The 5 C's of... Success(?)

Newsletter #22

Hey all, I thought it’d be fun to do 2 free business reviews next week.

Happy to dig into or review any of the following:

• Bookkeeping setup

• Financial processes

• Profitability analysis

• Cash flow analysis

• Strategic planning

Or if you haven’t started a business yet:

• Business plan review (industry/target customer/pricing/margins)

Just reply to this email if you’re interested!

I’ll schedule some time with the first 2 that do.

As you may or may not know, I worked in banking as a Credit Analyst before I launched my Fractional CFO service.

It was a fun job with a simple goal: to analyse the creditworthiness of businesses to whom we lend money.

And as you also may know, I do love some good frameworks that simplify complex or unstructured areas (especially when it’s related to money hehe).

And so one of my fav frameworks is this one:

The 5 C’s of Credit

Bankers will only lend to businesses that have a good chance of being successful.

And they use the 5 C’s of credit to help them figure that out.

So if these rules are good enough to guide billion-dollar decisions, it’s definitely good enough to guide mine.

Hence, I’ve started to view this as a general framework for success.

These are the C’s:

1. Character

No matter how big a business gets, in the end, it’s still people doing business people.

From a bank’s perspective, this is largely focused on your credit history (how you dealt with money in the past).

But it’s much more than that. If you’re not a solid person, you won’t get very far.

Pay on time, communicate well and smile more.

Being trustworthy is rule 1.

2. Capacity

This is related to how much more you can take on.

If you’re already stretched thin, always jumping from one thing to the other, never putting enough time and effort into your main goal, then you won’t have any capacity to take on more work.

This will hurt you when that golden opportunity comes up.

Or if you’re approaching this from a banking perspective, if you’ve taken on so much debt already, you won’t have room to take on any more.

This point reminds me of this quote from the book “Flow”:

That’s what Capacity is all about. Finding your state of flow where you are moving at the exact right speed.

3. Capital

Do you have ‘skin in the game’?

You can’t expect others to fund you or work with you if you have nothing at stake.

In banking, this relates to the equity you put in the business. But it’s just as applicable to anything you do in life.

If you don’t give something your all, why would you expect anyone else to care?

Your actions speak louder than words here.

4. Collateral

This is one I personally find super interesting because mainly people with a “risk” mindset seem to think about it.

It’s a straightforward concept in banking terms. Collateral is the house that you put up when getting a mortgage, or your company assets that you use to secure a bank loan.

The idea is that, for the lender, this is a risk mitigation. Because if you can’t repay the loan, they can at least take ownership of your ‘asset’ and resell that to make some money back.

And that is what this point is all about: downside protection.

This is one of the main reasons why I started my entrepreneurial journey with a service business. Something with limited upfront investment and a high amount of skill acquisition. No matter what happens, I know I can recoup a lot of the ‘lost time’ by using these skills in a different opportunity.

So whenever you take a risk, think about ways to offset it.

5. Conditions 

For a bank, this is the interest rate, loan term, covenants, and any specific legal items.

This shouldn’t be underestimated. Because these details often make or break a deal or agreement.

So if the banks rely on them, why don’t we do the same in life?

Being strict with yourself can really make a difference. Because most people these days are lazy. They constantly get distracted. Quit when things get difficult. And waste time on silly things.

Set your own conditions for life. And treat them just like a bank treats theirs. No excuses.

That kinda turned into a motivational speech.

So I’ll offset it with this picture my sister send me:

Best of the Week

Robert Sterling is honestly one of the best follows on X.

This post wasn’t from this week, but man is it good.

Hope you’re having a good week!

And if you want a free review of your business, don’t forget to reach out.

Cheers,

Joey