Here’s eight things you should NEVER say to your bank manager:
1) Why should we bother producing monthly management accounts?
To stay in control of your business, you have to know how your business is performing each month – or at least quarterly. Management accounts enable you and your bank to monitor your progress against plan; your results against last month or last year; your margins, your debts and assets. This empowers you to make decisions early the following month to re-double your efforts on successful ventures and to make decisions to improve margins, kick start investments, hire new staff, re-organise and make savings.
2) What’s the point of a cash-flow forecast? I always know what we have in the bank
Managing your cash flow in difficult times is critical. Sometimes you’ll need to run your business on weekly or even daily cash-flow forecasts so you can prioritise and negotiate payments to suppliers, HMRC, staff and your bank, while making sure your customers are paying on time or seeking favours from your trusted clients to pay early. Without appreciating this management tool, you represent a high-risk category to your bank.
3) We never credit check our customers, they’re established companies
Winning a new customer can be so exciting that checking their credit worthiness is the last thing on your mind, especially when a bad credit rating might spoil the deal. But it’s worth negotiating a contract upfront and stage payments, or simply turning down business which in the long run will be unprofitable because the client never pays or pays very slowly. Your bank manager will want to hear you have a credit account policy to run checks on new customers, just as you would a new employee.
4) Will you lend me £100,000 unsecured for a startup?
Don’t waste time asking for the impossible. You’ll need to understand all the various forms of finance available to you from lease finance, private investors and internet lenders to venture capital funding. Certain angel investors will provide short-term loans at 8.5 per cent to help established companies by expanding their working capital to foster growth.
5) We’ve just opened an account with another bank
Plans for your business expansion may involve setting up new companies with new bank accounts. However, your bank may worry about you opening an account with another bank especially where there’s a bank loan, overdraft or factoring facility in place. Banks are aware how easily and quickly assets (like your cash and debtors from new sales) can be transferred to an associated business or undertaking over whose assets the bank has no control or charge.
6) Perhaps you’d like to have security or guarantees for our loans?
You may be lucky enough to have an old loan or debenture facility in place without either director, holding or associate company guarantees in place. Keep it that way. Never offer something which ties up you and your businesses unnecessarily as you may need the flexibility elsewhere in the future.
7) These are our only commitments (ignoring the off-balance sheet stuff)
Your bank needs to know everything about your business, including all its commitments which impact your ability to repay a bank loan or overdraft such as operating leases or joint ventures you may have with third parties. It’s best to be straight with your bank from the outset so you generate a lasting trust.
8) If you approve this loan, we’ll send you and your partner on an all expenses holiday
Corporate hospitality is a valuable marketing tool to entertain your key customers, investors, suppliers, advisers and the bank. Always be mindful of keeping your integrity and respect intact, not least the Bribery Act 2010.
Robert Murphy is an experienced finance director with My Business FD, which offers high-calibre finance directors to ambitious smaller and growing companies on a part time, flexible and affordable basis. Tel: 0207 717 5254 or enquiries@MyBusinessFD.com.
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