By James Nicholson-Smith, Business Development Director & Managing Principal, West Midlands Region, The FD Centre
Many years ago, when I was the FD of a plc’s subsidiary, the chairman of the group told me in his most condescending voice “remember that bank managers should be treated like butlers, when you ring the bell, they come”. I was horrified at such a display of disrespect.
However over time, one can see that the way many entrepreneurs approach the relationship is fundamentally wrong and the master is the bank and the slave is the customer. This creates an unhealthy dynamic that the chairman was trying to exaggerate to make the point.
In the same way your business has many suppliers, all of which need to be managed to support your business effectively, the bank is simply another supplier, in the provision of finance. If that relationship is managed effectively, ultimately it should be more productive.
Buying money should be treated in the same way as buying any other commodity based product from a supplier which the company considers is critical to its survival.
It’s key to remember that banks do not invest money; they lend it. This is a really important distinction because banks have to be repaid. This is why bank’s assess the risk of not being repaid very very seriously.
Therefore the questions you are asked about the reliability of your forecasts are really questions about the ability to repay and not a personal attack on your credibility.
Security issues, like personal guarantees, are always difficult conversations between the bank manager and the owner manager. In many cases the bank manager knows that a personal guarantee is not a deal breaker but has to ask.
Owner managers should always ask why the security is required. This should flush out the real concerns within the forecast which support the repayment ability of the business. If these are not dealt with properly then the bank will walk away if there is insufficient security.
To make sure you have the right team in place to manage your business, contact The FD Centre and ask for a free financial health check, carried out by an experienced Finance Director. If you are interested in finding out more please visit www.thefdcentre.co.uk
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