Would you rather watch the interview? Click here.

Clayton Achen (00:02):

Today we’re going to talk about something that plagues a lot of business owners. Why can’t they get financing and maybe why you’re never going to get financing unless maybe you change a few things and give you some helpful pointers and tips to go to some lenders with so that you can get some external capital to fund the growth and success of your business.

(00:58):

Today. I’ve got Toby Cowx on the line. I’ve known Toby for quite a while and really respect him in the field. He is an expert at securing debt and equity or just debt, Toby. Debt and equity. Yep. Yeah, right on. So why don’t you just take a minute and introduce yourselves, talk or introduce yourself. Talk a little bit about your history in the industry and how you came into owning a business, the three minute version.

Toby Cowx (01:24):

Sure. Yeah. I mean, I was a lifetime banker, I guess you’d say over 20 years in commercial finance with several Canadian banks and a US bank for a while as well. To be honest, I was always looking for the Shangrila of banks to provide my clients the best options and services, and I certainly have some strong thoughts on who does what the best in Canada as far as banking goes, commercial banking, business banking, but also each of them had their own niches and or specialties that they excel at and other banks.

Clayton Achen (02:00):

So from that perspective, finding the Shangrila is pretty much impossible, but understanding it gave me a good grasp and understanding of what each individual bank does well and what things affect their appetite, whether it’s in a geography, in an industry, or even in a point in time. So that experience across different Canadian banks in the US Bank allowed me to really come together and have an idea on starting my own business so that I could help clients navigate those waters and go to the right bank for their individual situation or whether or not a bank is the right solution and we need to look at other options. Right on. We’re going to talk about those other options as we get deeper into this, into this. So just in line with the topic, sorry to bring it back here. So what you do is you find financing for private companies in a nutshell, right?

Toby Cowx (02:59):

Yeah, in a nutshell. Yeah, a hundred percent. Right on. So we bump up against this all the time. We have clients coming to us all the time saying, Hey, I need to get my financials cleaned up so that I can get a bank loan, or I need to get my taxes filed so I can get a bank loan. So maybe could you talk a little bit about some common pitfalls of debt financing for small businesses? Yeah, I mean, you kind of addressed them almost in your question in that not having current and up-to-date and accurate financial information doesn’t allow a financial institution to, and let’s be clear, a bank is typically looking for your trailing financial statements. So trailing 12 last two years, history of changes over the last three or four years. Are you trending in the right direction? Having that accurate financial information is one hurdle that if you are a business owner and you’re not good at tracking or not good at filing on time, that that’ll cause a hurdle for you in obtaining bank financing for sure.

Clayton Achen (03:59):

Yeah, and even when you have it, I’ve seen particularly, we were very involved with the brewing industry here in Alberta for quite a while, and there was a ton of capital available for it for a time, and then it just seemed to dry up. So bank’s appetites change. Why does that happen? Yeah, saturation is one. If you see an industry saturation, so when something’s new and it has a lot of traction and potential, then there’s a lot of investors, which would include the banks that are willing to come in and provide debt or equity to get you up and running. But as there’s a saturation in that market and it seems to become overloaded with competitors and then you start to see some that are failing, then obviously the appetite from the banks will start to shift. And so again, having a really strong understanding of the underlying financials and what’s driving your success and how you can reassure a bank that your path is a strategic one that’s going to lead to the success of your organization versus maybe the industry norms, then that’ll help you again to achieve what you want to from a financing standpoint.

(05:17):

You just triggered me to think about a business plan and in our 3to5 Club, we talk about the difference between a two-page strategic plan, which is very operational, and what are the goals for the next three months, six months and 12 months in terms of alignment with the organization’s goals and the mission. You talked about trailing financials, and so I have trouble connecting the dots between when I go and apply for a loan at any number of places, and I’ve only done this a few times, they want my old financial history. And it’s like, well, I mean I’ve prepared my financials however I want to because it says that right on the face of the financial statements. This is all management stuff and it doesn’t adhere to any accounting principles in particular. And good luck with these statements and use, be careful what you use ’em for.

