How do you Reduce Your International Sales Risk to Almost ZERO?

How do you Reduce Your International Sales Risk to Almost ZERO?

Be Sociable, Share! Tweet Many a USA based small business has received a request to sell their products to a foreign company. Often they are reluctant to do so because they are afraid of not getting paid. To mitigate the risk they invariably ask the buyer to pay up front. But, with a Letter of Credit you can change the rules. There is a better way. Better than getting paid up front? Well in a sense yes. A buyer paying up front is tying up capital and may purchase less or seek a seller offering payment terms (like Net 30). But you can prevent this by offering to sell your goods and allowing the buyer to supply a letter of credit for the transaction. The way it works is thus: The buyer asks their bank to issue a letter of credit (a commitment to pay on their customer’s behalf) with the seller as beneficiary.  The issuing bank issues the letter of credit electronically to the seller’s bank.  The seller then ships the goods to the customer, and sends a copy of the shipping documents to their bank.  The buyer’s bank forwards the shipping docs (which are legal title to the goods) to the buyer’s bank.  Once received, the buyer’s bank notifies the buyer and makes payment on their behalf to the seller’s bank (electronically or by wire) and delivers the documents to the buyer so they can pick up the goods when they arrive.  Most often, the documents arrive well ahead of the product and the seller has been paid before the goods have been received by the buyer....
It’s Time to STOP

It’s Time to STOP

Be Sociable, Share! Tweet This post is going to be short and simple. One of the most overused quotes on the Internet – maybe in general – is by Albert Einstein. “The definition of insanity is doing the same thing over and over again and expecting different results.” There’s a reason it’s overused. It’s because people still constantly do the same thing and expect different results. Here’s my response. “Duh.” There’s another quote. “Fail fast.” I’m not sure who said it first, so I’ll leave it unattributed. My response? “Bravo” And herein lies the problem. People are resistant to change and are usually afraid to pull the plug on something that’s failing. They’ll keep doing it and they’ll expect it to start working at some point. They’ll pump time and money into it without thinking about how that time and money could be better spent. That leads me to my next quote. “If you can’t measure it, you can’t manage it.” Now, I don’t fully believe in this one. For example, how do you quantify creativity? But it’s right – so right – on many levels. If you can’t quantify something, it’s near impossible to know whether it’s working. So let me create a new quote that, perhaps, brings all of this together. “If you don’t define success, you’ll never know if you have it. The same goes for failure.” When was the last time you took an “outside looking in” view of everything your company does? How about the ways that you do things? Sales, marketing, websites and social media. Customer service, product and service delivery and support. Human resources, management and...
Buying Your Own Office – Should I Purchase Real Estate?

Buying Your Own Office – Should I Purchase Real Estate?

Be Sociable, Share! Tweet As a banker, a great many of the loans I do are for those looking to purchase real estate – their own office building, warehouse or industrial facility for example. The most common question is whether they can afford it, not whether it makes good financial sense to purchase it. Why Purchase Real Estate? One owner may feel a building location is ideal and wants to remain there with no possibility of being evicted. Having a customer base that is familiar with your location is a big plus. Other owners want to modify the building to suit their needs, and they don’t want to make those expensive improvements without owning the property. And of course a building often appreciates in value and allows the owner to build equity. All of which sounds great – but is it? Sometimes it Makes Sense, Sometimes it Doesn’t Well, the short answer is that it depends. If the building is one that is particularly well suited for the company that will occupy it, then it might make sense. I have a customer now who produces granite countertops for kitchens and baths. They need enough space to store the stone slabs, and an overhead crane to move them, an entry for a forklift, and a showroom. Getting all of that in one space is difficult. Once they have it, they don’t want to lose it, hence the desire to purchase. It helps that the mortgage payments, if they stay in budget, will be significantly less than rent. This is a great reason to buy. However, even if mortgage payments are less...
Can You Afford That Loan? The Debt Service Coverage Financial Ratio

