Bankers are very judgmental people. They have to be as they are invariably given limited information about their client and are expected to spot clues about credit risk from the basic information available. Get it wrong and the banker might lose their job, or certainly have their pay impacted. If you are displaying any of these “clues” you may wish to think about making some changes to your business if you plan to ever be a great banking customer.
- Poor Financial Reporting: Probably the number one reason why businesses fail – they don’t have a view of the scoreboard and they don’t know how they are performing. If you can’t put your finger on how your sales went for the last period, how costs compared to these, how profitable each product is that you’re selling, then how can a bank be comfortable either? Your Accountant should be able to assist here.
- Poor Working Capital Management: Do you know what your outstanding Debtors are and are they paying within terms? Do you know how much inventory you have on the shelf? Is it an excessive amount or reasonable for your sales volume? Are you paying your creditors in a timely fashion? Set KPIs for your team based on expected levels that are positive to your cash.
- Your warehouse and Office look like a bomb has gone off: Tidy business = business under control. Messy business = business not under control. Have your team tidy the businesses up and maintain the tidiness – even if it is not in your nature.
- The business has no view of the future: How can a bank take comfort in management if management have no idea why they are getting out of bed every morning. Often a reason for failure, businesses that have no plan can’t possibly be expected to recognise opportunities for improvement and threats to the existing status quo. Do a business plan and a forecast that will excite any investor – not just a bank. Make sure too that the plan shows what this plan will do to your cash.
- The business is continually asking for temporary limit increases: This is a sign of a business that does not know what is around the next corner and has no control of its destiny. Banks would see this as, at best, a poor business model and at worst, a business where management have no competence. Forecasting processes need improvement and model weaknesses like over reliance on large customers need to be addressed urgently.
Nathan Keating is the General Manager of Pearl Financial Services Pty Ltd and has worked in and around banks for nearly 20 years. He now helps businesses solve problems with banks. Services include identifying opportunity to reduce banking costs, increase funding availability when the bank says no and his company even takes over bank management in instances where business owners tire of dealing with their bank themselves.