(06:11):

And how does that connect to, I’m talking to a banker on the front lines who maybe has very little experience in lending and they’re just told to go out and sell a product and here they have my financial statements in front of them, and there’s just so much context that’s missing there, and it seems like no matter what I tell this person about how great my plans are and everything, it often ends up in a dead end and maybe they don’t even know what they’re doing. So how do we connect those dots to just create back to the business plan? How do we connect those dots to make a nice polished package or put our best foot forward Anyways? I find it all very confusing.

Toby Cowx (06:51):

Yeah, you again, identify several things there, but I mean when you’re talking about historical financials, this is a lot of what I do in helping companies when they’re going to attract banks to be partners with them.

(07:05):

Maybe their existing bank is exiting for some reason, or maybe they’re just not happy with their existing bank and they’re looking for a new bank, understanding what the bank’s looking for. And if you have statements that weren’t built specifically aligned with attracting debt, then you might not be showing them the proper look. And so that then can go back into, okay, we’ve mitigated taxes by doing shareholder withdrawals or getting as much money out of the company as possible or writing off certain expenses that were one time or unique in nature that aren’t repetitive. Then we can go in and we can actually establish what can we add as backs and what can we show to demonstrate you have more profitability than was demonstrated on the financial statement you provided. So we can go back historically and make you look better, not make you look better, more accurately describe why you are stronger than what those statements show.

(07:59):

And then we also then lean support to what you’re saying you’re projecting in the future. So if you’re projecting this profitability in the future that wasn’t demonstrated in the past, well, we can tie those two in to show a seamless mindset on how to adopt and how to accept the information being presented in the projections. Then that link will help them to see where you think you’re going and understand that and also accept it as close to fact or very close to fact. Interesting.

Clayton Achen (08:29):

So almost I think what I hear you saying, and I’m just trying to marry this back to my client’s experience when they’re going to get debt, is when you’re talking to your bank for a bank loan, maybe it isn’t a good idea just to fire off last year’s financial statements because it just leaves so much room to interpretation as to what the facts are.

(08:52):

And if somebody’s just selling a product and ticking a box to sell a product, and by the way, nine times out of 10 they’ll say, yeah, we’re good. We’re good to go. But then when the rubber hits the road, we hit a wall and it almost seems like it’s a lot of front end bankers jobs to say, yeah, they’re just fine. Yeah, just go ahead and do that and let’s get dancing, right. And if we’d have just come to somebody like you in the first place and gotten a package together, that’s a little more showy to, it’s like I think about it when I’m going sell my car, I’m going to go wash the car before I sell the car. Maybe I’ll get it polished and clean out the mats. It doesn’t change the quality of the car, but it certainly presents better.

Toby Cowx (09:39):

And it shows a level of sophistication, I guess you might want to say, if you have the foresight to look at the financial performance of your business in the past and self-analyze or through a partner, analyze what risks those financials seem to present. And if you come forward with a plan that demonstrates your knowledge of those and how you mitigated those yourself without the bank having to ask the questions, then one, you’re making their job easier. But two, by self-identifying the risks, the first level of banker you get, that’s just trying to attract the business also now without having to have the skills himself to identify that sees the risks and then can make his presentation to his risk department possibly through the analysis, you’ve provided them much easier in that presentation. Whereas if he submits it to his risk department, this all now is dependent on the quality of manager you have upfront you’re dealing with.

(10:39):

And that can vary very greatly from even within the same institution. And there’s often changes in those positions. So if you can self-analyze and provide that package upfront, then the risk department also is going to see your ability to demonstrate your awareness of the risks in your industry and your business and have mitigated those. It’s going to go a lot more seamless and anything your first impression is the strongest impression. So if you go in and you make a positive impression right away, often a bank is going to look at the historicals and your projections to base a lot of the tick the box type of information you need, but its confidence in the management and where the management is going that will give you the interest rate, the terms and conditions, the risk adjudication strategy from security that they want to register, etc.

Clayton Achen (11:32):

So very important in that perspective to show that you are identifying and mitigating the risks yourself. And the bank isn’t telling you about risks you’re not even aware of. It seems like a lot of front-end prep work to get this ready to go and present to a lender or a number of lenders. You say that the average private company or small business owner is equipped to do this work while they’re operating their business. It sounds really complicated. Yeah, I think so.

