The Georgia Bankers Association recently put out it's Update for September 2009. Here are some excerpts from the 24 page report.

I invite you to comment or share your insights at www.mcdfs.blogspot.com.  

Financial management or managing by the numbers is simply taking the financial information you have and analyzing it to determine any strengths or weaknesses that exist in a company.  

Most businesses produce regular financial statements and comply with recordkeeping requirements of their own or the bank they borrow money from. But, financial statement analysis is often overlooked or not performed on a systematic and timely basis to obtain insight into the financial performance of a company.

Believe it or not, a bank really does look at the financial statements provided to them and they do a comprehensive analysis of the balance sheet, income statement and cash flow while looking at some key financial ratios.  They ask for three years worth of information to do trend anlysis on the statements also.  The bank does it to protect the credit they extended to a company.  Shouldn't you do it to protect the investment you made in your company too?

Financial ratios can measure different things in your business.  In the following ratios / means "divided by"

Profitability Ratios measure gross profit and net profit margins, gross profit or net profit after tax/sales

Liquidity Ratios measure how much current assets a company has in excess of their current liabilities, current assets/current liabilities

Debt Ratios measure how leveraged a company is, total debt/total net worth

Activity Ratios measure how quickly a company is collecting receivables, turning inventory or paying payables, sales/accounts receivable, cost sales/inventory or accounts payable

Business owners can use ratio analysis to quickly spot problems.  There are different ratios to measure different aspects of a business.  Ratios reveal relationships that can help you evaluate the performance of a company.

Ratio analysis between key values can help you cope with the massive amount of numbers in company financial statements.  If using these ratios will help a business owner spot problems quicker and enhance the long term success of a company, isn't that a good thing?

Remember: I'm a banker.  Capital adequacy refers to whether the structure of the financing used by individual financial institutions is sufficient to preserve the safety and soundness of the financial system.  Typically, banks are expected to maintain $1 of capital for every $8-$12 of assets.

The latest statistics from the Small Business Administration (SBA) show that "two thirds of new employer establishments survive at least two years, and 44 percent survive at least four years"  This is a far cry from the previous long-held belief that 50 percent of businesses fail in the first year and 95 percent fail within five years.

A common fatal mistake for many failed businesses is having insufficient operating funds.  Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed.  They also may have unrealistic expectations of incoming revenues from sales.

It is imperative to ascertain how much money your business will require: not only the costs of starting, but the costs of staying in business.  It is important to take into consideration that many businesses take a year or two to get going.  This means you will need enough funds to cover all costs until sales can eventually pay for these costs.

Some of that money can be money that you borrow, but some should be money you invest in your business.  Generally, to attract bank financing, the bank likes to see about $1 of capital for every $3-$5 in debt.  Asset based lenders are comfortable with $1 of capital for every $5-$10 in debt because their loans are more based on the value of the accounts receivable.  Beyond that, equity capital should be considered.

Take a lesson from the investment banking/banking industry: sometimes there is such a thing as too much leverage.

SBA Launches New 100-Percent Guarantee ARC Loan Program 
To Help Struggling Businesses

WASHINGTON – Small businesses suffering financial hardship as a result of the 
slow economy may be eligible to receive temporary relief to keep their doors 
open and get their cash flow back on track through to a new loan program 
announced today by SBA Administrator Karen G. Mills. 

Beginning on June 15, SBA will start guaranteeing America’s Recovery Capital 
(ARC) loans.  ARC loans are deferred-payment loans of up to $35,000 available 
to established, viable, for-profit small businesses that need short-term help to 
make their principal and interest payments on existing qualifying debt.  ARC 
loans are interest-free to the borrower, 100 percent guaranteed by the SBA, 
and have no SBA fees associated with them.

“These ARC loans can provide the critical capital and support many small 
businesses need to make it through these tough economic times,” said 
Administrator Mills.  “Together with other provisions of the Recovery Act, ARC 
loans will free up capital and put more money in the hands of small business 
owners when they need it the most. This will help viable small businesses 
continue to grow and thrive and create new jobs in communities across the 
country.”

