business credit workshop
TRANSCRIPT
How to Evaluate Your Business Credit
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Strictly Confidential
Today’s Agenda
Learn how to evaluate your business credit
Use our framework to identify areas for development
Evaluate seven key business metrics
Take action of your business’ future
3About the Presenter
Camino Financial Co-FoundersSean Salas, CEO (right)Kenny Salas, VP of Operations & Finance (left)
• Co-Founder & CEO of Camino Financial, a financial services platform for small businesses
• Worked in private equity where he evaluated over 150+ middle market businesses and managed companies with over $250 million in combined revenue
• Former Investment Banker at UBS, where Sean participated in several M&A and financing transactions of global consumer products and retail companies
• MBA candidates at Harvard Business School; BAs in Political Economy of Industrial Societies from the University of California at Berkeley
Born from small business. Passionate about building small businesses
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Strictly Confidential
Key Trends in Small Business
• Businesses recovered from recession, but concerned about capital spending, hiring and higher healthcare costs
• Owners find it difficult to get access to capital
• Technology a key catalyst for growth, cost savings and COMPETITION
5The Four Key Areas to Evaluate Your Business
Credit Histo
ry
Business Attributes
Capital Structure
Cash Flow
6Assess: Cash Flow
• Bigger is Better (and less risky)
• Smaller businesses are more susceptible to risks:
Limited resources to compete against larger competitors
Early stage (or unproven) business
Undiversified Limited benefits from scale Undercapitalized
Annual Gross Sales
7Assess: Cash Flow
• Net Profit (Pre-Tax) = Sales – COGS – SG&A – Other Expenses
• Margin indicative of value delivered to your customer and operating efficiencies
• Benchmark against your competitors (see BizStats.com)
Net Profit & Margin
8Assess: Capital Structure
• Benefits of debt
Accelerate growth Tax shield Build credit history Diversify personal net worth
• Max Debt Capacity
Leverage up to 80% of cash flows generated over the life of the loan
The Optimal Amount of Debt
9Assess: Business Attributes
• What percentage of gross sales do your largest 3 customers generate?
• Issues with High Customer Concentration:
Lose focus of small customers Neglect generating new business Lower profitability
Customer Concentration
Gross Sales by Customer
Top 3 Customers
Other Customers
10Assess: Business Attributes
• Business dependent on performance of “key” months
• Hard to make a seasonal business not seasonal
• However, you can manage seasonality: Working capital management Financial planning
Seasonality
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Revenue by Quarter
11Assess: Credit History
• On-Time payment history
• Current level of debt
• Types of credit accounts
• Length of credit history
• # of recent credit applications
• History of delinquencies
Personal Credit (FICO)
FICO Range Assessment Risk760-850 Excellent Very Low Risk
700-759 Very Good Low Risk
723 Median Score
660-699 Good Mid Risk
687 Average Score
600-659 Not Good High Risk
500-599 Poor Very High Risk
12Assess: Credit History
• Takes credit to build credit
• Evaluated by several distinct credit rating agencies using different scoring scales
• Reputable credit agencies
Dun & Bradstreet (“D&B”) Experian Equifax
Business Credit
Business Credit Score
Demogra-phics
Public Records
Credit & Payment History
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Strictly Confidential
Next Steps
Review your business credit using our framework
Evaluate resources available to build credit
Invest in your growth
Q&A Session
Together Moving Forward
Contact Information:
Visit us at: www.caminofinancial.comCall us at: (800) 852-0655