October 1, 2022

Healthke

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A Tale of Two Companies and Their Banks

3 min read

“It was the best of times, it was the worst of times, it was…”, well, you get the picture. Over the past few months I have been consulting for two different companies as an outsourced CFO. Both companies need bank capital to stabilize their operations and growth, both companies have struggled through trying economic times, both companies know they need to invest in systems, processes and personnel to grow and get the results they want. I would like to share with you how these two companies have been operating by arranging bank loans, hiring staff and investing in internal processes in order to create companies that can generate shareholder loans. But first, some background information.

Company A has been in existence for more than four years. The company acquired existing commercial properties and in the first three years grew operations by more than 15% per annum. Combined with the strategic acquisition, Company A has nearly doubled the size of its acquired business.

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Margins have been good and the company has been able to distribute cash to shareholders every year. With the rapid rise in business the company was stretching its internal processes and employees to the limit. In addition, existing processes and tools need to be upgraded in order to support future growth.

In the middle of the fourth year, the whirlwind years began to companies Singapore A. The company needed to hire more employees to manage the growth it had achieved and to support the expected continued increase in revenue.

Unfortunately the rapid rise in business meant that unfortunately processes and staff lead to a drop in quality which resulted in larger customers going to competitors. In addition, two members of the management team left the company and started a competing business. They have attracted other customers by offering cheaper prices for similar services. Rapid investment in capital equipment intended to reduce labor costs was being made unnecessarily and resulted in a significant increase in supply costs. Company A was losing money and had to change quickly in order to right the ship. In addition, the company’s existing bank loan had to be repaid in order to ease the financial stress.

Company B has been in existence for more than five years. The company was the first start-up company that the owner was able to launch to achieve recurring revenue levels that allowed the company to quickly become profitable. Cash flow was the main focus and the company had been able to return cash to the owner each year. The company was built with an owner in charge of all the planning and management of all the activities of the company. As the company grew the business operations could no longer be effectively managed by one person.

In the fifth year the owner of Company B realized that experienced employees had to be brought in to run the business efficiently. This growth was previously funded through customer payments and the company had no bank debt.

With recurring revenue building it was time to make the right investment in staff and systems in order to take the company to the next level. Recruitment of employees would be carefully considered and in line with the incoming revenue so that they can generate new revenue and positive income. New customer opportunities were growing and would be financed in part by bank loans as well as customer fees. Company B had begun to show profitable operations and needed to make real money in order to fuel growth.

Both companies needed help to survive the difficult times they were facing. So who can do better in a bank interview given their circumstances?

Things were getting tough for Company A. Various mistakes led to the loss of customers and allowed former members of the management team to start a competing business. Staff were hired late to ease quality concerns and there was too much staff to support the existing business. Investments in equipment that were supposed to reduce labor costs dramatically increased supply costs and took money away from the company.