Tag Archives | entrepreneur

Relationship With Your Lender

See Also:
What do Lenders Really Look at
What Does a Lender Want to Know
Don’t Tell Your Lender Everything
Due Diligence on Lenders
Every Business Has a Funding Source, Few Have a Lender

Relationship With Your Lender

The question I get most often from people is “What affects my relationship with my lender the most?”


The answer is communication. Communication or lack there of is the greatest area of weakness between entrepreneurs and their lenders. When news is bad, entrepreneurs tend to shut down communication thinking the lender will be upset. The entrepreneur needs to understand that the lender may be concerned, and their reactions will be far less negative than if they are told nothing. Just as in your personal relationship, nothing upsets your partner more than surprises. The same is true with your lender.

Changing Jobs

Don’t blame yourself totally, because not all the weaknesses in this lending relationship rest with the entrepreneur. Lenders change jobs more frequently than politicians change their minds. As a result of these jobs changes, many lenders are unfamiliar with their customers, and become wary of extending credit even when the business deserves the credit.

Relationships Are Challenging

Relationships, whether personal or business, are always challenging. But in order for the entrepreneur to survive, an environment must be created that is conducive to fostering a productive, long-lasting relationship with your lender. Clear, frequent, open lines of communication are the most necessary component of a strong entrepreneur-lender relationship. Business owners and lenders should talk at least quarterly. And, when things are changing rapidly in the business, they may need to be talking weekly.

Invite Your Banker Inside

Lenders will always require financial statements and the frequency will depend on the type of loan. However, the entrepreneur has to realize there is more involved in communication than mailing out financial statements. Invite the lender to tour you facilities, but don’t extend the invitation just before you need their money, as that will create suspicion. Communicate with your lender when something important happens, such as gaining a major account. Be sure to put your comments in writing. This provides your lender with documentation should questions arise.


And remember, a lending relationship is identical to any relationship, because it is based on trust. Therefore, a lending relationship is the same as your personal relationship, in that it needs to be nurtured day in and day out, not once a year. To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

relationship with your lender

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Mezzanine Financing

See Also:
External Sources of Cash
What Does A Lender Want To Know
Finding The Right Lender
Due Diligence on Lenders
Weighted Average Cost of Capital (WACC)

Mezzanine Financing

A mezzanine lender, provider of mezzanine financing, functions similar to a bank in terms of providing a source of capital for companies. They get their capital from private investors who look to make a profit off of the investments the mezzanine lenders make. Often times, the firm is structured as a limited partnership for tax purposes.

There comes a time in every company’s life cycle when the company and/or the entrepreneur need some more cash. Perhaps the company needs more working capital or some additional money to help fund an expansion. Or, maybe the entrepreneur feels that it’s time to reap the benefit of all those years of hard work. Whichever the case may be, the entrepreneur will be faced with many different financing options. An interesting and often over-looked option is that of bringing in a private equity partner in the form of mezzanine funding.

Download The 25 Ways to Improve Cash Flow

Mezzanine Lenders

Mezzanine lenders are similar to banks … but they are not banks. The interest they charge is going to be higher than what commercial banks charge. Many entrepreneurs blench at the thought. But consider, other than maxing out your credit cards, what other alternatives do you have? Mezzanine lenders will charge you approximately what credit cards charge you. Their cost of capital ranges from the high teens to low twenties (18-23%). This may seem quite high, but if your enterprise is so risky that a bank will not touch it, then it is only fair that you reward someone for taking on this extra risk. Also, what bank would feel comfortable about an entrepreneur taking the bank’s money and pocketing it for personal gain? No bank would. Mezzanine lenders do.

Mezzanine lenders can also benefit the firm in other ways as well. They can help entrepreneurs upgrade their talent resources by finding professional management staff. They can help with finding better technology, placement with new customers or help you find sourcing alternatives. Remember, the best business partner is someone who brings more than just money to the table.

Financing typically comes in the form of either a loan and/or equity interest. Sometimes the debt is convertible into equity. Many people worry when they hear that their equity is compromised. This is actually not so. Mezzanine lenders are open to having their equity interest bought out. Think of it as a “pop” for taking on the risk.

