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| November 24, 2000 LEASING
NEWS 11/24/2000 to regularly receive Leasing News kitmenkin@leasingnews.org ---also ON LINE at www.leasingnews.org--- Headlines--- Federal Financial Clarence Y. Palitz, Jr. Passes Away David I. Robinovitz "Deju Vu" Leigh Weimers: "We Have a Lot to be Thankful For." http://www.leasingnews.org/jbednerik.htm---reaction Thanks, Kit, for catching us up with Jon Bedernick. I was the last president at WAEL (now UAEL) that he served under, and I have to tell you that it's not easy being a scapegoat for a professional association that's going through its growing pains, and still do that kind of job. It's kind of like being a rabbi or priest for a growing congregation. You have to provide inspiration and support for everyone, be exposed to the opinions (both educated and non-) of all, take the heat for the way the members spend the money, and then hope that more than half will vote to approve your contract for the following year. (Jon, you were a friend to the Association, and I, along with many others, I'm sure, wish you nothing but success in your endeavors. Your friend, Hal) Hal T. Horowitz Account Executive Search West 340 North Westlake Blvd., Suite 200 Westlake Village, CA 91336 Phone: 805-496-6811 ext. 231 Fax: 805-496-9431 Pager: 818-494-6875 hal.horowitz@searchwest.com www.searchwest.com Kit, As always your "news letter" contains a raft of information. Your "Others " award speaks of a history of giving back rather than taking- a concept that more of us could use more of. The Unicap "difficulties" were a long time in coming, The demise has never been a talent or market issue but rather the lack of "single strong " leadership. I remember when Unicap received funding and we saw the "corporate construct". The destiny was too grandiose with too much capital spent inappropriately. This all speaks volumes of the lack of venture knowledge in this "niche" equipment leasing market ($220 Billion of niche). Keep up the good editorial work- Maybe some day we'll meet. dave David Fisher With all the changes in the leasing industry, it still appears leasing companies are robust, as evidenced by the help wanted classified for lease salespeople by Malloy Associates. See for yourself by going to: http://www.monitordaily.com/sales.html Financial Federal Corporation Mourns the Passing of Chairman Clarence Y. Palitz, Jr. NEW YORK--(BUSINESS WIRE)--Nov. 24, 2000--With deep regret, Financial Federal Corporation ("FIF" - NYSE) announced today the passing away of its Chairman Clarence Y. Palitz, Jr. on November 23, 2000. Paul R. Sinsheimer, President, said: "Cal Palitz was an icon in the equipment finance and leasing business, and was renowned for his unparalleled success over a 40+ year career in the industry. I joined him in the business in 1970 and many of us here at Financial Federal have worked together under his leadership for many years. On behalf of all of Financial Federal's officers and employees, we extend our heartfelt sympathies to the Palitz family. Mr. Palitz's vision was for Financial Federal to be the best equipment finance company in the nation, and we are deeply grateful for his tireless efforts in helping to build a fine foundation for our Company's future." Clarence Y. Palitz, Jr. joined his father, Clarence Y. Palitz, in the equipment finance business in 1956. In 1963, Cal and his brother Bernard founded Commercial Alliance Corporation which traded on the American Stock Exchange from 1968 until its sale in 1984 to First Interstate Bancorp. Commercial Alliance Corporation had a 21-year record of consecutive increases in earnings and receivable growth. Mr. Palitz, who retired as CEO of Financial Federal Corporation in February 2000, was a co-founder of the Company in 1989 along with his brother Bernard, a Director, his son Michael, Executive VP, Paul R. Sinsheimer, President, and other senior executives. Mr. Palitz is survived by his wife, Anka, his brother Bernard, a Director of Financial Federal Corporation, his daughter Dr. Suzanne Palitz, his son Michael, Executive Vice President of Financial Federal Corporation, and his granddaughters Elianora and Sophie. Financial Federal Corporation is a nationwide, independent financial services company specializing in financing industrial, commercial and professional equipment through installment sales and leasing programs for manufacturers, dealers and end users of such equipment. CONTACT: Financial Federal Corporation Jeanne McDonald Senior Vice President (212) 599-8000 A Lot To Be Thankful For.... This was in the Thanksgiving Edition of the San Jose Mercury News: Leigh Weimers Column: "Fewer and fewer people can afford to live in expensive Silicon Valley. San Franciscans decry to-commers pushing artists from their lofts. Oakland tries to lure more shoppers downtown, but to shop where? Everyone's traffic is worse. So what's to be thankful for this Thanksgiving: * The average life expectancy in 1900 was 47 years old. Today, it is 77, and rising. * Our infant-mortality rate has dropped from 1 in 10 to 1 in 150. *Low income Americans today have routine access to a quality of food, health, care, consumer products, entertainment, communications and transportation that even the Vanderbilts, Carnegies, and Rockerfellers could only dream of. * A farm a century ago could produce only one-hundredth of what his counterpart today is capable of growing and harvesting. * In the 19th century, almost all teenagers worked in factories or fields. Now, 9 in 10 attend high school. * Today's Americans have three times more leisure time than their great-grandparents did. * The