Patrick Flynn

Thursday, 26 February 2004 08:34

Commercial real estate

Before you make a commitment to purchase real estate, you need to ask yourself, your broker and the owner some crucial questions to make sure you're finding the best property for your business.

Beyond the physical condition of the building, there are multitudes of intangibles that have to be taken into account when evaluating a commercial property for acquisition; things as simple as the current number of parking spots can impact the true property value.

Likewise, while a building today will meet your needs, will it still meet your needs five years from now?

Review documents and contracts

Review all documents concerning the building and its operation. This includes leases with any and all extensions and modifications, notes and mortgages, whether you are assuming them or not, title policy, certificate of occupancy, insurance policies, ADA compliance, elevator maintenance contracts, tax tickets and history, licenses (in some jurisdictions) and parking lot contracts.

Using the list generated in the purchase agreement, go over each item and assign the task for it to a member of the acquisition team, whether it's the lawyer, surveyor, building inspector, environmental firm or someone else. Make sure they are each contacted, given the timetable for the deal and then called upon to complete the task.

Be complete

While it may seem simple, it only takes one missing document to stall a closing. Each day a closing is stalled, the chances increase for some other element of the agreement to come unraveled. If you're not going to do access and review documents yourself, then be sure whomever you assign the task to follows through.

The insurance policy can be a good source of information, especially when you are considering an older building. Insurance inspectors can provide a copy of an existing risk assessment.

Ask the owner to request a copy from his or her insurance company for your review.

Dig deeper

Also get a claims history for the property. If an owner has switched insurance companies frequently, you will want to know the history of the claims. It is common for building owners to shop their insurance policies for competitive rates.

But at the very least, require an affidavit from the owner that says he attests to the truth of the claims represented as being complete to the extent of his knowledge.

Ask open-ended questions and seek out any resources available to you. The end result of a thorough due diligence process is that when the time comes to present your findings to other stakeholders, you will have the level of information and knowledge about the real estate opportunity that will lead to a sound, well-researched and documented decision. Dan Flynn is a commercial lender with The Grange Bank. He is located at the firm's South Front Street main location in Columbus. Reach him at (614) 449-5338 or via e-mail at flynnd@grangeinsurance.com.

Thursday, 11 December 2003 05:44

Lines of credit and cash flow 101

A working capital line of credit is a flexible lending instrument usually secured by the assets of your business.

Typically, working capital lines of credit are designed to meet the short-term cash flow needs of a business and are issued for a one-year term with annual review and renewal. Interest-only payments are required initially, with principal due at maturity.

For the small businessperson, the two main causes of cash flow shortfalls are financing inventory and accounts receivable. In today's business climate, it is unfortunate but true that the better the quality of your accounts receivable, the slower they are to pay, placing a strain on your cash flow because, in effect, you are now providing interest-free financing to your customer.

A true working capital line will have fluctuations in the balance on a daily or monthly basis. For example, one month you might purchase inventory requiring additional cash to fund and store the purchase. During the normal cycle of business, when this inventory has been sold and converted to cash, you would pay down on the line of credit.

Heavy borrowings under your working capital line can be traced directly to your business cycle.

One simple way to assist your cash flow is to match as closely as possible your accounts receivable and accounts payable. If your accounts payable give you 30 days to pay and you know it will take your accounts receivable 30 days to convert to cash, don't pay your accounts payable as soon as you receive them, causing a cash flow shortage.

Take advantage of the payment terms your creditor is providing and conserve your cash until you get paid from accounts owed to you.

Working capital lines of credit can be structured several different ways. An experienced relationship manager who understands your business cycle can structure your line based on your needs. Depending on the situation, a line of credit can be secured with other assets as well.

For a company that might need to purchase multiple vehicles during the year, an equipment line of credit, which would be termed over at maturity, might be in order. This type of line saves you from having to apply for each loan individually, write multiple checks for payment and carry several smaller loans on your books.

