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The Most Important Question to Ask Before You Apply for Funding

 

Do you know your business?

This question may seem almost insulting to some private business owners. “Of course I know my business, I’ve been running it for 20 years, have 15 employees, and have grown it to XXX dollars revenue.”

I routinely facilitate introductions between my clients and key professionals including bankers, accountants, attorneys, and the like. I recently introduced a client in need of growth capital to a local financial institution that specializes in commercial account work. The banker asked my client a series of traditional and aspirational questions, and my client did a very good job of outlining how he had gotten to where he had gotten, where he was in the continuum, and where he wanted to go.

As the meeting wound down, I was very surprised to hear the lender indicate that provided the routine analysis bears out, he saw no reason why they couldn’t participate in his growth plans at a dollar value and term that could be even higher than the client had requested. WOW!

I stuck around after the meeting to learn why the lender had been so forthright. The lender indicated that it was an easy commitment. The owner knew his business. His points included:

1. The owner was able to articulate why he started the business a number of years ago, and how he had succeeded to date.

2. He was candid about mistakes he had made over the course of the 20 years and how he had overcome those challenges.

3. The lender was impressed by how in a number of situations he had tapped his personal capital to grow.

4. The owner was very clear on how his capital request would be used. In this owner’s case, he saw potential in a market that would generate significant margins but required a fair of amount of short term capital in order to support new client on-boarding until routine payments began to come in.

5. A high percentage of the owner’s revenue is re-occurring, so cash flow is predictable.

6. The owner was looking for funds to grow the business, not bail him out of past sins.

7. The owner had joined a business advisory group to gain insight from other business owners. The owner was not trying to go it alone.

8. Finally, the owner’s approach to the business and the conversation made the lender comfortable about his risk tolerance for this account. The owner spoke openly, and the dialogue was not rehearsed. He knew his business.

The lender went on to say that every business has ups and downs. Be prepared to speak of the downs just as openly as the ups.

So…how well do you know your business?