Toby Cowx (12:03):

I mean, the straight answer is most business owners are relatively intelligent people and have the ability to do this work, but do they have the time? And the answer to that is typically, this isn’t the best use of their time to sit there and something that you’re only going to do once a year or very infrequently versus someone who’s doing a day in and day out and is also aware of the current trends in the market that can help you to better put that package together and leave your use of time in driving the direction of the company.

Clayton Achen (12:35):

Right on. And I’ve often found in terms of timing, we say that the best time to get a loan is when you don’t need it. You have any insight on that? Yeah, I mean that’s a laughable, but also true. If you don’t need financing, the banks are lined up to give you financing, and that’s because you have a strong company, you’ve got strong cashflow, you’re not over leveraged. So all of your financials are together, your financials are together, businesses running well. So from that perception, you’re at your lowest risk point from a financial institution to deal with you. So it’s true, and I mean you also want to take advantage of those opportunities when you’re in that position. You may not always be to access credit, even if you don’t need strong utilization of that credit, but access what credit you can. Who knows when a downturn in your business is going to come a medical emergency with a key staff member that impacts the business geopolitical things that are going on in the world that impact your business that you couldn’t foresee, or even just an acquisition opportunity.

(13:48):

You see an opportunity with a competitor, you have the ability to acquire them, you already have pre-approved credit facilities. It’s an easy decision to make, and you can quantify that from an analytical standpoint, looking at financials and the debt you’ll take on knowing you have that debt available to you and make a decision quickly. Yeah, yeah. Let’s talk a bit about navigating the loan application and approval process. What does that typically look like? I’ve been through it a few times, but that’s only my lens, and I’m constantly asking.

(14:18):

I’ve got clients constantly asking me to provide financial information, information, whether it’s a compilation or a review or whatever. So I only see a very sort of small snippet of it. Can you run us through that process from loan application approval and all that?

Toby Cowx (14:36):

Yeah, I mean, it sounds like you get this piece of paper you fill out and submit and away you go. And for some small business loans that could be the case or equipment finance, that might be the case. But for the rest, really it’s a financial package that you’re preparing. And then for lack of, maybe the best way to describe it is a pitch deck. Why is this the right investment for the bank to make? Why do they want to give you capital? If they give you this capital, what are you going to do with this capital? What you do with that capital? How is that going to drive the business further towards its goals and what does that mean for the business in the long run? So I think historical financials are always required. A personal net worth statement that demonstrates what that demonstrates to the bank is your ability to lean on your personal resources to inject some capital if there is a downturn, and you’re not going to fail in your payments to the bank and or need more money than the bank is comfortable giving you.

(15:38):

And then what you’re projecting and where you’re going, especially if you’re looking to acquire more debt than you have today, where you going, what direction? So those are all important features of a package you would want to put together to present to a bank. And when I say present to a bank, I mean I always advise, let’s present to three or four banks and see what they come back with. Even if you have no intention of leaving your bank today, you can be aware of what’s going on in the market and if you are getting the best rates and fees and services that are out there.

Clayton Achen (16:07):

Yeah, total cost to capital is really important. I love it. My business partner George, got offered, he just bought a Jeep last year, and of course now It’s worth more than he paid for it. And they’re offering him a new Jeep at 0% financing. Excuse me. And of course, the natural follow-up question is, okay, well what’s the cash price? And you go, oh, it’s $4,000 lower than the financing price. So that’s not really 0% is it? So there’s a bunch of the interest rate’s, one piece of it, but there’s a lot of other things that you need to consider when you’re applying for debt too, right?

Toby Cowx (16:46):

Yeah, for sure. And with a bank, it can be upfront fees, it can be your end renewal fees, it can be monthly transactional fees, it can be monthly, standby fees on debt, all kinds of different things that can impact your cost of borrowing. So I’ve got my loan application and we’ve made a nice package. What happens next? And by the way, this is mostly happening with my frontline.