An equity line of credit secured by the equity in your commercial building is another option. This allows you to tap into the equity in your building to finance your company's working capital needs.

When discussing lines of credit, ask your banker lots of questions. A clear understanding of what your needs are can make a world of difference. And be open to suggestions from your banking partner as far as options for structuring a line of credit.

Here are several common structural items for lines of credit:

* Formula based. For growing companies, sometimes a larger line to grow into is appropriate.

Accomplish this by attaching a formula tied to the age of accounts receivable and inventory to the credit line and reporting this to the bank each month. For example, even though you have a $500,000 working capital line of credit, availability is subject to a calculation of 80 percent of accounts receivable less than 60 days old plus 50 percent of inventory equals availability under your line.

* Longer term. Despite the fact that most working capital lines of credit are on one-year terms, your bank can set the term for a longer period. However, it may want to place some meaningful financial performance covenants in place with annual increases to do so.

* Personal guaranty. As a small business owner, you will in all likelihood be asked to personally guaranty the loans to your business. By doing this, you are telling your bank that as its business partner, you will stand behind the business and conduct all business operations in a fiscally responsible manner. Dan Flynn is a commercial lender with The Grange Bank. He is located at the firm's South Front Street main location in Columbus. Reach him at (614) 449-5338 or via e-mail at flynnd@grangeinsurance.com.

Tuesday, 04 November 2003 06:58

Relationship banking

You may have heard the term relationship banking, but what does it really mean?

It means your bank is a business partner that is as interested in the success of your company as you are. Instead of seeing you as a one-time transaction in the traditional borrower and lender relationship, relationship banking builds a long-term partnership between you and your bank.

The quarterback of the bank team is the relationship manager. He or she acts as your liaison and as your adviser, creating continuity. The security of working with the same person builds a relationship based on trust, honesty, teamwork and friendship.

So how does this partnership benefit your business?

When relationship managers understand you and your business, they can be proactive in helping you manage your financial needs. They can suggest when to refinance a loan, when to consolidate debt or when to utilize an operating line of credit.

They can also give you advice on how to structure a loan when you are expanding. As your partner, your relationship manager will match business services to your needs without overselling unnecessary services.

It always comes back to putting the success of your business first. That means your relationship manager may even say, "No," if the request might be harmful to the success of your business. Or, he or she may offer an alternative solution you haven't considered.

Here are some steps to consider to get started on building a relationship with your bank.

Show you can manage your money

Introduce yourself to the local branch manager of the bank where you have your business account, if you haven't already done so. Be diligent in managing your corporate account responsibly, and avoid overdrafts at all costs.

Start small

Take out a small loan for a vehicle or a piece of equipment and pay it back as agreed. This establishes a credit history with the bank. Don't be late with payments on this or any loan.

Be upfront and honest

Always be honest with your bank representative, no matter how bad the news A well-informed relationship manager can act as your advocate within the organization. No one likes surprises. Honesty builds trust and confidence.

Educate your relationship manager

Invest the time to explain your business to your relationship manager. This is an investment that will pay dividends for years to come. Your relationship manager has the ability to help you network with other business owners, which could help you grow your business.

At its core, relationship banking isn't just about building a long-term relationship. It's also about protecting your business. Just as you would consult a lawyer for legal advice or an accountant for tax advice, you need a financial expert on your side to help champion your efforts to meet your business' short- and long-range goals.

Dan Flynn is a commercial lender with The Grange Bank. He is located in the firm's South Front Street main location in Columbus. Reach him at (614) 449-5338 or via email at flynnd@grangeinsurance.com

Monday, 22 September 2003 11:52

Small business, small bank

When you choose a bank, you are not just selecting where you have your checking accounts, you are selecting a partner that will have an impact on your business.

The relationship you have with your bank can affect how quickly and easily you receive loans and the kind of service you receive. Here are four questions to ask as you look at the banking options available to today's business owner.

