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Last Update: Thursday July 29, 2021

Key Idea: Give Bankers Hard Assets

Reed Pigman's banker enjoys visiting the place he helped launch.

Key Question:

A: 

Over and over we learn from business owners that bankers love land. Of course. The reason is obvious. A banker can measure the value of land while it is impossible for them to measure the value of a service business. And, we learned from Reed that even though his father had run his own business for over 20 years, when Reed tried to sell it, there were more liabilities than assets. To get started in his own business, Reed had to borrow against land owned by the family which he eventually sold.

Today he has hard assets every where we look. Would a banker make him a loan to expand? Absolutely. What's interesting is he does not see himself as a retailer, he sees himself in the service business. There are other service businesses we know about such as Theatrical Lighting that couldn't get a loan from a bank to expand until they put up their real estate as collateral. The strong, long-lived companies own their own locations. This should be a goal for every business owner.

Real estate is not the only hard asset, but for most small business our equipment/machinery/furnishings/inventory are more difficult to value and, if need be, to lliquidate. And then, the non-physical assets or intangibles like mailing lists, customer loyalty, systems and an excellent team of employees, are even more illusive and less interesting to a bank.

Bankers are only interested in these other tangible and nontangibles assets if there is a liquidity model in place. Yes, a liquidity model.

All small businesses need liquidity models (and not just to have an exit strategy for your transition to something new). We need liquity models (and exit strategies) to create a better way to value our business. When we look at our balance sheet at the end of the month (or quarter) and we see TOTAL ASSETS, it can be such a letdown. There is no line item for "Intangible Assets."

In one of our episodes of the show, we visited with several businesses that had done a Direct Public Offering; essentially they had gone public without going through the formal Initial Public Offering (IPO) through the Securities Exchange Commission, but they had registered with their own State Securities Commissioner.

If you are thinking about getting a loan from a bank, or expanding your line of credit, first look at RMA: The Risk Management Association's ratios for your industry and see if you are within the norm (based on information from 150,000+ loans per year contributed by 3000+ banks.

Think about it

What are you doing to invest in those kind of assets your banker needs to justify a loan or increased line of credit? Do you know your key critical ratios? Do you know how you compare within your overall industry?
 

Clip from: Texas Jet

Fort Worth, Texas: There are no lines. No crowds. No delays. Just red carpet treatment all the way. And, it is not just for the wealthy anymore. Here at Meacham Field and in 5000 other small airports around the USA, small business owners service, sell, own, and use private jets. This is the other airport in town.

This is the story of Texas Jet which is FBO, Fixed-Base Operation; they provide all the ground-based services required by aircraft owners and operators. The term, FBO, originated back after World War I to describe the first aviation businesses that developed a permanent base of operations to deliver services at airports. That name stuck. Here we open the door of private jets, charters, fractionals, and empty legs. With the help of the Internet bookings, you could easily be taking a little jet rather than drive your car.

Founder Reed Pigman says the pilots are his core customer base;  and, for many years now, these pilots voted Texas Jet to be one of the Top Ten Independent FBO's in the United States. So, out of 5,000 choices, pilots say Reed and his team are among the best. There's more. As a distributor for Phillips 66 Jet Fuel, Reed also takes the lead. Texas Jet has been recognized by Phillips 66 as one of a hand-full of distinguished partners among some 600 distributors. 

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Texas Jet

Reed Pigman, President

200 Texas Way
Fort Worth, TX 76106
8007764547

Visit our web site: http://www.texasjet.com/

Office: 8007764547

Business Classification:
Transportation

Year Founded: 1978

Give Bankers Hard Assets

HATTIE: Where'd you get the money to start?

REED: I mortgaged the family farm.

HATTIE: You literally have a farm?

REED: Well, not anymore. I sold it. I had a ranch. The bank that I dealt with there for a long time--it's a great bank, but they didn't want to loan the full value of what it would take to build these hangars. So I went to the Federal Land Bank and actually mortgaged the family farm that had been in my family for many years.

HATTIE: OK. So when your dad's business sold, there wasn't enough cash to really do anything with next.

REED: No, it was a losing business. And when you sell a losing business--I felt I was lucky just to stop the bleeding.

HATTIE: OK. So first lesson: Just because you have a business and you sell it doesn't mean you walk away with anything.

REED: No. No, no. That's correct, yeah.
 

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