As part of the Recovery Act, the ARC program was created as a no-interest, 
deferred payment loan to help small businesses that have a history of good 
performance, but as a result of the tough economy, are struggling to make 
debt payments. 

ARC loans will be disbursed within a period of up to six months and will provide 
funds to be used for payments of principal and interest for existing, qualifying 
small business debt including mortgages, term and revolving lines of credit, 
capital leases, credit card obligations and notes payable to vendors, suppliers 
and utilities.  Repayment will not begin until 12 months after the final 
disbursement.  Borrowers don’t have to pay interest on ARC loans.  After the 
12-moth deferral period, borrowers will pay back the loan principal over a 
period of five years.

ARC loans will be made by commercial lenders, not SBA directly.  For more 
information on ARC loans, visit www.sba.gov 

You can receive all of the SBA’s News Releases via email.  To subscribe, visit 
http://web.sba.gov/list  and select “Press Office.

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For Immediate Release

Evaluating Your Banking Relationship is Easier than Ever

Atlanta, GA April 14, 2009- Business owners are struggling with all of the changes in the banking industry and recent turmoil in the economy.  Should they stay with their current bank?  Should they change? How do they find the financing they need to take their business to the next stage of growth?  How do they restructure their debt given the changes in cash flow?  After 30 years of experience in the banking industry, Bill McDermott’s desire to provide an independent view of the banking world and help business owners answer those questions led him to open McDermott Financial Solutions. (McDFS)  McDermott Financial Solutions is a full service consulting firm that gives business owners the knowledge and experience of a banker who is independent of any banking organization to make them aware of their banking options.

 The inspiration for McDFS came from several professionals in McDermott’s sphere of influence who are complaining about the challenging issues facing business owners today.  Issues standing in the way of the next stage of growth or overwhelming debt obligations that are poorly structured because of cash flow changes are bombarding business owners.  “The changes in the economy and banking industry have created a dramatic slow down and potential failure for many businesses” said Bill McDermott.  “Traditional financing options and approaches are tightening up and may not deliver what is needed.  Business owners need to know that they have options”

 The idea that there could be a better way to help business owners solve banking problems caught McDermott’s attention.  “I believe business owners are looking for an independent second opinion of their banking relationship from a banker with 30 years of experience in the industry.  The ability to leverage banking contacts in the market that business owners don’t have is an added benefit.  If a business owner has a problem, so do I” says McDermott. 

 Today, Bill McDermott will begin offering a free comprehensive banking review to businesses in metro Atlanta to include a review of financing, cash management, investments and electronic banking.  Added McDermott “While most of my career I have worked with businesses in the $2-20 million revenue range, I can certainly work with companies that are either smaller or larger than this.  Businesses are looking for the right strategy at the right time to insure their company’s success.”

For further information, contact

 Bill McDermott

McDermott Financial Solutions

5208 Garnaby Lane

Norcross, GA 30092

770-597-3136

bmcdermott@mcdfs.com

www.mcdfs.com

mcdfs.blogspot.com

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"Bill listens to your plans and figures out a way to make them happen.  I have known Bill for over 15 years and highly recommend him"

Robert W. Darden, CPA

"I hired Bill to help finance a permanent loan on a new business venture.  When others see obstacles Bill sees opportunity.  His knowledge of the banking business and his long term relationships in the industry are extremely valuable to his clients."  Tom Major, CEO, Major Concepts

"I've enjoyed our relationship with Bill.  It's not often you find someone who is knowledgeable about banking as well as small business.  He responds to questions quickly.  I would highly recommend Bill as person to handle your business banking needs."  Ruth King, CEO, On the Ribbon 

"Having had numerous opportunities to work with Bill McDermott on a business level, I can personally attest to his professionalism, integrity, and superior knowledge of the lending profession.  My company, CTR Partners, represents the interests of firms that are leasing or purchasing commercial real estate.  We always enthusiastically recommend Bill to those firms who have a lending need, as we know he'll end up making us look good in the process!" 

Kevin Murray, Managing Partner, CTR Partners