"It had been the best of times, it was the worst of times, it was... ", well, you obtain the picture. In the last many months I've been consulting with two separate companies as an outsourced CFO. Both companies need bank financing to stabilize their operations and achieve growth, both companies have struggled through trying economic times, both companies know they need to invest in processes, procedures and personnel in order to grow and achieve desired returns because of their owners. I wish to share with you how those two companies have been working through the method of structuring bank loans, hiring personnel and purchasing internal systems in order to develop companies that may deliver desired shareholder returns. But first, some background information group of companies.

Company A has been in existence for over 4 years. The organization acquired the assets of a preexisting business and in the first 3 years grew the operations in excess of 15% per year. Coupled with a proper acquisition, Company A is currently almost twice how big the company it acquired.

Margins have been good and the business has been able to distribute cash to the master each year. With the rapid rise in the business the business was stretching its internal processes and personnel to the limit. Additionally, existing systems and equipment would have to be upgraded in order to support future growth.

In the middle of year 4 the storm clouds began forming for Company A. The organization needed seriously to hire additional personnel to control the growth it had experienced and to aid anticipated continued increases in revenue.

Unfortunately the rapid rise of the company meant that woefully stressed systems and personnel result in quality lapses which resulted in many large customers leaving for competitors. Additionally, two management team members left the business and started a competing business. They took other customers by offering cheaper costs for similar services. Hurried investments in capital equipment which were designed to lessen labor costs were being run inefficiently and had triggered large increases in supply expense. Company A was now losing money and needed to make changes quickly in order to right the ship. Additionally, the company's current bank debt would have to be refinanced in order to alleviate cash flow concerns.

Company B has been in existence for over 5 years. The organization was a start-up that the master could bootstrap to reach recurring revenue levels that allowed the business to reach profitability quickly. Cash flow was the focus and the business have been able to return cash to the master each year. The organization have been designed with the master overseeing all strategic initiatives and managing all activities of the company. As the business grew the operations of the company could no longer be effectively managed by a person person.

During year 5 who owns Company B realized that experienced personnel would have to be brought up to speed to effectively manage the business. Prior growth have been funded through customer advance payments and the business had no bank debt.

As recurring revenue was building it was time to really make the appropriate investments in personnel and systems in order to take the business to another location level. Personnel hiring could be critically managed and coincide with incoming cash in order to manage the brand new expenses on an income positive basis. New customer opportunities were growing and could be funded in part by bank debt along with customer advance payments. Company B was beginning showing profitable operations and needed to really make the right investments in order to manage growth.

Both companies needed assistance in order to manage through the difficult times these were experiencing. So which one would fair better in discussions with the lender given their circumstances?

Things were looking rather bleak for Company A. Various missteps triggered losing customers and allowing former management team members to take up a competing business. Personnel were hired too late to alleviate quality concerns and now there were too many employees to aid the present business. Capital equipment investments which were supposed to lessen labor costs had dramatically increased supply costs and further draining cash from the company. Current bank terms had put the business capable where the line of credit was continuing to improve because of the losses from operations. The organization needed seriously to refinance existing bank agreements in order to avert a situation that may cripple the business.

To be able to see how Company A managed through this difficult time, we have to check back once again to when the business was formed. During those times the brand new owner realized that there clearly was a distinctive opportunity to develop the company quickly on the basis of the business environment. This meant that it was imperative right from the start to truly have a core management team lead by a strong CEO. The CEO knew that it was important to produce strong banking relationships and put set up processes for managing the financial performance of the business. The new owner put cash in the business to fund a considerable percentage of the acquisition and the CEO negotiated the banking relationship. The bank provided term debt to simply help fund the transaction and a distinct credit to finance working capital needs.

Because the brand new owner put adequate cash in the business, the lender didn't require any personal guarantees related to the loans and financial covenants were set at reasonable levels. Company A was required to own annual audits as part of the lender financing but this was something the brand new owner and CEO viewed as essential for the company even when it wasn't a bank requirement.

When difficult times hit, Company A had a good background with the lender and had made substantial principal payments on the present term debt facilities. The CEO met periodically with the lender to explain what the business was going right on through and what management was doing to handle those issues, including bringing in an experienced CFO to assist in working through the tight liquidity situation. The CEO and CFO showed the lender that there were adequate assets in the business to refinance the present debt and line of credit in order to take back cash flow. Personnel levels were reduced primarily through attrition but through this technique the business was really in a position to upgrade the caliber of the overall workforce. The organization caused the maker of the brand new equipment to handle the conditions that had result in increased supply costs and could fix those issues over a few months.

Historical audits provided the lender with the comfort that Company A realized the significance of strong financial controls. The bank refinanced the present loan agreements and even agreed to offer financing for new equipment purchases the business needed seriously to make. No personal guarantees were required from the master and debt covenants were set at reasonable levels. With the assistance from the lender the business could manage by way of a time of tight liquidity.

Things were actually looking decent for Company B. The organization had managed to develop the company by being very frugal and only spending money when necessary. The organization was debt free because the master could get customers to make advance payments in order to fund necessary capital equipment expansion. The dog owner now just needed to bring on some experienced personnel to take the business to another location level. Some assistance from the lender in the proper execution of a distinct credit could be needed to make this happen, but this all was pretty doable from the standpoint of the owner.

Once again we must look back once again to when the business was formed to completely understand the overall situation. Company B was formed because the master had a distinctive opportunity to handle a certain customer need. The dog owner could negotiate a large deposit from the consumer and didn't have to secure bank financing group of companies.