Business incubator The Icehouse presents a series offering advice for growing companies. In part four Alan Young examines what bankers are looking for, and what they can offer.
Owning and running a business in difficult times requires making the most of whatever opportunities and tools you can access. Your banker is a great resource, and if you're not tapping into that, you're missing an important opportunity.
Maintaining an open and honest relationship with your banker will ensure the advice you receive is constructive and relevant.
Understanding the way your banker thinks will also make the relationship easier. His first priority is to ensure you are running a successful business.
There are six key components your banker will look for to ensure you've created a bankable business:
BUSINESS PRIORITIES
Your business priorities should be clear and consistent. If these change suddenly, discussions with your banker will reassure them that changes are being made for the right reasons. Sometimes a business will cut costs and margins to gain a contract and this could give the impression that volume rather than profitability is important.
Business and personal finances should be kept separate. Confusion will often result when personal costs are being paid for from business accounts.
MANAGEMENT STYLE
Ideally, your management team should have a wide range of skills in the financial, production, marketing and human resources departments of the business. A good, stable workforce is an indication the business is being run successfully.
Succession planning is another important aspect that will reassure your banker you're thinking about the long term future of your business. Where are your next leaders coming from? Do you have a plan in place to attract new leadership talent?
Excessive remuneration and fringe benefits for those at the top will raise a few questions. Ask yourself: Are people taking too much out and will this put a strain on the business?
TECHNICAL AND COMMERCIAL MATTERS
Bankers often have insight into other businesses, trends in the industry and changes in technology - frequent conversations with your banker will ensure you are made aware of these.
We can help customers keep abreast of changes in the regulatory environment, as these can be quite damaging to a business if they're not complied with.
FINANCING OPTIONS
Your banker will help you take an unbiased look at how your finance is structured and advise on a good balance between short term and long-term debt.
We'll help you keep an eye on simple things like overtrading, which is essentially trading too fast without the capital base to support that.
We can provide information on bad debt ratios, poor credit control, ageing of debtors and overspending on fixed assets.
We can also point you to business seminars or courses that will help you grow your business.
FINANCIAL AND ACCOUNTING
Forecasting creates a sense of where the business is going. It's a good sign for us when we see an owner or manager consistently plan ahead and understand what the trading cycle will be, what the market place will offer and how the budgets and cashflow tie up.
Warning bells go off when we find it difficult to get financial information. A lack of reporting information, blurred lines within accounting and attempts to hide underlying difficulties are signals of distress.
Bankers can identify these situations and ask the hard questions. Not revealing the full picture will only lead to more questions being asked.
PERSONAL
With most owner-managed businesses, personal responsibilities and commitments often have a direct impact on the business. This is sometimes unavoidable, but often planning ahead and putting additional structures in place can help the business to cope during challenging times. You should bring your banker to the table in the way you'd bring your lawyer or accountant to the table to make sure he is supporting your success and challenging you when he sees warning signs.
Alan Young is regional managing partner at BNZ Partners, a partner of The Icehouse business growth centre. The views expressed are his own and don't necessarily represent those of BNZ or its related entities. The Icehouse is a business growth centre focused on making a difference for New Zealand.
Visit www.theicehouse.co.nz
