While it is obvious that every business owner looks to avoid failure, the focus should be what steps do you intend to take to properly avoid failure during this financial crisis and those critical years beyond? This is another important aspect when trying to obtain financing. Here are 10 of the most important steps you need to take

1.    Get to know the most common reasons that businesses succumb to financial failure, so you can spot and fix problems before it is too late. You should be able to convey this to your potential lenders clearly.

2.    Thoroughly research all of the expenses and operational costs that you will run into. Always overestimate your costs, as opposed to underestimate. However, if presenting these fiure to a potential lender, not too much or the lender may think you are trying to obtain funs you don’t really need. The other side to that coin is that a typical lender will offer LESS than what you request. Either way your numbers have to be fairly realistic for you to run your business successfully and you must be able to show this to your lender.

3.    Know the difference between profit and cash flow. Just because you make a sale and bring in some money does not mean you automatically have earned a profit.

4.    Do not rely on loans or overload with debt. A healthy business will have a good balance of equity and debt. Work within the budget you have until your profits pick up, allowing for other expenses.

5.    Before taking on debt, make sure you completely understand the expectations of your financiers. Do not enter into any agreement that you are not completely sure you can honor, because ruining the reputation of your company in the financial community could be the kiss of death to a growing business.

6.    Make sure that your employees are well managed so everyone is pulling their own weight and doing their job. Overpaying employees who contribute nothing or continually mess things up can lead to the downfall of the company. Implement operating procedures and ENFORCE THEM. This is particularly important to a potential lender. A lender needs to know that you are IN CONTROL of your company, especially if they are going to base part of their decision to lend on your ability to run the rganization.

7.    Do not put a lot of money into new products or ideas until you have adequately researched your market to ensure there is a demand for it. If a portion of your funding request is based on new products or services, make sure that you have done the research and provide the lender with the backup you based your decision on.

8.    Determine the SWOT (strengths, weakness, opportunities, threats) for your business. Aim to resolve any weaknesses and avoid threats now and those predicted to arise in the future. Detail the strengths and opportunities in your business plan, but be prepared to respond to any questions relating to weaknesses that may be noticeable to the

lenders.

9.    Have detailed plans for success, instead of merely aiming not to fail. The more realistic you are with your outlook for the company and the more detailed your plans, the more likely you are to notice signs of financial troubles to come. Many businesses that fail do so without seeing signs that were obvious to others. This is something the underwriters will do anyway, however, if you take the time to prepare a detailed plan, go over it with the underwriters, this will be an opportunity for you to head off a

possible obstacle. Many underwriters will just deny funding if they feel you don’t believe a problem could exist and do not have a plan if one does arise. Underwriters, in this time of financial crisis will err on the side of caution. You need to make them feel comfortable that you have IN PLACE, a contingency plan.

10.    Perhaps the biggest key is to properly monitor expenditures and stock. Know on what every penny is being spent and verify that it is essential, cutting out as necessary. Ensure that every item you stock is worth the space it takes, and every item is accounted for. Now is not the time for loose monitoring or spending on luxuries. It’s time to ensure that your expenses are covered.

Tags: mortgage, loans