Emerge Dynamics Podcast Emerge Dynamics

Emerge Dynamics is all about how businesses can emerge from their peers, and businesses accomplish that when they are well-run. This is especially true during a downturn, so today we’re focusing on how you can guide your business through these challenging times.







There are so many bankruptcies happening in 2023. Why is that? It can be easy to throw the blame to the economy or the government, but the reality is that businesses is trouble now were unhealthy even when the economy was strong. There are some estimations that external factors only account for 21% of business failures.







In addition to the Z-score, which measures a company’s likelihood of going bankrupt, Edward Altman also created an imperial measure for how many businesses will fail in the economy as a whole. One of the variables in the equation is the money supply, which has increased greatly in the past few years. At some point in time, that’s going to stop. This equation may begin show even greater correlation during this downturn.







Despite everything going on in the economy, the main cause for decline is still bad management. When interest rates are so low, businesses may have chosen to borrow cheap money just because they could. If they had put some more thought into it, they could avoid the situation they’re in now that arose from over-leveraging.







Another factor causing businesses to have issues is having an “authoritarian leader.” There needs to be a balance between being a strong leader and taking input from others. If a business is declining and has this type of leader, it’s probably their fault.

Today we continue the conversation around your borrowing base. This episode dives deeper into why you may want to consider a borrowing base to finance your working capital so that you can help your business meet its potential. We also discuss the importance of having healthy accounts receivable, and how to use it in the right way.







The best time to use your borrowing base is to fund growth in your business. You can leverage assets for other projects, and you can also use it as a temporary means for a short-term slow down. It’s not a good idea to use it to fund losses within the business. If you run up this line of credit to the limit, you have already harvested the value of your business, so don’t go buying a yacht or making any impulsive purchases.







Size matters when it comes to accounts receivable. Most banks won’t provide a borrowing base if yours is under $1 million. They also consider whether or not you have healthy accounts receivable versus overdue accounts receivable, which is anything beyond the 90-day mark.







You don’t need the bank to do the math for you. In fact, it’s an excellent exercise in discipline as a business owner to run your own sample evaluation so you can understand your own AR outside of just letting the bank do it. It’s important to note that potential buyers of your business will also want to know the fully optimized business valuation to determine your enterprise value.







When things get really tight, you have options. If you have customers who are approaching the 90-day overdue mark, you can negotiate and open a dialogue. It’s also a good idea to drill down into other strategies. Look at your competitive advantage and business culture.

On today’s episode, we’re discussing the mechanics of a borrowing base. This is an episode that will have value in the current economy, and will still have value in future economies. Discussion will involve current events, but ultimately, the goal is to provide solutions that will be applicable in any economy. This is a tactical and technical episode to explain how borrowing base works (and can work) for you.







Although borrowing base doesn’t sound as important as other issues in regards to business ownership, it really deserves its own episode. In a tough economy, it will provide the opportunity for you to help your business survive. It is most important to understand the discipline behind it, and to utilize it in the right way for the right reasons.







Essentially, banks will lend an advanced rate against your assets. Their lending is based on your inventory and accounts receivable. In this way, you can leverage the dollars that are trapped in your business to use wherever you need them. This is a real advantage for businesses who are trying to survive in today’s economy.







The advanced rate the bank will provide is based on the type of asset you are leveraging. They typically require weekly or monthly self-reporting and operate on an honor system in that reporting. The inventory must be raw material that can be sold in the case of debt recovery.







You can leave this line of credit open in perpetuity, but you have to be very careful with how you use it, or your borrowing base could become an upside-down loan. This can lead to a downward spiral if you keep paying for losses in your business.

Today we’re broaching a topic that’s been on everybody’s minds, which is inflation. This is a crazy time we are living in, and it’s no different in the business environment. For the first time, the Federal Reserve has actually publicly warned that there is a mild recession. The prices we see increasing every day are a product of the inflation of the money supply.







The economy is slowing down, and inflation is coming up. This is a unique situation. Typically in an economy, you either have a lot of growth or you have inflation. Currently, we are experiencing both simultaneously.







What does this mean for the average business owner, and what can business owners do? There are a few strategies to consider. If you’re in the market for new equipment, you’ll want to compare old versus new, or maybe reconsider altogether when it comes to those big ticket items. You can always retool your business or consider restructuring. Look into new technologies that will support your business in a cost-effective way; technologies that could save you money.







Although the interest rates are not historically high, they are higher than they were a few years ago. If there is a slight dip in interest rates, consider locking that in and getting a fixed rate. This will help protect you in case rates increase again.







The rate increases could slow down, or possibly even reverse, but there is no specific timeline for that potential outcome. Your business will face financial challenges, but you can learn to manage them by preparing ahead of time and knowing what to do when your business faces adversity.

Today’s episode continues with a discussion about what servant leadership is and unpacking exactly how to be a servant leader. We’ll get to the core of how important it is to be the best version of yourself in order to create prosperity in your organization.







Humility is the cornerstone of a servant leadership mindset. In our western culture, we have a tendency to lean toward thinking on an individual and personal level, but to be a servant leader you must be “other-centric.” Creating a servant leadership culture takes effort, but this process will create value in the organization, rather than trying to extract it.







There are several ways to express your servant leadership. Employees will in the business will be looking to the owner of the business for how to behave. As the leader, you set the bar of expectation on the rest of the company for the proper way to engage in your work-life balance.







Materially signalling to your organization that you are a different type of leader who is non-superficial and authentic is an example of servant leadership. Not being overly flashy with material goods sends the message to everyone that your leadership is not about money. Prosperity and wealth is for all and not simply for the benefit of the leader.







Design incentive programs to focus on giving back to employees, being customer focused, and using “we/our” language instead of “I/my” language will all be indicators to your employees that you have gratitude for those who choose to be a part of the company’s culture of humility. It will also help those who lead create a winning situation for themselves, their colleagues, and their customers.







Here’s a link to the book Lead Like Jesus that we discuss:







https://hpb.com/products/lead-like-jesus-9780785228905

Today we’re getting into what it really means to be a leader in your organization. People have a tendency to look at the actions and consistency of their leader. You may not even realize how much of an influence you have on the culture of the organization. If you don’t focus on this, then another person or group in your organization is going to create the culture for you.







When a phrase is said or an action is taken by a CEO, it reverberates. Therefore, it’s very important to carry yourself in a certain way. It’s less about being careful with your words, and more about setting yourself up with the right disposition as a leader. If this is done correctly and you’re there for the right reasons, you’ll probably say the right things naturally.







Leaders should enable their people to become the best versions of themselves. Think about setting the tone of the organization for the purpose of serving it, not for your own glorification. You may find that your most rewarding times in life are when you are helping someone else accomplish something.







Step one is just acknowledging whether you’re a servant leader or a narcissistic leader. Sit down and reflect on if your approach is wrong. If it is, remember that we all make mistakes, and we can all improve.







Also, keep in mind the distinction between management and leadership. Managing is more task-oriented, and leading is about relationships. It’s about setting tone and the way that you do things as opposed to what you do. We cannot lead well unless we are looking internally and being honest.