1. Are you a big fish in a small pond or a small fish in a big pond? In general, the bigger the bank, the less personalized service a small business owner will receive. Relationships under certain dollar amounts are often given an 800 phone number to call for assistance. A smaller bank is more likely to look at you as a person, not just an account balance. Smaller banks often have a greater focus on building strong customer relationships.

2. Does the bank prove it wants your business through superior customer service? Small banks are often hungrier to get small business customers and are willing to work with you one-on-one to find solutions for your financial needs.

Larger banks place greater emphasis on new business development, sometimes to the detriment of their present customers. Again, if your balance isn't big enough, they are more likely to spend less time trying to meet your needs. Often the equation is bigger bank equals emphasis on bigger customers; smaller bank equals emphasis on smaller business customers. Choose the best fit for you.

3. Does the bank understand your business? Most smaller banks are small businesses themselves, giving them a unique understanding of the needs and challenges small business owners face. They typically hire more seasoned lenders with years of experience. Larger banks often start new loan officers on small business lending. As lenders gain experience, they move up to larger relationships.

This means that not only do small business owners work with lenders with minimal experience, they also have to deal with consistent turnover. It's hard to build a relationship with someone you work with for only a few months.

4. Can you get the loan you need quickly and easily? Small business owners don't have time for a cumbersome loan process. When you need a loan, you want it now with no hassles.

Because bigger banks have so much volume, they often rely on a credit scoring or a cookie-cutter approach to loan approval and structure. A smaller bank may be able to offer more flexibility and work with you to meet your particular needs. Smaller banks also tend to have a more streamlined loan process. The person you meet with is probably the person making the decision.

Plus, smaller banks are typically more technology driven, offering streamlined processes that allow timely responses to loan requests. A larger bank may have many layers for credit approval. The ultimate decision-maker might not even be located in the same city or state as the branch you're working with. Bigger banks may have a more negative perception of small businesses and make a business owner feel like they are doing him or her a favor by granting a loan.

As you evaluate your banking partner, keep in mind that all financial institutions are not alike. Look at your needs and find the partner who is willing to meet them. In today's banking environment, the customer does the bank a favor by selecting it as a partner. Dan Flynn is a commercial lender with The Grange Bank. He is located at the firm's South Front Street main location in Columbus. Reach him at (614) 449-5338 or flynnd@grangeinsurance.com.

Monday, 22 July 2002 09:34

Don't be a victim

How much of your employees' online time is work related? Ninety percent? Fifty percent? Do you even know?

Cyberslacking is an enormous problem for companies in Central Ohio and nationwide. Fully 90 percent of the nation's workers admit to recreational surfing on company time, accounting for nearly one-third of their online activity.

U.S. business is estimated to have lost $500 million in workplace productivity in 1999 when Congress released the Starr Report and President Clinton's video deposition online. Some 13.5 million workers slacked off and logged on to see what the president, Monica Lewinsky and Ken Starr had to say about the relationship between the commander-in-chief and the intern.

It's not just the Internet that's causing productivity problems. With 130 million U.S. workers sending 2.8 billion e-mail messages a day, it's no surprise that e-mail is a tremendous source of corporate waste.

Lockheed Martin's e-mail system crashed for six hours after an employee "spammed" 60,000 co-workers with a personal e-mail message, complete with a request for an electronic receipt. The defense contractor, which posts 40 million e-mails monthly, lost hundreds of thousands of dollars thanks to this employee's act of e-sabotage.

Your company may not post 480 million e-mails a year, but you no doubt have made a sizable investment in a computer system that is designed to enhance productivity and improve business communications. If your employees regularly make personal use of your computer assets, the return on your investment will be minimal at best.

Here are some tips for maximizing productivity, while protecting your company from spammers, cyberslackers and e-saboteurs.

1. Establish and enforce written policies about the use of e-mail, the Internet and corporate software. E-risks are as prevalent in the electronic office as e-mail is indispensable. In the age of e-communication and e-commerce, a written computer policy is the best way to protect yourself from inappropriate and wasteful use.