Can You Afford That Loan? The Debt Service Coverage Financial Ratio

Be Sociable, Share! Tweet This is the fourth post in a series of articles about financial ratios. In evaluating any borrower for a loan or lease request, one of the financial ratios that lenders run is a Debt Service Coverage Ratio (DSCR or sometimes DSC) to determine if the loan can be repaid. Ideally, the company will have sufficient profits to service the debt completely – with extra left over. How Do You Calculate the DSCR Financial Ratio To calculate the DSC on a proposed loan the formula is as follows: Note that the top of the formula states “Annual Net Profit”.  Once you add back the amortization/depreciation and interest, this is the income or cash flows that are left over after all of the operating expenses have been paid. This is often called earnings before interest, taxes depreciation and amortization – or EBITDA. For “Existing Interest Expense”, make sure to include the interest of any debt that is being refinanced by this loan.  Otherwise, just include the interest expense for any other loans you may have.  Non-cash or discretionary items should include things like management bonuses. On the bottom half of the financial ratio, the principal payments and interest payments are those of the new debt you are looking to take on. The DSCR is also sometimes calculates without adding back in amortization/depreciation, interest expense or non-cash items.  This means you are taking your net profit and dividing it by the loan payment and leases.   Neither method is right or wrong but you get two different numbers, leading to disagreements with or at the bank.  You’ll often find that the person...
Turn Baby Turn – Why Inventory Turns Matter

Turn Baby Turn – Why Inventory Turns Matter

Be Sociable, Share! Tweet This is the third part of our series on ratios and what they mean to your business. Inventory turns are the amount of times in a fiscal year that you sell your complete inventory. The ratio is normally calculated by dividing sales by inventory on the year end balance sheet. As an example, if sales are $1,500,000 and inventory is 300,000 on the year end balance sheet, then: In this case the inventory turns five times per year. It can also be calculated by dividing cost of goods sold by average inventory. However, the sales/inventory is the more popular method. If you then divide the number of days in a year by the number of inventory turns, you get the inventory turnover period.  For example, using the 5 inventory turns from above, the inventory turnover period would be 73 days.   The reason this ratio is so important is that the more often the inventory turns the higher the profits. Profit is made each time inventory sells (or at least it better be!), so the quicker it sells the more profits you are bringing in.  A high turnover ratio implies that purchasing is managed well. Alternatively, it may mean that there is not enough cash to maintain normal inventory levels, and so the company is turning away possible sales. The second scenario is most likely when the amount of debt is unusually high and there are few cash reserves.   On the other hand, a low turnover ratio implies  implies that a business may have bought too many goods and their approach to purchasing is unsound. In this case, inventory aging may occur...
Pros/Cons and Risks/Benefits of Raising Your Prices

Pros/Cons and Risks/Benefits of Raising Your Prices

Be Sociable, Share! TweetWhat are the pros and cons of raising your prices?  What are the risks and benefits of raising your prices?  Interestingly enough, at least to me, I did a search today for some background information on this. Result number one?  “The pros and cons of rising-rate CDs”.  I can live with that, even if it is irrelevant to me.  Result number two? “The Pros and Cons – Raising Meat Rabbits”.  I’m not quite sure where that one appeared from, but it made for an interesting read (except for the pictures). I was a bit surprised at this.  Nowhere in the top 10 – the first page of results – was any information on what to consider when looking to raise your prices. The results of raising your prices often directly correlates to how you market the increase.  I read a great article about sitting on the beach and wanting a Budweiser.  Your friend says he is going to run out and get one and is going to go to a run-down grocery store to get it.  How much money do you give him?  Now he says that he is running out to an fancy hotel to get it.  How much money do you give him then?  Human nature says that, even though you are buying the same product, you expect to pay more from a premium brand.  Most people would give their friend more cash – even though it’s for the same product. Well, I came up with my own list of thoughts with regards to this.  Here are some things to think about. Raising your prices...
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