(17:08):

Let’s call ’em a frontline banker. That’s where they put the youngest and greenest people on those front, which is really interesting. That’s maybe a topic for another podcast. But you’ve got somebody who’s probably pretty junior, pretty green, and they’ve received your package now. Yeah, now it’s roll the dice and wait and see how that first-level person comes back because it could be in a totally unexpected way than you imagined. We see it quite frequently where even demand, that’s the thing about bank loans these days is they’re all demand loans too. So they can demand any time without any reason. They don’t need a reason. They can just demand on your loan. So if you get someone who doesn’t, let’s say you just send in your financials, your end, you send in your financials, you haven’t repositioned anything, you’ve just sent the financials what they asked, or maybe you’re looking for a new bank and they asked you to send three years financials.

(18:10):

So you sent over the three years financials. You didn’t predicate that with any information or guidance on add-backs or any other contingencies in those financials that paint the picture slightly different. You’re kind of letting them read those financials. You can almost call it braille, right? They’re going to read it and if they miss a bump, don’t see it, then they’re not going to get the whole picture. And you could get a decline upfront that maybe if somebody more senior or in the risk department had reviewed those would come up with questions that would be clarification questions that would allow them to proceed. So yeah, you do want to make sure you predicate what you’re putting in as much as possible with explanations and details so that you aren’t dismissed easily.

Clayton Achen (18:57):

So it’s interesting what you’ve said. It sort of seems like that frontline green person can, I’m not sure that they in all cases have the power to make approvals, but I’ve always sort of pictured it as this Wizard of Oz thing where what was the big villain that was the little dude sitting behind the giant thing in the back room there.

(19:20):

Anyways, it is like there’s this underwriting department in the backend that you’ll never get to talk to, that you’ll never get to talk to, and you’ll never be able to provide real context to. You’re dealing with this front end person. Am I wrong on that?

Toby Cowx (19:36):

Depending on the institution and the level of banker you’re dealing with, if you’re dealing with business banking at the branch level, that’s probably more true than if you’re dealing with a commercial banker as part of a commercial team. Often when I was in banking, we would do the initial review and initial information gathering, but then if we thought there was a really good story, instead of myself relaying it, what happens when you whisper in somebody’s ear and go around a room? By the time you get to the other side? It’s a totally different story. So often we would invite our risk department in to have a direct conversation with the client so they’d get it right from the horse’s mouth per se.

(20:16):

And that did help eliminate any degradation of information or mistakes or errors from happening. So there’s a lot of strategy to this. When you’re going to apply for a debt, there’s a lot of strategy and knowing your way through the structure and who you’re going to be talking to, and it sounds like this is a lot of salesmanship too, right? You’re going to the bank with a package, you want to make it through that first person if you’re dealing with at the branch level. But in commercial banking, if you’re able to tell a story well enough, maybe you’re able to move past that to the people who actually decisions, which is almost never the person who you’re first talking to and your goal really,

Clayton Achen (20:52):

I mean, it’s Dragons Den, right? You’re in front of the dragons here, so what kind of foot are you going to put forward to get that loan arranged, right?

Toby Cowx (20:59):

Yeah. And like I said earlier, I mean it really comes down to the financials. Paint the picture, pick the boxes, but if you need any exceptions or clarifications on those boxes where you didn’t quite fit inside the lines, that’s where their reliance and respect for the management is going to come in. And it’s hard to quantify how valuable that is, but the better picture you can paint of yourself, and when I say paint of yourself, the more partners that you have that are strategic advisors to your business that you rely on that are not you yourself, the more value and the more leniency that a risk department’s going to grant to that ownership group.

Clayton Achen (21:40):

Yeah, interesting. And so this would be part of, if I signed up with you to go and get some financing, you would navigate me through this, right? And you’ve got a good idea of how the banks are structured, and you’ve said regionally and across different businesses, right?

Toby Cowx (21:57):

Yeah, a hundred percent. I mean, my job is to go to market and understand whether it’s the banks, whether it’s a new FinTech, whether it’s private equity or private lending, what are the options in the markets? I was in Mexico City earlier this year meeting with a FinTech that has financed some companies in Alberta lower interest than private debt is and with no security. So there are those unique partners, and I want to be aware of what those all are, where I do myself understand my limitations and where I lack the direct experience is on the accounting side. So I will partner with the accountants that are with those clients and ask them for analytical information at times or help them to present the story, prepare the story with me. And so it’s most usually a package of professional assistance that ultimately will give a bank the comfort to give you the facilities you want and the terms and rates that you wish to achieve.