Purpose of Mezzanine Financing / Mezzanine Capital

So, what is the purpose of mezzanine financing or mezzanine capital? First, let us consider a common business dilemma: 1) lack of working capital or 2) lack of funds for capital expansion. Entrepreneurs by nature are optimists and passionate people, especially when it comes to their companies. They want and need a financial partner that can grow with them. Typically, your first option of choice is your friendly, neighborhood commercial bank. There are several issues that one often encounters here:

1. Debt – Is your company too leveraged for the bank to accept?

2. Profitability – Is there enough profit to sustain the enterprise?

3. Cash Flow – Is your company generating enough cash to pay the bills?

4. Inventory – Are you turning it over fast enough?

5. Equity – Do you have enough skin in the game?

If your firm can pass the litmus test, then by all means you should go with your friendly, neighborhood commercial bank. They are typically your cheapest source of money.

Next, let us consider a more interesting question from the entrepreneur’s perspective. I’ve worked this long and hard. Don’t I deserve to be rewarded? Don’t I deserve to be a millionaire? If you don’t already have a million dollars in the bank, then the bank will probably be the first to tell you, “No.” So what’s a hard-working entrepreneur to do? Surprisingly, this issue is one that is faced by countless business owners as they face retirement or just want to “take some chips off the table” for security purposes.

The above cases represent typical situations where it makes sense to consider other financing options such as a Mezzanine Debt Financing.

Recapitalization Example

Below are some typical scenarios where you might want to consider working with a mezzanine lender:

1: Company needs capital infusion for either working capital or CAPEX.

2: Entrepreneur would like to buy out a partner.

3: Entrepreneur would like to “take some chips off the table” to provide security for his/her family.

4: Entrepreneur would like to pass along management to next generation.

5: Entrepreneur would like to share some equity with management staff and/or employees.

6: Entrepreneur would like help with selling the company to a strategic buyer at a good profit so s/he can retire.

Mezzanine Recapitalization: Conclusion

Entrepreneurs should consider mezzanine lenders a strategic financial resource. They many not always be your first choice, but they just might be your best choice. They have a higher cost of capital than banks. But, for the money, they provide a lot of strategic options to the entrepreneur that commercial banks could not be party to.

For more tips on how to improve cash flow, click here to access our 25 Ways to Improve Cash Flow whitepaper.

mezzanine financing
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Every Business Has A Funding Source, Few Have A Lender

See Also:
Bankers’ Language is Financial Jargon
Categories of Banks
Finding the Right Lender
How to Manage Your Banking Relationship
Interest Rate
Is it Time to Find a New Bank?

Every Business Has A Funding Source, Few Have A Lender

While visiting with a potential customer, he asked, “Why are lenders such an obstacle standing between an entrepreneur and a funding source’s money?

I really don’t like to answer a question with a question but in this case I did, “Do you do business with an institution or a lender?” I went ahead and answered by saying you don’t do business with an institution. You do business with people. When you get a lender who believes in you, you can accomplish things that are hard to believe. I continued by saying a good lender relationship can bring you money in the form of credit, save you money in fees, and enhance your business opportunities through taking advantage of the lender’s extensive contacts.

Lending Relationships

Relationships between lenders and entrepreneurs/business owners take on as many colors and shapes as relationships between you and your life partner. But, as you know, the most important part of any relationship is to have trust and honest communication.

A Good Lender Relationship

The problem here is a good lender relationship can be so beneficial. But, most entrepreneurs/business owners suffer through poor ones, or cultivate none at all. In my discussions with lenders, they feel that the entrepreneurs don’t understand their restraints and needs. Lenders are not investors risking their personal money investing in your business. In addition, lenders are loaning you money that individuals or companies have deposited with the institution. That money is then paid back to the depositors. Lenders by law and temperament are not investors.

As in any relationship you need to understand the other party’s side, which in this case, is the lender. Lenders do not have the same lucrative potential as an investor. As an entrepreneur, you are normally asking a lender to take an investor risk instead of a lending risk. This is the main reason why bankers and entrepreneurs so often don’t see eye to eye.

