What's the Banker's View?
There’s been a lot happening in the economy of late and we are increasingly hearing positive news. This is great and I thoroughly approve of being positive and looking at the glass being half full.
However, there are some realities in life and while there is a lot of fantastic business going on, in the background there is more talk within banking of concerns about the trend, when leaving a recession, for an increase in businesses running out of cash. This is endorsed by insolvency practitioners and other business professionals who are starting to find they are increasingly becoming busy after a relatively quiet time through the recession.
So why is there any concern at all? Shouldn’t we all be pleased that business is improving and in some cases, sales are starting to fly?
In my opinion, yes, but through controlled growth with plans in place to ensure, as the business grows, there is sufficient cash to fund the increase in sales or the investment required to sustain this business growth. Without a strong strategic plan to control this growth, history would suggest cash could run out, pretty fast.
This is why the banks are feeling nervous, they’ve seen this many times before and it’s typically something where the business owners and leadership team are even more determined to ignore the signs of problems because in general, everything seems so positive.
What can be done to help when dealing with the bank?
First, think carefully about your business and any growth in sales you expect to see and challenge yourself about the wisdom of pushing for those sales. If you feel it’s the right thing to do, develop an appropriate plan to ensure it is controlled growth and make sure it covers the cash requirements likely to be required. Seek professional help and guidance if you at all uncertain with any of these elements. Then, should everything look viable and justifiable, present your plans to the bank. Never muddle profits with cash!
If you have done all of the above, the bank will be far more relaxed about a forecast showing a strong growth in sales. I’ve often spoken to people who have just headed in to see the bank, excited about their business flying along with loads more sales and feeling very excited about how wonderful everything is, only to leave feeling frustrated and unhappy because the bank manager has just been sceptical and negative.
Therefore, don’t just assume massive sales growth is something a lender will welcome. The principle is great, but they will instantly be thinking about how it will affect the cash position of the business and want to see how this is going to be addressed or why it isn’t the case. Prepare at the earliest opportunity, let the bank see the professionals involved and ensure the bank doesn’t see any reason to suspect you have your head in the sand.