Clayton Achen (23:00):

This stuff sounds really expensive. Is this accessible for a construction company doing eight to 10 million a year, or do we have to be in the hundreds of millions of dollars to get at you?

Toby Cowx (23:11):

No, I mean, great question. Every different scenario is going to have its different challenges and amount of time that need to be invested in order to accomplish what the client wants. And I operate on several different, I guess, monetization models, and I try to make sure that I’m always adding more value to the client than I am as a cost. So I’ll often look at which one makes the most sense for the client and then offer them different options on payment. And sometimes that’s success fees, especially if they’re looking to change financial institutions and they’re maybe coming from workout at a bank where a bank may not be the right partner and it needs a lot of finessing to get them the capital they need.

(24:02):

That might be success fee based, other could be an hourly based conversation and just some advice that’s given. So it really goes from a $500 bill to a success fee based bill. Yeah, yeah. Let’s talk about debt financing versus equity financing.

Clayton Achen (24:22):

How do you choose the right one? I was just involved with a brewery and they had a ton of shareholder loans and a ton of debt on their balance sheet that we just converted to equity because it’s going to make it a lot more attractive to the next tranche of investors that they want to bring in. They don’t want to see a debt-heavy balance sheet.

(24:42):

I kind of get that as an investor, I understand that a lot of equity is sort of akin to debt in a way, maybe without fixed terms, maybe with fixed terms. What’s the difference between debt and equity financing and which should I consider?

Toby Cowx (24:55):

Yeah, it’s going to be individual and strategic, as you just mentioned. If you know you’re going to need to raise more capital, the balance sheet of debt can be attractive, but if deloading the balance sheet means you’ve given up more equity and now you have less equity you could give to an investor, then maybe that’s not the right solution. So it’s really dependent. My first train of thought always is, can I achieve this with debt? Because you’re not giving up equity or ownership of the company. I know there’s different classes of shares, so it doesn’t always need to be control of a company, but nevertheless, you’re allowing someone, a portion of your profits into perpetuity with shares versus time limited expenses in debt.

(25:40):

So can I achieve what we want to achieve through debt? And if there’s any way to do that, that’s typically the right path forward. That being said, and I say that regardless of cost of the debt, really.

Clayton Achen (25:58):

Yeah, that might sound strange, but I mean, again, you just do an ROI model, what’s my return on investment? And if I can borrow at 15% interest a million dollars and I’m going to make a 30% return on that million dollars, then I still have a 15% margin on it.

Toby Cowx (26:13):

So was the debt expensive? Yes. If I can get it for you cheaper, would I? Yes. But if you’re not going to do the deal unless you get the million bucks, well you’re missing out on 15% profit that you would’ve got even with the 15% debt.

Clayton Achen (26:26):

So from that, that’s a very simplistic answer. But yeah, if equity can be the right choice, even if debt is an option, if it’s a strategic investor that can escalate you towards profitability and through a related business line that gives you access to a new client base that they already have, then equity can be the right partner.

Toby Cowx (26:46):

So if it’s strategic equity partner, then that could be better than a debt solution. Other than that, equity is typically someone who comes in if it’s private equity or just an equity investor that’s silent, they’re coming into deleverage your balance sheet and give you liquidity to go after new markets or pursue a business model that you have that you’ve convinced in an investor that will get traction and will produce results. And again, you get a good R o I for that equity that you give up.

Clayton Achen (27:20):

Yeah, it’s interesting because looking at even just buying this condo that I’m sitting in right now with Achen Henderson, how much do we borrow here? How much do we lever up? And we kind of made, I think, made a good call. We’ll see, but if we look at it, we were able to lock in at some reasonable lending rates.