The important part of dealing with a lender is the more they know about you and believe in you, the more capital (cash) you can obtain from them.

every business has a funding source, few have a lender

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Spotlight on a Houston Entrepreneur : Marcus Davis owner of “The Breakfast Klub”

The owner, Marcus Davis, and I

The Breakfast Klub owner, Marcus Davis, and me

I visited the world famous Breakfast Klub on June 30th for the first time. I had heard all about the famous restaurant but never made it to taste the food. Good Morning America, USA Today, Forbes, and Esquire Magazine agree that The Breakfast Klub is one of the top breakfast restaurants in the nation. This family owned establishment focuses on serving great food and building a relaxing atmosphere. The owner, Marcus Davis (pictured here), has stuck to his principle of ‘treating every customer like family.’

Spotlight on a Houston Entrepreneur : Marcus Davis owner of “The Breakfast Klub”

It amazed me when we pulled up and there were tents outside to shield the many customers waiting in line from the scorching sun. They take great care to make sure each customer’s experience is great. Despite being such a popular breakfast place, there was only about a half hour wait to get in. Once inside, however, it takes less than ten minutes to get your food. Their fast service and signature dishes make The Breakfast Klub such a desirable restaurant. They are primarily known for their “Katfish & Grits” and “Wings & Waffles.”

I wanted to write this post after visiting to highlight one of Houston’s well-known entrepreneurs. Marcus Davis has opened several restaurants and continues to give back by giving motivational speeches and hosting the radio show ‘Sunday Morning Live.’


Marcus Davis

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Cash Flow Statement Example

See Also:
Cash Flow Statement
Statement of Financial Accounting Standards (SFAS)
What is GAAP?
Daily Cash Flow Forecast
Prepare an Investor Package

Cash Flow Statement Example

For example, Saundra has started providing angel investment to promising start-up businesses. Operating under the name Angelco, she is using the wealth she built in her professional career to provide a chance of success for up and coming Entrepreneurs. Saundra also is not afraid of the returns she will make if one of her portfolio companies were to succeed and reach capitalization.

Saundra has a job which requires constant due diligence. She must constantly monitor the companies she has invested in to ensure the professionalism with which she personally conducts business. As a result, she must constantly monitor financial statements. One such statement of monumental importance is the cash flow statement. Saundra survives, in part, through her skills of cash flow statement analysis.

Recent Changes of Balance Sheets

First, Saundra wants to know how recent changes to the balance sheets of her companies affect cash and similar assets. To do this she looks to the most recent cash flow statements which were sent to her. Upon inspection Saundra finds that three of her five companies are performing well and cash is increasing as income in the fledgling companies begins to outpace costs.

On her fourth company she does not see this result. Saundra understands that this could be the result of any number of reasons; slow growth, one-time problems, or poor management. Saundra has set a policy of allowing a grace period for problems to be rectified. Beyond this period, she will have to step in and replace current managers with her own team.

For her fifth company Saundra comes to the conclusion, after looking through her files, that she has not received a cash flow statement. She fears she may have to get tough with these founders but continues her analysis.

Monitor Financing, Investment, and Operational Performance

Saundra also wants to monitor the financing, investment, and operational performance of her companies. Again, she looks to the cash flow statement for this. Saundra, once again, is impressed with how her first three companies are controlling these actions. For her fourth company. she sees the core problem. They have purchased equipment at a price higher than average to the market. She notes that she must contact her managers to correct their mistake. With any luck, the equipment can be returned and purchased at a lower price, fixing both financing and investment issues in this business. She, of course, could not monitor this information with her fifth company.

Cash Flow Statement

Saundra has used the cash flow statement effectively because of her knowledge into the importance of the statement. Her experience combined with her analytical nature allow for effective monitoring of the big 3 financial statements: cash flow statement, income statement, and balance sheet.

Cash Flow Statement Example, Cash Flow Statement

cash flow statement example, Cash Flow Statement

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Should You Pay Your Interns?

