Month: May 2023

Remedying a wasteful Bank Line of Credit:

Through our “Day-to-Day Management Services,” MyCFO can handle every element of financial management, from ideas to ensure cash-on-hand for payroll obligations to designing financial strategies to grow a company.  In this recent engagement, MyCFO was brought in to remedy a brewing problem in cash flow management that was turning into a potential bank financing catastrophe.

The good news was that our client had a sizable revolving line of credit with a local bank, helping them to finance working capital needs.  The bad news was that the line was perpetually maxed-out, which meant that the company was always pushing it’s ability to meet payroll, vendor payments and generally all day-to-day cash needs, as well as incurring high interest expenses.

Further, the bank was anxious because the company was making principal payments less and less frequently, make it essentially an “evergreen loan” (vs. the revolving credit line’s intent, which was to access money for working capital needs, then pay down the balance, as seasonal changes impacted the business).

The company had inquired about increasing the line of credit but the bank turned them down, saying the company didn’t qualify because the bank’s ratio forecasting showed that covenants would surely be violated.

Further, their banker indicated that in order for the line to be renewed the company would need an “annual clean-up” period.  This covenant requires a borrower to pay off all balances on any renewable lines of credit and keep them at zero for a specified period of time, e.g., 30 days.  Our client knew that this was going to be impossible in the current circumstances.

MyCFO’s work:

The client came to MyCFO seeking a solution to their dilemma.  Our work included:

• Installed an effective forecasting system
• Determined cash requirements
• Set up efficient accounts payable processing
• Expedited accounts receivable turnover
• Trained accounting department on new systems
• Revised bank reporting processes
• Interacted with bank regarding covenants and renewal

Key Benefits:

As a result of MyCFO’s work, the company had a vastly improved cash management system.  The line of credit began to function as intended, as a revolving line that ebbed and flowed with cash flow needs.  Of course, this helped with bank relations; the bank has indicated that after some periods of consistent performance under the revised system, they will evaluate a potential increase in the lending limit.  Interest expense was also substantially better due to the lower average balance.

Does your customer need help?

If this is the day-to-day support level that your customer needs, have them contact us today!  Download our one-sheet brochure here.

Remedying a wasteful Bank Line of Credit:

Through our “Day-to-Day Management Services,” MyCFO can handle every element of financial management, from ideas to ensure cash-on-hand for payroll obligations to designing financial strategies to grow your company.  In this recent engagement, MyCFO was brought in to remedy a brewing problem in cash flow management that was turning into a potential bank financing catastrophe.

The good news was that our client had a sizable revolving line of credit with a local bank, helping them to finance working capital needs.  The bad news was that the line was perpetually maxed-out, which meant that the company was always pushing it’s ability to meet payroll, vendor payments and generally all day-to-day cash needs, as well as incurring high interest expenses.

Further, the bank was anxious because the company was making principal payments less and less frequently, make it essentially an “evergreen loan” (vs. the revolving credit line’s intent, which was to access money for working capital needs, then pay down the balance, as seasonal changes impacted the business).

The company had inquired about increasing the line of credit but the bank turned them down, saying the company didn’t qualify because the bank’s ratio forecasting showed that covenants would surely be violated.

To make matters worse, their banker indicated that in order for the line to be renewed the company would need an “annual clean-up” period.  This covenant requires a borrower to pay off all balances on any renewable lines of credit and keep them at zero for a specified period of time, e.g., 30 days.  Our client knew that this was going to be impossible in the current circumstances.

MyCFO’s work:

The client came to MyCFO seeking a solution to their dilemma.  Our work included:

• Installed an effective forecasting system
• Determined cash requirements
• Set up efficient accounts payable processing
• Expedited accounts receivable turnover
• Trained accounting department on new systems
• Revised bank reporting processes
• Interacted with bank regarding covenants and renewal

Key Benefits:

As a result of MyCFO’s work, the company had a vastly improved cash management system.  The line of credit began to function as intended, as a revolving line that ebbed and flowed with cash flow needs.  Of course, this helped with bank relations; the bank has indicated that after some periods of consistent performance under the revised system, they will evaluate a potential increase in the lending limit.  Interest expense was also substantially better due to the lower average balance.

Need help?

If this is the day-to-day support level that you need, contact us today!  Download our one-sheet brochure here.

Remedying a wasteful Bank Line of Credit:

Through our “Day-to-Day Management Services,” MyCFO can handle every element of financial management, from ideas to ensure cash-on-hand for payroll obligations to designing financial strategies to grow your company.  In this recent engagement, MyCFO was brought in to remedy a brewing problem in cash flow management that was turning into a potential bank financing catastrophe.