(27:42):

And by the way, I still think that our baseline rates are extremely reasonable comparatively speaking over the last 20, 30 years. I mean, 5% is not a lot of interest for five and a half or six or whatever. You’re going to qualify for CRAs at nine, by the way. I didn’t know if you knew that, but if you got an overdue tax balance, they’re lending money effectively when you don’t pay your tax bill at 9%. So you go six, 7% at your bank or remortgaging your house or whatever. And if you look at the inflation that we’re going through, super interesting, you just go, okay, presumably the capital costs or the capital fair value of my property is just increasing just with inflation here and the value of your debt is actually decreasing because the money that you need to use to pay off that debt is worth less, right? Am I wrong in that thinking?

Toby Cowx (28:29):

No, I think, yeah, a hundred percent that’s right. And especially in a business is if you had the ability, let’s say you’re buying a new asset. Let’s say you’re buying a new building to move into, like Achen Henderson did. If you didn’t liquidate yourself and say you had the option of putting 500,000 down versus putting a hundred thousand down, so there’s a $400,000 swing there, you have a bigger mortgage, you’re paying a little bit higher interest rate, your monthly payments cost of supporting that debt are a little bit higher, you may feel that it’s best off to pay 500,000 down and limit your monthly expenses. And that’s seems on the surface to be just as a straight up decision to make. But if you’re in business and you can deploy that capital and that’s $400,000, that would help you escalate your business in a new market or a new product offering or who knows.

(29:25):

But if you can deploy that capital and get a 15% or a 18% or a 25% ROI on that money, and instead of doing that, you’re using it to pay down debt that you’re going to have at 5 or 6%, then all of a sudden you got to go, okay, well maybe I need to lever myself higher on that even though it’s going to be more monthly cost, that 400,000 that I saved, I’m going to redeploy that and make 20% interest. So the choice seems pretty simple at that point, right?

Clayton Achen (29:51):

I agree with you, but my grandma used to always tell me that I should just do everything in cash and never have any debt, and I really love my grandma. She was a great lady. And that’s the lessons that I feel like in our market, I don’t know if it’s an Alberta anomaly or what, but there’s this strange perception I think in a lot of circles that I’ve been part of where debt is this really bad scary thing and you got to pay off that mortgage.

Toby Cowx (30:17):

And I agree, personal debt maybe is not such a great idea where you can avoid it, you can’t write it off, and you can’t redeploy unless you’re going to redeploy your personal assets in building a business and earning ROI on it. I think that those are the analysis that need to happen. And maybe grandma was wrong, I’m not sure. Right? Yeah. I mean it’s a different discussion when it comes to personal debt versus business debt and whether or not it’s a write off, etc. If you’re going to leverage your house and buy an investment property or something, then that might make sense. But if you’re just going to extend your amortization and refinance at a higher interest rate because you want to buy a boat, that’s probably not the best decision, right?

Clayton Achen (30:58):

Yeah. Especially, but especially in Calgary. Where are you taking that boat in Calgary anyways?

Toby Cowx (31:02):

Yeah, jet boat up the river. Yeah, that’s right. But yeah, I buy in a business, it’s a whole different discussion. It’s really a what value can you get out of that liquidity? And so if you can redeploy that and you’re going to get an ROI on it higher than the cost of borrowing, then it makes sense to do it. What’s sort of funny is I’ve talked to businesses at all levels.

Clayton Achen (31:24):

I’ve known business owners who make a million dollars a year, and this is us for, I didn’t make a million dollars, but we went and bought some things. We went and bought paid down payment on a condo and we bought a little business last year to supplement our bookkeeping business and your tax bill comes due, and it’s based on all the money that you earned, but you only have what you earned minus the investments that you made, but you owe tax on the whole thing. You go, holy shoot, there’s a mismatch there. And that mismatch, you can take the sting and you can adjust your lifestyle and take less money out of your company and effectively self-finance the growth because the things that we bought here were for the business and for earning ROI, the condo is to have a place to call home and have people come in and there’s a mathematical ROI there and there’s some other ROI there, the bookkeeping business that we purchased. There’s an absolute ROI there, or at least you’re hoping that there is when you go out and buy this stuff. But how are you going to finance that? And you go, okay, well, I’ve got a line of credit here because I applied for debt at the correct time, which is when we did not need it. And we can use our ROI here and see that I’m still going to take out my income that I earned this year as an owner, right?

