One of the worst mistakes you can make is to ask for more money than you can afford to repay. There are two sides to the equation. One is getting the money and one is actually paying it back. You need to make a careful assessment of what your cash flow is and determine how much money you can pay back based on your current cash flow and not some cash flow that you might be able to achieve in the future.

Business is full of ups and downs. When something does adversely affect your business, you need to make an important assessment: Is this a permanent situation or is it temporary? I have seen too many people make an improper assessment that caused them to get deeper in debt because of an assessment that said, "Oh, this is only temporary; it's going to be better next week, next month, next quarter." And then it never got better.

Don't be afraid to be the bearer of bad news to your lender. Go to your advisors and ask them to help you devise a plan to make things better. As you get down the road and you get deeper and deeper into debt in a situation that you thought was temporary and became permanent, the penalties can get tougher and tougher as you go along. Just be cautious in identifying how much you can afford, and when things do change, make the proper assessment and put a plan into action.

Maureen Costello, Wholesale Distributor    

We welcome your questions to be answered in this Newsletter feature! Here is our Q and A for this edition:

Question:
 
How do you prepare financials for a business that doesn't exist yet? Is everything based on estimates? Should I look at a similar businesses financials?

Answer:

You are correct; you can prepare a financial statement based on what your realistic expectations are for the future. This is called a pro forma statement. You are also correct in being guided by financial statements from already existing businesses. You should also prepare a cash flow projection to forecast future liquidity. (See session 8 Accounting and Cash Flow)