The good news was that our client had a sizable revolving line of credit with a local bank, helping them to finance working capital needs.  The bad news was that the line was perpetually maxed-out, which meant that the company was always pushing it’s ability to meet payroll, vendor payments and generally all day-to-day cash needs, as well as incurring high interest expenses.

Further, the bank was anxious because the company was making principal payments less and less frequently, make it essentially an “evergreen loan” (vs. the revolving credit line’s intent, which was to access money for working capital needs, then pay down the balance, as seasonal changes impacted the business).

The company had inquired about increasing the line of credit but the bank turned them down, saying the company didn’t qualify because the bank’s ratio forecasting showed that covenants would surely be violated.

To make matters worse, their banker indicated that in order for the line to be renewed the company would need an “annual clean-up” period.  This covenant requires a borrower to pay off all balances on any renewable lines of credit and keep them at zero for a specified period of time, e.g., 30 days.  Our client knew that this was going to be impossible in the current circumstances.

MyCFO’s work:

The client came to MyCFO seeking a solution to their dilemma.  Our work included:

• Installed an effective forecasting system
• Determined cash requirements
• Set up efficient accounts payable processing
• Expedited accounts receivable turnover
• Trained accounting department on new systems
• Revised bank reporting processes
• Interacted with bank regarding covenants and renewal

Key Benefits:

As a result of MyCFO’s work, the company had a vastly improved cash management system.  The line of credit began to function as intended, as a revolving line that ebbed and flowed with cash flow needs.  Of course, this helped with bank relations; the bank has indicated that after some periods of consistent performance under the revised system, they will evaluate a potential increase in the lending limit.  Interest expense was also substantially better due to the lower average balance.

Need help?

If this is the day-to-day support level that you need, contact us today!  Download our one-sheet brochure here.

Through our “Day-to-Day Management” service, MyCFO can handle every element of financial management, from meeting payroll to designing financial strategies to grow your company.  Our expertise can be a key difference in fueling the growth of your company!

Recent Engagement examples:

In this engagement, a number of financial issues (i.e., incorrect revenue recognition, job costing, bad financial data, out-of-control overhead, etc.) had caused the company to find itself in a deep hole, heading towards bankruptcy – and the owner would also lose his house, which was bank collateral.

MyCFO was brought in to turn around the company and set it on a long-term course to profitability and success.

Our client, a construction contractor, had purchased a business which he subsequently found the previous owners had provided dubious sales and other financial data.  The company’s financial staff used different systems internally, thus producing inconsistent and inaccurate financial data.

Expenses were far beyond industry norms in certain categories, especially on overhead.  On the sales side, deposits for jobs were recognized as revenue, and eventually used to fund other customers’ projects; bother were severe errors that exacerbated problems.  It didn’t take long before a cash flow crisis arose and become increasingly severe.

Further, the prior company had a somewhat poor reputation, which required significant rebranding and related marketing expenditures.

A major issue was debt management.  The owner had taken out two loans, including a term loan to buy the business and a working capital line of credit.  Both were in violation of the loan agreements’ covenants and conditions.  The owner was on the verge of losing his house, which was provided as collateral with his continuing guaranty on the loans.

Further, due to the cash flow crisis, the owner had maxed out his American Express card.  The company’s largest vendor was also demanding payment on accounts payable that were far in arrears.

At the rate the business was going, it wouldn’t have been long until full collapse.

MyCFO’s work:

A critical item at the onset was bank negotiations, allowing for relaxed terms until the company got back on its feet, so that the working capital line could remain in place.

In addition, MyCFO negotiated acceptable payment terms with vendors, especially the largest, which allowed continued product procurement.

Detailed job costing systems were established.  This is a method of calculating the actual costs and revenues by “job,” allowing for profitability projections and reporting per job.

Expense controls were established.  To help our client manage them more effectively, MyCFO set up a “financial dashboard” which is a management tool that helps to track and analyze “key performance indicators (KPIs) to monitor financial health.  This allowed the client to track expenses, sales and profit, then make appropriate financial decisions.

Another investor was brought in to raise cash for working capital needs.  MyCFO negotiated terms and worked with an attorney to make certain the buy-in agreement was appropriate.

Results:

This engagement spanned about two and one-half years.  The first nine months were spent identifying and then resolving the key near-term issues, helping to keep the company afloat.  The next phase was building staff and systems for long-term success.  The last phase was transitioning MyCFO’s management to the company’s internal management and staff, so that the company could safely provide for itself over a prosperous future.

Need help?

Clients who engage us for “Day-to-Day Management” often find that MyCFO is the missing puzzle piece to their financial success.  To learn more about how MyCFO can help your business, contact us today!