Construction Case Study - Securing Financing for Expansion

GC NICHE: CONSTRUCTION

TYPE OF INDUSTRY: Real Estate

GC TEAM MEMBER(S) INVOLVED: IAN GRIMBLEBY, CPA

SITUATION:

Our team was approached by a client to assist with expansion plans to buy another building after their first attempt to purchase the building with financing was denied by a bank.  As we reviewed the Company’s financial statements, we noted that the Company was profitable, but there was not an adequate amount of working capital to acquire another property.

CHALLENGES:

  • The shareholders’ cash management style had to change in order to present more liquidity and stronger financial statements.
  • The Company’s cash reserves were low.
  • Shareholders were reluctant to release control of the Company’s finances.
  • Being direct with the shareholders regarding the state of the Company's finances.

CONSIDERATIONS & TACTICS:

  • Mapping out ways in which the shareholders of the Company could acquire another property without hurting the finances (working capital) of the Company.
  • Determining the best method for presenting the financials to banks in order to secure a loan.
  • Considering which steps and actions needed to be taken over the next 1-2 years to successfully complete the acquisition.
  • Developing an in-depth understanding of the company's business model and long-term goals.

STEP-BY-STEP PROCESS:

  • Listened to the client: their business specifics, their needs, and their goals.
  • Reviewed and analyzed the client's finances.
  • Found the problems standing in the way of the acquisition and developed solutions to those problems.
  • Explained the problems and solutions to the client and discussed possible next steps.
  • Presented our recommendation and were prepared with alternatives, having thought through possible outcomes.

FINAL RECOMMENDATION & OUTCOME:

We developed a more structured way to compensate the shareholders. This process helped manage payroll and distributions from the S-Corp and build up much-needed cash reserves and working capital.

By following our recommendations, the Company was able to accumulate sufficient working capital and was approved for a loan by another bank. While we were discussing goals and the finances with the bank on behalf of the Company, we also secured a permanent loan/line of credit to help the business grow and to provide new benefits and services to their employees.

OTHER CONSIDERATIONS:

It was essential that we were honest with the client about their financial status and presented the problems found. Even more important was providing a solution to address the situation.

A thorough understanding of the client's overall business and goals ensured that we asked the right questions and determined the heart of the matter at hand. Our expertise comes from years of guiding clients through many different situations. We go deeper than just reviewing financial statements, working to truly understand the needs of all parties involved and what success means to them.

200 West Roseburg Avenue
Modesto, CA 95350

(209) 527-4220 (phone)
(209) 527-4247 (fax)

https://www.grimbleby-coleman.com/resources/articles/203

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Grimbleby Coleman CPAs
Certified Public Accountants, Inc.
(209) 527-4220
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