(32:45):

And this tax bill is going to sting a little bit less because I’m going to have the income to pay it or I can sell finance. And so I think that it gets to be a complicated conversation once you start factoring in this idea of self-finance, because people don’t think of it that way. They just go, okay, there’s this much cash left in the bank and therefore I must use it to do this. Where maybe that’s not quite the case. If you had arranged a facility in time, you could be using a facility and paying a small interest rate to finance the growth rather than doing it on your own. Do you have any thoughts on that? Am I, yeah, you wondered a bit there as far as there was a lot there to unpack and answer, but thanks. Yeah, no, please try and unpack it and answer it. I’ll shut up now for a minute.

Toby Cowx (33:33):

Yeah, I think we’re talking the same language from different perspectives maybe, but self-financing versus taking on debt. If you have the debt available, use your liquid capital instead of maybe, I think this is where you’re going, but you might be thinking, okay, I got to sit on a hundred grand because I don’t know what my tax bill’s going to be, but you have a facility approved for 500 grand that you’re not utilizing and you have an opportunity right now where you can deploy that a hundred grand, make it simple. You buy a hundred grand worth of inventory and you’ve got a client that wants to buy it and you’re going to upsell it at 25% margin while you could turn that into $125,000 or et cetera.

Clayton Achen (34:11):

Yeah, $125,000, but you may not get it back in time to pay the tax bill. Well, okay, if you deploy that capital, make that 25% margin and if you need to pull off the line, pay your taxes, and then when the profits come back in and that principal return, you can pay back down that facility until you need to draw it again. Yeah, I think you’ve nailed it. Our investments here are a longer term ROI, they’re going to be over several years, but the inventory is a great example. An inventory sale, you should be able to turn that around and worst case, maybe six months. And so I guess time horizons another consideration, how long should it be until you get ROI on that investment? But very interesting to say, don’t be afraid when you’re in a good position to look at some debt, structure your application properly, maybe reach out to a guy like Toby to put a good package together for you.

Toby Cowx (35:06):

That’s probably what I most commonly see is a client calling me up and going, I’ve got this acquisition opportunity, I didn’t prepare for it in advance, but I need the cash and can I leverage something? Can I get 2 million bucks tomorrow and how do we do this? And yeah, I pull a lot of those out of the hat, but maybe not tomorrow, but I pull a lot of those out of the hat. But the problem is it costs you a lot more than if you had prepared for that in advance. So I think you need to be aware of that. Also, I get clients who, I had a client just recently who called me and said, I’ve got a client this product, but I got to pay for the product and I don’t have the funds to pay for the product. I need a hundred thousand bucks.

(35:47):

Can you get me a hundred thousand bucks for one month and then I’ll repay the loan? And they had a huge margin on selling that product, but if they weren’t able to come up with the money to buy the materials they needed to produce the product, then they couldn’t sell it. So those again are lack of foresight in planning and lack of the proper facilities to have in advance. And when you’re in rapid growth, which we all kind of want rapid growth, but then you seem to be cash poor, so then you need to have the facilities available in advance if you want. We can still react last minute, but it costs you a lot more money.

Clayton Achen (36:21):

It’s super interesting when you talk about growth, and I think a few key takeaways here are get your financial house in order. And there’s a good number of podcasts, blogs that we’ve written on this over, it’s just one of the business fundamentals. You should just have your books up to date and then maybe that’s the first thing that you need to do is make sure that your financial house is in order, secure a good bookkeeper, get a good accountant on your team. And then would you say that the number two thing is get debt when you don’t need it? Is that your second best play aside from having your financial house in order?

Toby Cowx (36:58):

Yeah, think about that. Now, the only thing I’ll say about that is, I mean, that’s fine to say, but there’s a lot of companies that need capital now and didn’t plan for in advance. So I don’t want to discourage them and say, if you didn’t plan in advance, there’s nothing available to you. We can still help you and we’ll mitigate the cost and the expenses and all of that to the best to the degree that we can.

