This column is dedicated to the financial issues facing forging businesses. It provides guidance on financial matters to those who may not have a dedicated CFO on staff and additional financial insight to those who do.
In prior articles (December 2021 FORGE and February 2022 Industrial Heating), we discussed the reasons behind the importance of understanding margins (price minus cost) for the seller of any product or service. Your Cost Model is the framework for calculating costs.
As a business owner, you have limited options when seeking capital to start or grow your company. Essentially, there are three sources of cash: your own cash investment or that of other investors, your bank and cash from the daily operations of the company.
To illustrate this situation, we will discuss the actual story of a small automotive repair and towing business. The business had a regional towing contract with AAA Auto Club, which gave the business top priority on all service calls.
A common concern with business loans is covenant compliance. Does my business loan have covenants? If so, what are the compliance requirements? Smaller loans under $100,000 may not require collateral and are usually free of any covenants. As businesses grow, however, so do their financing needs.