2. Install monitoring and filtering software. Don't leave e-risk management to chance. Software that flags key words, such as the names of competitors, products and trade secrets, as well as obscene or harassing language, will help keep you a step ahead of employees who are cyberslacking, spamming or engaged in e-sabotage.

3. Prohibit the use of the company system to send or forward electronic junk mail. Spamming is illegal in some states, such as California. A violation can result in a fine or possibly jail time.

4. If you receive a spam message, don't reply to the unsubscribe option. Your reply confirms your e-mail address, enabling the sender to reuse it or sell it to other spammers. The easiest, most effective method to battle this is to hit delete whenever you receive an unsolicited message or one with a subject line reading "money-making opportunity" or "get rich quick" or any other obvious come-on phrase.

5. Reduce the burden on your e-mail server and control your employees' online time by establishing guidelines to prohibit listserv participation. Consider outlawing listservs or restricting subscriptions to authorized, business-related listservs. Nancy Flynn (Nancy@epolicyinstitute.com) is managing director of the E-Policy Institute, based in Columbus, and author of "The E-Policy Handbook" and "Writing Effective E-Mail."

What you can do

For more tips on reducing your e-liability and protecting your corporate assets, visit www.ePolicyInstitute.com.

For a free copy of "Seven Secrets of Super-Effective -- and Safe -- Electronic Sales Letters," fax your request on company letterhead to 451-8726.

Tuesday, 04 November 2003 06:51

A real relationship

You may have heard the term "relationship banking," but what does it really mean?

To the true banking professional, it means your bank is a business partner that is as interested in the success of your business as you are. Instead of seeing you as a one-time transaction in the traditional borrower and lender relationship, a bank practicing relationship banking builds a long-term partnership.

With relationship banking, you can expect continuity of service and stability from your relationship manager. The association is built on honesty, teamwork and friendship between you and your banking partner -- but the most important thing is trust.

When relationship managers understand you and your business, they can be proactive in helping you manage your financial needs. They can suggest when to refinance a loan, when to consolidate debt and when to utilize an operating line of credit. They can also give you advice on how to structure a loan when you are expanding.

As your partner, your relationship manager will match business services to your needs without overselling unnecessary services.

It always comes back to putting the success of your business first. That means your relationship manager may say no if the request might be harmful to the success of your business. Or he or she may offer an alternative solution you might not have considered.

However, relationship banking isn't just about building a long-term relationship. It's also about protecting your business. Just as you would consult a lawyer for legal advice or an accountant for tax advice, you need a financial expert on your side who can offer suggestions which could have a positive impact on your business's bottom line.

In short, relationship banking brings trust, experience, an understanding of the needs of your business, continuity of service and a comfort level to your business. It is banking for the long-term, not just a one-time transaction. Dan Flynn is a commercial lender with The Grange Bank. He is at the firm's South Front Street main location in Columbus. Reach him at (614) 449-5338

Monday, 29 October 2001 11:23

Reducing risk

Stories of companies laying off employees and reporting higher than expected losses have caused business owners to reanalyze strategies and relationships.

With the prospect of decreased sales and consolidating markets,owners are trying to eliminate payment and performance risk while maintaining growth. Understanding business transaction documentation and payment practices in a changing market is necessary to help achieve these goals.

The first way to eliminate payment and performance risk is to determine whether the company's day-to-day documentation will govern its transactions, and what happens if another party's forms contradicts its forms. Although the business environment plays a large part in deciding these questions, a company should have a good set of purchase orders and order acknowledgments to combat the battle of the forms successfully, or at least break even.

Without having language to try to make one's sales or service terms control, a business may find it has agreed to warranty, delivery, price and payment terms that are unexpectedly imposed by the small print of the other party.

