan. But if you ever find yourself in financial trouble, or even just a bit off-course, it’s good to know your banker is on your side. Let him or her help you do more than just survive a difficult time. Together you can get your business back on track. Keep in mind that your banker has no use for your business.

Our banker friend says, “We’d much rather have a successful customer.” And he adds, “We make money when our customers do.”