Equity (Tangible Net Worth) When I refer to equity, I really mean tangible net worth or equity in a business less any intangible assets. Intangible assets can include (but are not limited to) goodwill, patents and sometimes prepaid expenses. Depending on arrangement with bank, shareholder loans may or may not be considered as part of equity base. A ratio of tangible net worth to total debt of 1:1 or better is a good goal to shoot for. Basically, bank wants to make sure that owner has also invested in company, that company can support its present and future endeavors and that it has ability to withstand any unplanned declines in business.

Debt Having debt is not bad, but having too much debt is. Look at what make-up of your debt levels are and what debt has financed. Does maturity of debt properly reflect related assets? Is there any term debt supporting working capital, or revolving debt supporting long-term assets? If answer is yes then you should look at restructuring debt to properly reflect assets. Review company’s debt in relation to company’s cash flow and assess its ability to meet debt obligations. Do you have required credit available to meet seasonal borrowing requirements?

Inter-company assets/liabilities Keep in mind that bank will not lend off of inter-company receivables. Next, you should be able to answer following questions: are assets liquid and do they have value, can related company meet its obligations, what are terms of outstanding debt, is there any off-balance sheet debt or assets, can funds flow freely between companies?

The Income Statement

The income statement provides information on a firm's operating activities over a specific period of time. In simple terms it is revenues less expenses. However, as is seen by all accounting scandals recently, how those revenues and expenses are recorded can often be left open to interpretation and manipulation. A lender is well aware of manipulation that can occur and so will look at income statement carefully. If there are any “gray” areas lender will want clarification, so be prepared to be able to answer any questions asked of you. Or, have your accountant prepared to answer any questions.

As with balance sheet, a lender will rely heavily on trends and key ratios and will want to know why of any significant movements in these ratios. Key areas they will focus on are growth or decline in sales, net profit, gross margin and administrative expenses.

Important areas you should be aware of are:

• Are you expensing or capitalizing expenditures? • Are operating profits stable? • Are there areas of weakness? If yes, what action is management taking to work on these weak areas? • Are there any extraordinary losses of gains? • Are inter-company transactions having an impact on profits? • What transactions are being completed to minimize profit and tax?

The Cash Flow Statement

The cash flow statement is a summary of a company’s cash flow over a period of time. It is basically actual (i.e. not accrual) cash receipts less actual cash payments. A cash flow statement will have 3 parts to it: 1) cash from operations, 2) cash from investing activities and 3) cash from financing activities. The bank will be most concerned about cash from operations as this tells it whether company can generate sufficient cash from day to day business activities to repay loans. However, it is still important to be able to generate a cash surplus after all activities – i.e. operations, investing and financing. The quality, consistency and sustainability of cash flow is key.

Important areas you should be aware of are:

• Changes in working capital – movements in accounts receivable and payable and inventory, especially for a growing company, can mean a company is a net user of cash. This may indicate liquidity problems. • Look at ratios such as sales to cash from operations and interest and principal payments to cash from operations. Negative trends can indicate lack of controls, inefficiencies or bad investment decisions. • Look at factors that may impact total cash flow (cash from all activities) such as dividend distributions and taxes. • Are there any extraordinary items affecting cash flow? • Are there any capital expenditures which may have a negative impact on total cash flow? • Examine relationship between change in sales and change in cash flow. Are there any weak spots such as a declining gross margin? What action is management taking?

As you can see that there is a lot of information that needs to be assessed. That is why it can take a few days to get back with lending decisions, particularly if statements are complicated. The goal is to provide you with a basic understanding of what is being looked at so you can be prepared when approaching your lender. As always, more prepared you are, better chance of success you have.

The job now is to select specific perception to be altered which then becomes your public relations goal. You obviously want to correct those untruths, inaccuracies, misconceptions or false assumptions.

One of painful aspects of whole drill is that a PR goal without a strategy to show you how to get there, is like a three-bean salad without beans. So, as you select one of three strategies (especially constructed to create perception or opinion where there may be none, or change or reinforce it,) what you want to do is insure that goal and its strategy match each other. You wouldn’t want to select “change existing perception” when current perception is just right suggesting that “reinforce” strategy.

The moment has come when you must create a compelling message carefully constructed to alter your key target audience’s perception, as specified by your public relations goal.

Keep in mind that you can always combine your corrective message with another news announcement or presentation which may give it more credibility by downplaying apparent need for such a correction.

The content of message must be compelling and quite clear about what perception needs clarification or correction, and why. Of course you must be truthful and your position logically explained and believable if it is to hold attention of members of that target audience, and actually move perception in your direction.

Some allude to communications tactics necessary to move your message to attention of that key external audience, as “beasts of burden” because they must carry your persuasive new thoughts to eyes and ears of those important outside people.

Actually, we have a wide choice because list of tactics is long indeed. It includes letters-to-the-editor, brochures, press releases and speeches. Or, you might choose radio and newspaper interviews, personal contacts, facility tours or customer briefings. There are scores available and only selection requirement is that communications tactics you choose have a record of reaching people just like members of your key target audience.

Of course, things can always be accelerated by adding more communications tactics, AND by increasing their frequencies.

It won’t be long before those around you will be asking about progress. But you will already be hard at work remonitoring perceptions among your target audience members to test effectiveness of your communications tactics. Using questions similar to those used during your earlier monitoring session, you’ll now become beady-eyed looking for signs that audience perceptions are beginning to move in your general direction.

Yes, performed in this manner, public relations obviously does feed engine of YOUR economic growth and, thus, that of nation at large.

But do keep your eye on core of this approach: persuade your most important outside audiences with greatest impacts on your organization to your way of thinking. Then move them to take actions that help your department, division or subsidiary prevail.

end

Bob Kelly counsels, writes and speaks to managers about using the fundamental premise of public relations to achieve their operating objectives. He has been DPR, Pepsi-Cola Co.; AGM-PR, Texaco Inc.; VP-PR, Olin Corp.; VP-PR, Newport News Shipbuilding & Drydock Co.; director of communications, U.S. Department of the Interior, and deputy assistant press secretary, The White House. mailto:bobkelly@TNI.net Visit:http://www.prcommentary.com