Even if a business utilizes good purchase and sale forms, it may still face the prospect of a nonpaying customer or nonperforming supplier. Without the benefit of a guarantor, performance bond, security interest or letter of credit, a company would be required to obtain a personal judgment in court against the nonperforming party, procure a writ of execution directing the sheriff to seize any nonexempt property and hold a sheriff's sale.

The risks include the prospect that the assets have been sold, subject to prior execution, encumbered by a secured loan or subject to bankruptcy. To reduce these risks, businesses utilize security and performance arrangements.

Security interests

One of the most common protections for a seller is to obtain a security interest in collateral owned by the buyer. Under this arrangement, the seller provides to the buyer value in the form of loan proceeds, goods or services in exchange for retaining as security tangible or intangible property owned by the buyer. If the seller wants to protect its security interest in the collateral against competing third parties, it must perfect its status by taking possession of the collateral or filing a financing statement.

If secured, a seller may use self-help repossession or a writ of replevin. Once the seller possesses the collateral, it may hold a foreclosure sale and go after the buyer for any deficiency.

A special type of security interest that generally provides a seller a security interest ahead of any that would otherwise be entitled to priority is a purchase money security interest or PMSI. Under a PMSI, a seller is given a security interest either in collateral it has provided to the buyer or that the buyer acquired by the use loan proceeds given by the seller.

A PMSI may not be granted in intangible property, except in software acquired by the buyer for the principal purpose of running the software on hardware in which the seller has a PMSI or with the acquisition of the related hardware. Although the law governing PMSIs in goods has been recently revised enabling PMSI debt to be secured by additional non-PMSI collateral, and PMSI collateral to secure non-PMSI debt, a seller must follow statutory filing, notice and delivery requirements to obtain PMSI status.

Also, PMSIs are susceptible to very complicated rules governing sales proceeds and competing PMSIs.

Consignment

As an alternative, some inventory suppliers deliver goods to a sales representative on consignment, whereby the rep takes possession but not title to the goods. To obtain consignment status, a supplier must comply with filing, notice and signage laws.

Although a consignor may have protected its title to the goods, it still must put in place protections to reduce payment risk. Whether utilizing consignment or a security interest arrangement, a seller should conduct a lien search of the buyer.

Letters of credit

Rather than rely on the credit of a buyer, a seller may rely on the credit of a third-party guarantor or an issuing bank. Under a letter of credit transaction, a buyer directs its bank to pay the sales price of goods or services upon the seller's timely presentation to the bank of documents specified in the letter of credit.

Documents normally include the seller's invoice, bill of lading, a draft ordering the bank to pay the seller, packing list, insurance certificate and inspection certificate. The letter of credit entitles the seller to prompt payment by the issuing bank despite the existence of a dispute or claim by the buyer in the underlying transaction.

Unlike a guaranty, with which the guarantor may raise all the defenses of the buyer, the issuing bank may not raise those defenses.

Another form of letter of credit used to provide payment in lieu of the performance of nonmonetary obligations is a standby letter of credit -- the issuing bank is merely ''standing by,'' just in case the underlying transaction is not performed by the obligor.

For example, if the underlying obligation is a loan, the issuing bank would pay the lender upon presentation of a draft or demand for payment and a document certifying the borrower is in default under the loan, as well as assure the payment of monetary obligations.

Letters of credit are not perfect. Along with increasing transaction costs, they may be subject to economic and political risks that include issuer solvency and reputation (accustomed to issuing letters of credit), payment location (governmental restrictions or war zones) and the timeline to produce the letter of credit documents. Pat Flynn (pflynn@arterhadden.com) is an attorney at Arter & Hadden LLP and a member of the firm's E-Group where he focuses his practice on corporate, finance and securities matters. The E-Group is a multidisciplinary group of attorneys who focus their practice on entrepreneurial, emerging growth, Internet and e-commerce companies. Flynn can be reached at (216) 696-5696. For additional information about the E-Group and to read SBN ''Matter of Law'' reprints, visit mailto:http://www.arterhadden.com/egroup.