(37:21):

But yeah, I think if you can prepare in advance, that certainly is your best option and do that as far in advance as possible and when you don’t need it, access it.

Clayton Achen (37:30):

Yeah. Let’s wrap on this concept of growth for a minute, and then I’ll let you talk about a little bit more about what you do and then we’ll wrap it up. So we just went through a period of a pretty good growth and no cash, right? You kind really got to have some courage to dip into your a facility. So we did and it worked out fine, but that takes a lot of courage, doesn’t it? You got to have a lot of courage and you got to have a lot of faith in yourself that you’re actually going to pull this off. And that can be a bit scary, right? It’s a weight on the shoulders, so you want to have it well weighed out.

(38:04):

You want to engage your external partners and internal, if you’ve got CFO, if you’re at that level, you’re going to want to really mitigate any risks that you have and make sure that it’s the right choice. One thing I would say is that a lot of the instances where I’ve got called into in the last couple of years to help a company that couldn’t work it out with a bank or special loans and get them turned around and get them financeable again with a bank, a lot of the problems I’ve seen is in-house and it’s good to promote internally and we see a lot of that, but sometimes the people you promote internally don’t have the best qualifications for the positions that you are promoting them to. So having a strong external team to, whether it’s contract, CFO contract, CEO, you can pull the whole C-suite by contract now and you can vary whether it’s an hour invested the week with your team or once a month or one day a week.

Toby Cowx (39:06):

So you can really vary that greatly. But the big problems I’ve seen is when there’s been somebody who has been internal to the company and stolen from the company. And so that’s a risk that’s really hard to mitigate, but that can be often mitigated by external contract positions as well. Outside eyes, yeah, outside eyes and a real outside perspective on your business that’s looking at multiple businesses or has looked at and consulted multiple businesses can bring fresh new ideas as well that benefit the company as well as mitigate your risk of losses due to internal theft. Yeah, interesting. Internal theft maybe and or I guess just not big enough thinking or maybe competency too, right? Competency, yeah. Great to promote internally and I highly recommend that, but if you’re going to do that, build a support structure around them to really help them ultimately make sure that they’re going to be successful. Empower them to be successful.

Clayton Achen (40:13):

Yeah. Okay. So financial house in order, get that as early as you can. We can still help you if you’re late to the game and outside eyes. Is there anything else that you could offer as a tip to helping the finance situation as you’re going?

Toby Cowx (40:32):

Yeah, I would say be careful of your communication. So if you’re frustrated with your bank, if you’re frustrated with the institution you’re dealing with, don’t get emotional. Don’t fire off emails or communication. Apply. Read it three times over three hours before you send it. Kind of a rule of thumb. Yeah, yeah. Sleep on it. Ask someone else within the company to review it. I’ve seen instances recently where communication has been fired off on a whim with a lot of emotion and in retrospect would’ve been much better served if you had mitigated that and limited how you delivered your message.

Clayton Achen (41:14):

What’s your process and how do I work with you and where do I find you?

Toby Cowx (41:19):

Yeah, my process is just reach out. So I mean, Clay, you’ve got my email and phone number, and so you can reach out anytime. I mean, text message, I think we probably text as much as we do email or phone calls, so I’m pretty fluent that way. So happy to pass along those details if you want to share ’em for the podcast.

Clayton Achen (41:38):

Yeah, we’ll put ’em in the show notes for sure. So do you apply a fixed process or is it just we start talking and, you kind of see where we got to go based on your years of experience?

Toby Cowx (41:51):

Yeah, it’s always a discovery call for 20 minutes to 60 minutes and then I can give you a better idea of how potentially I can help and potentially what the costs are and then how we can work together.

Clayton Achen (42:03):

Fabulous. Alright. Any closing thoughts other than how wonderful we coordinated on our shirts today?

Toby Cowx (42:11):

No, no. Nice style.

Clayton Achen (42:13):

You’ve got a good wife who probably helps you make decisions like I do. It was Bay Days, bro. I was thinking of you this morning before the call.

(42:22):

Alright, so that’s Toby Cox and talking about why your business will never get financing and maybe a few tips on how you can make sure that it does. So thank you so much for joining us today.