price of food relative to wages has plummeted. In the early part of the century, the average American had to work two hours to buy a chicken. Today it takes 20 minutes. So life is perfectly wonderful? Nothings perfect. But it's not as bad as some would have us believe. For that, be thankful Paul Menzel Essay is "Deju Vu" for David I. Robinovitz Presentation to the New England Chapter of Eastern Association of Equipment Lessors The Hartford Club, Hartford, CT July, 1993 David I. Rabinovitz INTRODUCTION: When Ed and Alan first phoned to invite me here today it was to be a small gathering and Ed asked if I would make some sort of presentation to the group. Nothing specific, just try to be interesting. By the time the plans were firmed up the "small gathering" had evolved into a rather sizable meeting and flying by the seat of my pants definitely would not work. We reviewed the roster of speakers and it immediately became clear to me what to present. Just place me ahead of Joan Kahn's (ORIX) discussion on The Underwriting Process of big ticket transactions and I would provide a solid lead-in with a presentation on credit packages. What would make this even more beneficial for me is that Champion's own sales meeting was upcoming on July 9th and we had devoted a substantial amount of time to the same issue. The proper presentation of credit has become a hot topics in our industry. Bill Granieri, our industry's own marketing guru, wrote a lengthy article on packaging deals in the March/April edition of the Monitor. Hence, without belaboring the issue let me present to you some thoughts on how to better evaluate and prepare your credit materials for your lenders. OVERVIEW: The three 'C's of credit; credit, collateral and character are the components that put deals together and make them fly. Communicating those components effectively and including the proper ingredients is what will separate your deals from the competition and make your approval ratio rise. Obviously, packaging will not make a bad credit into a good credit, but it will make a marginal credit into an approvable credit or in the alternative, if poorly presented, a marginally good credit might not pass muster. The spin doctors of politics get presidents elected and its that same "spin" that you sometimes need to put onto your packages. As we all know from selling, the best way to close a sale is to anticipate what the prospect might say or need and plan our presentation accordingly. We are quite careful to follow the prospect throughout the sales call and constantly adjust our structure or proposal in order to find and satisfy their hot button. That's what closes sales and its also what gets deals approved. Its just that many in our industry don't put the same effort into selling the credit that they do into selling the customer. We are in a sales business. First we have to sell the vendor, then we have to sell the customer and finally we have to sell the credit. Its at this point where many people drop their selling skills. Credit is the step child of the leasing process yet its where we determine whether we are going to be able to cash in on all of the work we did selling the vendor and the lessee. Furthermore, if we don't properly sell the credit we may not have too many more opportunities to sell the vendor. Just as you anticipated what the customer might ask or need in order to close the deal, you now need to anticipate what the funding source might need in order to approve the package. THE NUTS & BOLTS OF WHY: I've learned to negotiate quite successfully by always attempting to be willing to walk away from the table with whoever is seated there. What this means is as follows. If a negotiation is truly a win-win situation, you shouldn't care if you walk away with the buyer or the seller. Everyone should be leaving with a good and fair bargain. Always try to put yourself into the other guy's shoes. If you would be willing to take the deal if you were on his side of the table, it should be an easier deal to sell. The same philosophy holds true for credit. Put yourself in your lender's shoes. The most aggressive sales reps become pussy cats when you ask them to put their money on the line. The word recourse doesn't scare them but ask a sales rep to invest part of his commission into a deal and you'll see a different animal. Ask him to actually come out of pocket and put cash into the deal and personalities really change. Not only will that sales rep probably insist on a guarantee and more collateral, but he'll probably want the kitchen sink before he invests his money in the transaction. However, if the funding source asks for a personal guarantee he'll claim they're being unreasonable and that request alone will probably blow the deal. If you were to invest $16,000 of your money into a piece of equipment going into a company you had never heard of before yesterday, what would you want to know? What information would you require to feel comfortable that your money was safely invested? If you use this frame of mind you will soon be quite successful with your lenders on both small ticket and larger ticket transactions. We use one operative document for our larger ticket transactions, the P&J. P&J stands for purpose and justification. For every transaction we review, our sales rep is required to write a P&J as to why the customer is acquiring the proposed equipment and why the transaction makes sense. Its a good exercise for the sales rep as it causes them to have to get to know the customer better. It also helps the funding source reach a better comfort level with the transaction. If not, we can immediately identify