Managing your small business bank manager
How to get the most from your bank manager
While banks that like to say “yes” are the stuff adverts are made of, there are ways to ensure you get the answer you want from your bank manager.
Here are a few useful hints on how to make your bank manager work for you:
Choose the right bank
Ensure you have a bank and a bank manager who are capable of giving you what you want.
It’s not always a good idea to keep your business account at the same bank as your personal account. Resist the temptation of the one-stop borrowing concept. You don’t invest without spreading risk, so don’t borrow without doing the same.
Making it easier for your clearing bank to tot up your total borrowings could easily ruin the next skiing holiday you’ve got planned.
Be equally selective about your bank manager. Each manager usually has his own personal lending limits, so find out what they are before you decide to ’employ’ him. If you’re not happy with your bank manager try another branch, or if necessary, another bank.
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Consult our banks section for advice and guidance on selecting a bank.
Keep them regularly informed
Don’t go and see the bank only when you need something – no one likes to be constantly confronted with tales of doom and gloom, or even worse, thinly veiled gestures of optimism.
Go and see them when you have good news and when you don’t need to borrow more money. Get them excited about your business, enthuse about it and go away without asking them for more cash.
Bankers are an intelligent breed of people – make sure any figures or information you present is correct and consistent with the story you told them last month. One thing that you can be sure of is that everything goes on file and quite naturally, has a horrible habit of being thrown back at you when you least expect it.
Don’t let your accountants/financial advisers do it all for you, but don’t go anywhere without them. Bankers can spot a report that has been written by a professional but signed off in your name. They want to know that you as the borrower understand and believe what you are telling them.
However, do not take the risk of trying to forecast for the Bank without professional help. There is nothing which makes you look more stupid, more quickly, than sending off a profits and losses forecast and cash flow estimate, which hasn’t been reconciled to a balance sheet and which would show negative debtors in year two.
Consider what the bank wants to see
If your bank is not fed regular information, then it can only resort to what can be gleaned from your account. Bankers examine average balance calculations from your statements and also highs and lows on the account. What makes them really twitchy is what they often refer to as “hardcore borrowing” (where the account is constantly up against the limit).
What they love are wide swings from full utilisation of the facility to occasional credit balances. They also compare your company statistics with comparable Industry standards. It pays to look at the trend of your own account before you step into the lion’s den; have pre-prepared answers to the questions they are bound to ask.
Lending usually comes with nasty things called covenants (for example- the facility should always be twice covered by good debtors under 90 days) and guess what, they expect you to adhere to them. It is easy to monitor these covenants and rather than letting them do so, include a calculation in your monthly management accounts that you send them.
Manage your total borrowings
Be careful with your capital expenditure. Try out asset finance, leasing and rental deals rather than outright purchase of equipment and technology goods. While they may look expensive, they are “off-balance sheet financing” which does wonders for your covenant calculations.
Also consider other forms of maintaining cashflow, such as using a factoring company to collect and manage your invoices.
And at all times, try to:
- Minimise the bank’s perception of risk in lending to you
- Increase their confidence and enthusiasm to lend by promising them no more than you know you can achieve, and then delivering above forecast
- Understand what they can and cannot offer and then structure your request so that it is watertight in banking terms
Written by Christopher Jenkins, managing director of Wingrave Yeats, a leading London accountancy and management consulting firm. He won Business Adviser of the Year at the CBI Growing Business Awards in 2001