Paint Your Business’ Picture for Lenders

Many boat dealers are fighting to find a new lender for their inventory management needs. Many more find themselves fighting to keep their current floor plan source. Some feel they just can’t negotiate with any lender. If you find yourself in any of these scenarios, are you providing your detailed business plan, in writing, to any of these to prove your case?

You may ask, why does a lender need to see my business plan? “I’ve been at this business for 5…10…20 years and I know what I need, that should be enough.” Or, perhaps you’re not sure what to expect and don’t feel you can put together projections. Simply put, if you can’t paint a picture of your business into the future, lenders cannot see you in the future and won’t be likely to provide you with funding.

Whether you are courting a new lender or negotiating with an old lender, you do not want them to paint your company’s picture from past financial performance. In their eyes, your next two years will probably look like your last two years. Is that the picture you want to be painted with? Probably not. You need a business plan to paint the financial picture you believe in so your current or prospective lender can see the future as you see it.

There are many books, software programs, consultants and groups that can help you put together a business plan. Most of them are just fine, but you need to choose the method that is right for you and get started.

Your business plan needs to have the basics:
•Business Description
•Product and Services Offering
•Market Analysis and Strategy
•Management and Operations Structure
•Financial Projections

Any lender will likely read the Business Description, and then skip directly to Financial Projections. “Who are you and are you viable” are their first and last considerations. While the “how” is important, if the business can’t support itself, it’s irrelevant.

Regardless if you are presenting to a new or old lender, you will need to provide revenue and expense projections as well as corresponding cash flow projections. These projections work hand in hand and will not only paint a picture for your lender, but help you better understand your cash and credit needs. Find a template to work from, be deliberate through this process and work in this order:
•Recurring fixed expenses such as rent, utilities, loan payments and payroll.
•Recurring income such as storage, dockage and winterization.
•Average 2006, 2007 and 2008 variable income (unit sales) and expenses.
•What do you think you will do this year? Plot this monthly, then weekly.
•Don’t forget trades and other sources and uses of capital (i.e. dealer owned, used, trades, lines of credit).

Once completed you should have projections that not only provide a backdrop for a bank, but allow you to see how cash and profits move throughout the year. Be prepared to plot actual results against these projections throughout the year and explain any differences for your own management as well as your lenders.

Everything discussed to this point will help a new lender understand and appreciate your business in the effort to gain new financing. This same information is important for existing lenders as well. Realizing that many businesses in the boating industry have struggled over the past two years, it is important to be able to “re-sell” your current lender on why you should remain a customer of theirs.

When providing business plans to a lender that is familiar with your business, you will need to think about what your business looks like from their point of view. How old is your inventory? How quickly have you been turning product? What is selling? What isn’t? How does your bottom line look as a result of moving stale product? Are you current on interest and curtailment payments?

Understanding that keeping your current lending source can be very important, you will need to address these critical issues. In addition to the information above, draw a picture for your lender that addresses:
•What you have done so far? Have you sold stale, unpopular inventory for reduced margins, cut expenses, reduced staff, closed non-performing locations and so on?
•Your current inventory position. Is your current offering marketable? What efforts are in place to move the stale inventory?
•What do you need to do to survive and ultimately be successful? Think about the lessons learned over the past 18 months and what you still need to do. Let your lender know what you have in store for your business in the coming months so they aren’t surprised.

The message delivered over and over again at the Marine Dealer Conference and Expo was twofold: Planning and preparation will help you succeed AND those that are able to survive will have the opportunity to be successful in the future. The lenders in the industry, or potentially entering the industry, realize this.

Paint the picture of your successful business for them and you will gain an increased ability to obtain new lenders, retain old lenders and better negotiate terms with all of them.

Bill Thompson is principal at Cardinal Points Network, LLC, a lending, consulting and training company serving the marine and RV markets. He’s also the author of a marine lending white paper (www.marinebankers.org) distributed by the National Marine Bankers Association. You can reach Bill at williamrthompson@sbcglobal.net or 216-496-9481.