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by Ron Sturgeon

If you ask most people what their greatest business need is, they’ll answer “money.” Whether that business has been around for years, is a start-up venture or is still a plan written on a scrap of paper, many entrepreneurs believe that the only thing holding them back is a bigger supply of money.

That’s probably the furthest thing from the truth. If you give a struggling business more money, chances are good that all it’s going to do is lose more money. Why? Because that business hasn’t figured out what its true business issues are. The owner hasn’t taken the time to address the genuine problems facing his or her business – so more money is only going to feed those problems.

The truth is, there is plenty of money in the world today. Banks are sitting on money, investors are sitting on money and individuals are sitting on money – all waiting for the right opportunity to put that money to work. And while there are millions of ideas for businesses out there, very few people can take those ideas, connect them with the money and turn them into successful ventures.

Lesson 1: Know what you need – and why you need it.

Greg: As a banker, I constantly see people who think all they need is more money. For example, I had a prospect that came into the bank who owned an ice cream store. He and his buddy had gone into business together and each of them had put in $100,000, and now they’re both broke and don’t know what to do. They were delinquent on payroll, owed back taxes and had no business plan. A business plan needs to be clearly articulated, to include directions how one will reach their vision.

What he did have was a big pile of receipts – a pretty good sign that he didn’t know where he had been or where he was going. He thought they had a competitive advantage with this ice cream they were selling, but he hadn’t even thought about how many scoops of ice cream he had to sell just to pay to finish out his building! If you can’t put your competitive advantage into numbers, is it really a competitive advantage?

You have to know how much money you need now. You have to know why you need it. And you have to know how much you’re going to need going forward.

Ron: So, he hadn’t figured out what his metrics were? Metrics are the numerical measurements of performance for a business. The simplest might be sales per month, but many more are needed to understand your business, such as more complex ones like average client acquisition cost.

In [my book] Green Weenies, we had a question: “How big is the hole and how are we going to fill it?” In other words, how big is the deficit, and what plan can we devise to erase it? It’s an estimate of how much sales or income you’ll need to solve the problem.

Greg: That’s a good point. I asked this prospect, “How much money are you going to lose every month?” and he said, “I don’t know that we do lose money every month.” He had no idea what his financial statements said.

Ron: Customers who are heading to the bank looking for a loan need to look over their financial statements and meet with their accountant to make sure they understand what all the numbers mean. And if you don’t understand them, you need to bring someone to the bank with you who does!

If a banker gets a sense that you don’t understand the financials, then the banker wants to know that you have someone credible working for or with you who does understand them and can give you that information. But to go into a bank and not understand what’s going on with your financial statements is a critical mistake.

Doing the work to get there means taking the idea from your head and putting it into a solid plan. It means creating a business plan that is honest and viable and defines your objectives, possible pitfalls and your action plan for making it happen.

In the next article we’ll move on to business plans, managing your credit, the optics of presenting your loan and much more that you may not have known about how banks work, from the credit approval process to some big traps to avoid.

Don’t forget to subscribe to Ron's free monthly auto recycling e-newsletter, with news and tips, register at www.autosalvageconsultant.com.

Remember, only you can make BUSINESS GREAT!

Ron Sturgeon is past owner of AAA Small Car World. In 1999, he sold his six Texas locations, with 140 employees, to Greenleaf. In 2001, he founded North Texas Insurance Auction, which he sold to Copart in 2002. In 2002, his book “Salvaging Millions” was published to help small business owners achieve significant success, and was recently reprinted. In June 2003, he joined the new ownership and management team of GreenLeaf. He also manages his real estate holdings and investments. You can learn more about him at WWW.autosalvageconsultant.com He can be reached at 5940 Eden, Haltom City, TX 76117, rons@rdsinvestments.com or 817-834-3625 ext 6#.