Q: I think the phrase "perfect storm" is
overused, but it may apply to my situation. For years, I’ve maintained a line of
credit with my bank that allows me to buy my inventory and pay employees. Sales at my business are very good — though
what seasonal —and I’ve never missed a payment. Now, my bank is tightening its requirements and reducing my line of credit.
And here’s where the perfect storm part comes in: I’ve been planning an expansion for several years. I’m ready now, but given
the credit markets, I’m nervous about approaching my banker. What can I do?
This is a common problem, A:though that certainly won’t help you feel better. I would guess that while you’ve used your line
of credit, you may have had a line larger than your historical needs. In this environment, many banks are trying to "right-size"
the lines of credit they are providing to companies.
The bottom line for you: You’ve got to make your business look as attractive as possible to your banker because you are competing
for financing with other small businesses.
Three different areas of your business deserve a serious look from you: collecting receivables, reviewing inventory and getting
the company as lean as possible.
Keeping your accounts receivable list current is always important, and collecting receivables is vital. A receivable that
is more than 30 days past due is less likely to be collected than one that has
just become due, and so on. Older receivables are likely to grow older and more likely not collectable. This is your money
As for inventory, one effect of the tighter lending market you are experiencing is that you may need to adjust the way you
stock your business. Look at your inventory as money. You don’t want too much of it sitting on your shelves.
Carefully review your contracts with suppliers or revisit your normal practices for buying inventory. Do you go to trade shows?
Buy from catalogs or a salesperson?
Try to work out just-in-time relationships with your major suppliers so you can display adequate stock while keeping
costs in line. Your suppliers may even adjust the terms, which could delay the due date for those purchases.
You also should do all you can to put your company on a diet: Be as lean and
mean as possible by bird-dogging expenses on everything from computer paper to overtime, utilities and health care premiums.
Outside of paying your employees and buying inventory, nothing else is sacred. So, look at everything that affects how your
company can transform itself from being out of shape to one that is ready to fight at the bell.
You may find that this actually is a good time to expand if your competitors are weaker. Some companies will come out of this
rough economy just fine; those that are "lean and mean" will be in a position to grow when times are better.
A bank would be more interested in looking at you knowing that you have created a very tight operation; which would be the
model for you to follow in the future.
Wojtowicz is president of Cambridge Capital Management Corp., which operates several alternative
financing funds. She can
be reached at 843-9704.