A small company's bank forces it to invest more in computerization, and in so doing saves the company.
Company Profile
Clarklift's bank forced it to invest more in computerization. It's probably what saved the company
It's Friday morning, and Wayne Reece is sitting in his den, absorbing everything that's going on in his three central Florida forklift dealerships. Eyes glued to a laptop-computer screen, Reece scans the latest neatly formatted status reports E-mailed to him in a constant stream by his top managers. The reports detail every facet of sales, rentals, and service; they highlight trends and potential trouble spots for his company, Clarklift/FIT. Reece interrupts his scanning only to dash off several terse notes demanding more information or corrective action. Why has the service department allowed the backlog of jobs to climb from 50 to 117 in the past few weeks? Has one of the dealerships been neglecting sales of the higher-end forklifts in favor of the easier-to-sell, but less profitable, smaller models? After a while, replies to his queries start to trickle in. "That's more like it," he grumbles, reading one.
Reece uses computers to play the role of omnipotent boss. He's poured nearly $400,000 into information technology in the past two years--1% of his company's revenues over that same period--and he believes it's paid off in spades. Last year the company's net sales grew by 15%, and this year cash flow has improved by 14.5%.
Considering the sort of boost technology has given his business, it may seem hard to believe that Reece marched into the information age just a few years ago. Of course, many small-business owners find themselves pressured into automating by savvy accountants, demanding customers, or giant suppliers. For Reece, the party giving the marching orders was his bank.
Banks have always required small-business owners to jump through various financial and performance hoops to qualify for credit. But in general, if you had healthy sales, reasonable margins, and a consistent history of repaying your loans, you were in good shape for financing. Increasingly, though, banks want to see something else: solid computerization. When bank auditors stop by for a visit, they may be as likely to check out your software as your inventory. "The theory goes that if you can trust the computer systems, you can trust the company's numbers," says David B. Hilton, a vice-president for Citicorp's Global Equipment Finance Division, based in Harrison, N.Y.
Oddly enough, banks' tough new stand on automation may be good news for some small businesses. For Reece and his company, the added burden turned out to be a godsend.
Reece and information technology used to be on uneasy terms. In 1989 he purchased his first computer: a 286 notebook with a black-and-white display. After three days of tinkering, he pawned it off on a friend. "I hadn't sold a damn thing with it, so what did I need it for?" says Reece.
Back then, Reece was the top salesperson for a Tampa-based Caterpillar forklift dealer. A competitor, Clark Equipment Co., owned a flailing outpost in Orlando that had only $1 million in gross sales and had barely carved out 4% of the market share in its territory. Clark Equipment cut Reece a deal: if in one year as manager he could improve the company's standing in Orlando, he would have the option to buy the location. In a matter of months Reece had doubled sales, and by the end of the year he was ready to purchase the small dealership.
Reece was eager to become a company owner and willing to bring $125,000 of his own money to the table, but he still needed $500,000 in financing. Fortunately, the young entrepreneur--he was only 29 at the time--was spared the humiliation of trying to persuade a bank to take a chance on him. Because of his stellar track record in sales, Clark Equipment offered to help Reece get started by guaranteeing a capital loan--meaning that if Reece defaulted, the large manufacturer would pick up the tab. Reece borrowed the money from the Chase/Clark Credit Co., which became part of the Associates, a financing company in Irving, Tex., in 1995.
It seemed almost too easy. As long as Reece kept selling forklifts, the Associates would keep the vault doors open wide. Reece proceeded to take full advantage of his carte blanche status. By 1992, with close to 28% of the Orlando market firmly secured, Reece borrowed another $878,000 to acquire a dealership in Jacksonville. Two years later he opened up a third shop in Tampa and started selling both Clark and Mitsubishi forklifts in all three locations. This time the Associates forked over a $425,000 capital loan and $175,000 in revolving debt to cover accounts receivable.
The Associates kept a tight watch over its collateral. For every forklift Reece purchased, the Associates advanced the dealership a certain percentage of the cost. Each month Reece paid only interest, and then, when he eventually sold the asset, he would repay the entire debt. The Associates dispatched an auditor four to six times a year to study Reece's accounts receivable and count his inventory.
In effect, the Associates became Reece's de facto controller--a short-leash relationship that's common between commercial lenders and small dealerships. But the confining structure of the loan also had an unintended effect: it sheltered Reece from having to learn some of the fundamentals of his business. The only item Reece tracked was sales volume. As long as the finance company reconciled his account each month and gave him the OK, he assumed that his company was running smoothly. "When I started, I knew how to sell forklifts," says Reece. "I didn't know how to run a company, and I wasn't learning."