why not and prepare appropriate explanations to accompany the deal. HOW TO PUT IT TOGETHER: When we started increasing our transaction size we were like most broker/lessors. We would gather a bunch of paper, copy it, write a quick story about the deal, usually a few paragraphs, calculate a couple of key ratios and send it off. We knew there had to be a better way we just didn't know how. It wasn't long until one of our sources suggested we use a format they employed for their own sales force. It was a credit memorandum that outlined and explained the transaction. Always suspecting that those smarter than us had some sort of intelligent formula for putting together the materials, our hunch was confirmed. I immediately set out on a 2 week survey to collect as many of these credit overview formats as possible. After looking them over we set up our own, basically a hybrid of what had been seen. A few additional items were added to enhance the package and provide some additional needed data and in short order we had programmed the format that's being passed out right now. It is constantly being updating and improved with experience. The program allows us many shortcuts. For example, if we type is the funding source contact's first name at the top "TO:" line, the program automatically inserts the full contact name followed by the Source's company name, address, phone and fax number. We have many canned automatic fill in fields to make the process easier. The goal is to provide all the necessary data one would want before making an investment decision in a company. What's the biggest difference between sales people and credit people? Keep in mind that unlike sales people who are rewarded for the deals they put together, and hence, have substantial motivation to put together as many deals as possible, credit analysts have an opposite position. If they approve a deal there isn't any reward, but if their deals blow up, they take the heat. Imagine that, all of the punishment and none of the rewards. Consider being on straight salary, no commissions. You don't receive any bonus for writing deals but your pay is docked each time one of your deals defaults. While it isn't quite this tough being a credit analyst, its still a tough line to walk. Experience is that credit personnel don't look to decline deals (well at least most don't), but they don't want to approve a deal without just cause. Your job is to provide a complete analysis covering all of the issues, explaining the strengths and not avoiding the weaknesses. Delve into and mitigate those weaknesses such that the analyst has all of the supporting information he or she needs to back up an approval. Its that simple. Since the sales person has the closest relationship to the customer, they are best suited to accomplish the collection of data to build the credit package. Most sales people by nature sell the benefits and avoid the detriments. To effectively package a credit you need to identify those weaknesses, the detriments, explain, discuss and mitigate them. We do all of this by following a consistent credit format. We always ask for the full required financial package. Don't skimp. Its easier to request that while the customer is in his filing cabinet pulling out tax returns that he provide copies of the last three years rather than just the last one or two. Its easier than having to go back later and ask your prospect to go back to the filing cabinet and get additional data. When a prospect doesn't have everything handy and we decide to move forward on less than what we normally require, we are always sure to disclose that we probably will need the missing data and that the customer should start to track it down, In this manner there are rarely circumstances where the customer becomes annoyed when we come back for the additional information. Also, be sure the data you collect is complete. If the financial statements are accountant prepared be sure you have the accountant's cover letter. If you obtain tax returns be sure all of the schedules are attached. If you are relying on internally prepared financials be sure that the CFO or CEO sign the statements and attest that they are true and accurate to the best of the officer's belief. These small extra steps save time down the road and make the deal flow smoother. Remember, it takes at least three years to show a trend. A few sources want to see as many as five years, though most settle for two or three. We operate under the philosophy that its better to give a little more than to come to the credit party a little empty handed. Early on in my leasing career I was told that doctors would probably make great sales people since they understood how to ask a lot of questions. Always try to keep that in mind when interviewing a customer. Asking the right questions allows you to build a good credit package. Since each customer discussion probably goes a little different than the one before, we always try to cover certain key issues. They're listed on top of page two to our credit memo. The items on the top right of the page are the issues our rep's must completely understand before they conclude their interview with the customer. If you properly cover those issues you will be able to provide the funding source with that comfort level they need to reach to approve a transaction. Our narratives tend to be rather thorough and we had an interesting comment some months ago. In one breath a senior credit pen at one of our sources commented that our narratives were a bit too thorough and resulted in our packages taking a little longer to read through. However, when we offered to shorten the