Have you ever wondered if you should pay your interns? You have probably heard others praising the benefits of hiring low-cost, energetic, and eager-to-learn interns. But the question on your mind is, should you pay your interns?

Should You Pay Your Interns?

As an entrepreneur and CEO, I often feel like I have too many ideas and too little time to follow through on those ideas. That is where an intern comes in. Every summer, I design an internship program with meaningful internship projects to follow through on my ideas and concepts from the past year. For my thoughts on how to design an effective internship program, check out this video:

I believe in paid internships. My moral and business obligation is to treat my employees with fairness and to compensate employees for their work. Not only do paid internship programs lead to higher quality internship candidates, but they also lead to more motivated, loyal, and hard-working interns.

If the employer and the organization benefit from the interns’ work, then the employer should pay the interns. There are many competitive paid internship positions available. So why would I risk losing quality internship candidates on the grounds that they went looking somewhere else for a paid internship program? While I focus on growing my business, my interns help me follow through and implement my business ideas that would have otherwise remained stagnant.

Fair Labor Standards Act

Some might argue that unpaid internships are fair for the intern and the organization. Interns gain skills and experience which may lead to higher paid positions soon after. Internship programs also provide the interns with exposure to networking opportunities, expertise, and experience in an industry. I agree with these benefits of internship programs for interns, however, unpaid internships violate minimum wage laws if your company does not follow these six requirements under the Fair Labor Standards Act:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If one meets all of the factors listed above, then an employment relationship does not exist under the FLSA. The Act’s minimum wage and overtime provisions do not apply to the intern. This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad.


Your conclusion of whether you pay your interns should be an educated decision based on what’s right for your company.  So, should you pay your interns? I strongly believe that paid internship programs lead to better-quality and more dedicated intern candidates. They are mostly likely going to have enhanced skills that your business will benefit from.

Do you believe in paid internship programs?  Let us know your thoughts. For more information on this topic, check out this article.

Should You Pay Your Interns

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The Time for Reflections and Projections

The end of 2012 is quickly approaching and while businesses tend to slow down this time of year, many business owners are using the time for reflections and projections. Being able to look back over this year to reflect on the “good, bad, and ugly” of the business can give you a head start on how to plan for the upcoming year. As for our team at The Strategic CFO in Houston, TX, we take this opportunity to reflect on the accomplishments and disappointments of this year so that we can move forward into the next year goal-oriented and focused. Have you started your end of the year reflections?

The Time for Reflections and Projections

Here’s an excerpt from an interesting article I read that includes some entrepreneur must-dos that will help you along.

All year long you’ve been in frantic motion. You’ve put out fires, solved employee snafus and issues, juggled conflicting priorities, fielded exhausting back-to-back meetings, telephone calls, and endless emails. You have motivated yourself and others and kept blocking and tackling month after month by leading and managing your company toward achieving the objectives and goals you set. In other words, it’s been a typical year in the life of a small business owner, and, suddenly, December is here, and 2013 is right around the corner. And according to Bill McBean, author of the new book The Facts of Business Life: What Every Successful Business Owner Knows That You Don’t, with a little focused thought, the last month of 2012 can also be the most valuable one.

“Sometimes the business world pauses to catch its breath in December,” says McBean. “This may or may not be true in your industry or company. But either way, you owe it to yourself, your customers, your employees, and your future to tear yourself away from the daily grind long enough to do some end-of-the-year or early-next-year reflection and forward planning.”

Typically, entrepreneurs and small business owners have trouble seeing above the action and the dust it creates. But maintaining a cool and measured perspective on where you are, where you’re headed, and—most importantly—exactly what you need to do to get there is crucial to next year’s success.

Questions to Ask

Along with the “must-dos” cited in the article, consider the following questions when reflecting on the past year and planning for the next:

  • What did I learn?
  • What unfinished business do I take into the new year?
  • Where did I meet the targets I set for my company and where did we fall short?
  • What does success in 2013 look like?
  • What steps do I need to take to increase the probability of success?

So, what are you doing to wrap up your year and move forward into 2013? I’d love to hear any additional thoughts/questions you might have so please feel free to leave a comment.

The Time for Reflections and Projections

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