narrative he was quick to jump in and state the narratives offered an unqualifiable ingredient that helped bring about a stronger comfort level. The extraneous information allowed the analyst a better perspective of the company from a non numbers point of view. He felt this was very important and eventually commented that he wished his own people did as thorough a job. The morale is simple, if the package is complete enough such that all the analyst really needs to do is read it through, you'll get a feel pretty early on whether the deal will fly and your deals will become easier for the analyst to process since more of the work is review work vs. having to extract the story and put the pieces together on their own. THE FINAL POLISH: As you can see from our Credit Memo, the first page is an overview of the transaction. By reviewing the first page all alone, the source should understand what the deal is all about. If you can't boil the deal down to the first page, you probably don't understand it well enough yourself to sell it. The second page is the full blown narrative that tells the complete story. Be sure to head each section. That way the analyst can move through the package quickly and will know what each paragraph is supposed to impart. Its also good for later reference. To find a fact the reader needs only to review the appropriate paragraph and not the whole page. Cover each issue thoroughly and anticipate what questions a reader might have. Try to cover all issues but don't be too lengthy. If the narrative is too long it could risk being tossed aside until the reader is ready to devote the appropriate amount of time. Keep the story interesting but don't fall into the trap of writing a neat story that has very few facts and data. Without the facts and data you won't be able to enlighten the reader to the extend you want to. The narrative needs to provide the substance necessary to sell the deal to the funding source. Once the narrative has been read, the analyst should have his mind all set. The next two pages will just allow him (or her) to support that decision. Our third page is the financial spreads. If you process big ticket transactions you should understand basic financial ratios. If you need some brushing up, Merril Lynch has a nice booklet which explains key ratios and why they are important. [so does the American Management Associated "Understanding Financial Statements for Non-Financial Managers, this is a 3" x 6" breast pocket size book] You should be able to easily set up some sort of program to calculate the ratios. Our program allows us to just enter the raw data and the computer provides the ratios. This is actually the first step we do. The numbers tell the story. The numbers determine if there is something worth pursuing. Find out from your lenders what ratios they look for and what the minimum requirements are. If you really want to get thorough, D&B's Banker's Advisory Report provides key comparative financial ratios which you can use to show how your prospect compares to other firm in his industry and at his size. Furthermore, for about $99 per year you can buy an RMA (Robert Morris Associates, the banking community's trade association) Annual Statement Studies Guide. It provides ratio analysis for a variety of SIC codes which you can use to compare to your customer. If you are an industry specific marketeer, the industry trade association of your primary customer base might very well publish a financial statement ratio analysis guide. Using some sort of reference material like that depends on how thorough you want to be. While we have the RMA guides, we rarely use them. We are just starting to use the D&B ratios from the Banker's Advisory Report. Once you have completed the spreads, now its time to move to the final step; page four, financial commentary. This section is where you explain why the numbers appear the way they do. Don't just recite the obvious. If sales are up, the analyst will see that. Explain the untold. Why are sales up. Did they introduce a new product or service? Did the customer open a new location? What is the story behind the sales increase. If working capital has dropped to a deficit position, why is this? Explain why the trends are as they are. Walk the reader through the key ratios and why the trends are as they are. The ratio and numbers analysis will also allow you to better understand the company for whom you are trying to arrange financing. If the numbers will be affected by the proposed equipment be sure to explain, with specificity, exactly how and why the proposed equipment will impact the numbers. Be thorough. If you use this format as a starting point in developing your own presentation and packaging format you will surely find your sources will be more receptive to your transactions. WRAP UP: This credit memo is a sample of what we use on a day-in day-out basis. While not as thorough as it could be, it provides us with a strong framework for us to assemble transactions. The thoroughness of your package will many times determine the odds of an approval. Furthermore, a complete package properly prepared and presented will probably turn around faster than a pile of miscellaneous papers. Its these small extra steps that separate the professionals from the pinch hitters and as part of a dynamic industry of small independent organizations, we should all be in the league of professionals. If you can post this, please go ahead to Leasingnews.org If you would like to join our leasing news network, all you need to do is ask. We are also ON LINE: www.leasingnews.org |
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