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Posts Tagged ‘banks’

The bank is not your enemy

Posted in Entrepreneurialism on June 26th 2009 | 2 Comments

There has been so much negative press about banks lately, and yes I know that the people at the top have made some very big mistakes, but I still don’t get this whole the bank is the bad guy thing that seems to be going on. It is being discussed on Twitter, on business forums, and even when I was at a networking lunch today I felt sorry for an RBS business development manager who found herself trying to defend herself at one point. So I thought I’d put together a guide on how you should work with your bank, because I do and I’m pleased to say I’ve never had an problems with my bank.

Keep you Bank Close
Firstly and most importantly, if you walked up to a person on the street you had never met and asked them for a £50,000 loan what do you think they would say? The chances are they would laugh, tell you get to a life, and walk away, so why would you expect anything different?
If you do not keep your bank in the loop with what you are doing with your business how on earth could you ever expect them to make any personal decisions about your business? Meet your relationship on a regular basis and just fill them in with what you are doing, the plans for the future, and what is  working and what isn’t working. If you have any bad paying customers let them know, I’m talking warts and all. That way they get to know you and your business. You become more than just a number.

Keep them up to date with your finances.
Do you send your relationship manager your monthly management accounts? If not, you should. If you don’t have monthly management accounts then you have bigger problems anyway. Add your bank relationship manager to the email distribution list for your management accounts at the same time they come to you, not doctored versions made to look better or worse, exactly as they come. Also include your aged creditors and debtors, give the bank the full picture.
Believe me when I say, if they know exactly how your finances work and can even see you run a well managed financial system in your company it gives the bank more confidence in your business, it helps them apply the personal touch to decisions about lending or other facilities. If they know nothing about then it becomes a computers decision solely.

Put your money where your mouth is!
So many people expect the banks to freely lend them tens or hundreds of thousands of pounds for their business but are not prepared to commit anything themselves. They are not prepared to put up any security on their house, or any savings or finance of their own in. I’m not a bank but what this says to me is “I’m not that confident in my business so am not prepared to risk my own money, but I’d happily blow your money”. If I was a bank and someone was asking me for money but not put any of their own up alarm bells would be ringing loud and clear. If you don’t believe in your own business then walk away, but if you do believe in your own business then you should be prepared to risk as much as the bank.

Ask their opinion and feedback
You have a good relationship with your relationship manager from the bank because you meet them on a regular basis, and they fully understand your business. They know your financial situation because you copy them in on your monthly management accounts. So now ask them for their thoughts on how the bank can help you with your business, do they have any other clients you could do business with that they could introduce you to? Do they have any other products that could help your business (finance, factoring, more)? Do they have any thought about your business that perhaps from the outside they see and you don’t?

If you don’t have a relationship manager with your bank, get one, if your bank doesn’t provide them then the chances are you will be a number. If you don’t ever need more than a basic current account from your business bank this will be fine. However, if you ever need any borrowing or other more complex facilities then it is important to establish a good relationship with your bank.

I work by these basic rules with my bank and have to say I’ve been extremely happy with them over the past 10+ years I’ve had a business account. I’ve had quick and easy decisions on overdraft facilities, mortgages and other bank facilities. If I didn’t talk to my relationship manager it would not have been that simple, he knowswhen things are good and I’ve also sat with him and talked through when times have been hard, where I have made him aware of what my plans to handle the bad times were. My bank has supported me through all these.

I’m happy to give testiment that my bank is The Royal Bank of Scotland, the bank that has received such bad press lately. The same bank that got the bad publicity for the leaked memo about splitting their good and bad customers into differing categories. Well excuse me, isn’t that what all good businesses are meant to do, not that this was actually what was really happening mind, I’m not going to go into detail here but it was a paper/balance shuffling excercise.

The bank is not your enemy, it can be one of your biggest assetts, but you have to communicate with them. If you don’t then don’t be surprised if you become nothing more than a number processed by a computer.

Are the banks really not lending?

Posted in Entrepreneurialism on March 26th 2009 | 1 Comment

This morning I was at a breakfast meeting and bumped into my bank relationship manager from RBS whilst I was mid conversation with a relationship manager from Clynsedale Bank. We were having a discussion about, as if anything else, the banking situation in the press, Government funding, and the banks calling in of overdrafts and loans.

I had an interesting round table debate at the Chamber of Commerce a few weeks ago where I found myself, only initially, standing alone defending he banks. Almost all business owners around the table were very upset about the stories of banks retracting overdrafts despite none of them having experienced this first hand. An accountant in the room voiced concern that funding was becoming harder to obtain for his clients, and all in all the banks were not being seen in a very positive light. In the end I felt I really had to speak out…

Around that table I said the same thing that I said to the bank managers this morning, are they really not lending any money? I actually believe they are, in fact I know they are, and they are now doing things correctly .. which to be honest they should have been doing in the first place!

My wife and I identified an opportunity for a Buy2Let last night. We done the maths and this morning I spoke to the bank, by this afternoon we have a mortgage approved and we’re about to embark on our first investment property venture. Yes we needed to demonstrate we could afford it, yes we needed to put a chunk of our own money in, and yes the bank has a nce big bit of security over our home to cover our ventures; is that really a bad thing?

Here’s why; a stranger walks in off the street and asks you to lend them £1,000 for a share bet business idea because he knows it will work. Would you hand over your own £1,000? Probably not, but if that person had a fully thought out business plan, was putting in half the money themselves, and put up a bit of security to back you up, then would you? If nothing else, it focuses their mind to work a bit harder when their neck really is on the line, shows some commitment on their part, and makes them really think about their business first. Isn’t that what the banks should have always done before lending money every high risk punt before getting us into this mess?

Personally I can speak from experience, the banks are lending money both commercially and personally, they’re just being sensible about it now and that can only be a good thing. Before starting on any venture it will always need careful consideration, and if your business model in sustainable and you have the security to back youself up the banks are likely to support you.

Deeper & Deeper in Debt

Posted in Entrepreneurialism on March 10th 2009 | 1 Comment

I have a very personal dislike of debt, or credit, depending on your perspective. Yet it is a very important part of business life, and when you are small business having your credit terms abused by many (often larger) customers you need debt to finance the credit your clients demand. So it comes as no surprise that the stories of banks withdrawing credit facilities sends fear through even the most hardened of entrepreneurs.

As someone who deals a lot in China, and hears a lot of stories about how much cash is sitting in China, I couldn’t help but wonder whether the western strategy of outsourcing work to the far east had a part to play in the lack of cash available this side of the world. My theory was based on the following thought process;

A UK business borrows money to finance their business, which is used to pay for manufacture in the Far East. Eventually the UK runs out of finance so demand for manufacture in the Far East drops driving them into recession (demand for their produce drops), yet they have a lot of cash in reserves. The UK Government in a drive to boost the economy borrows more money to from our already deep deficit getting the country deeper in debt, this debt is used to finance the banks debts, which in turn is used to finance the debt of business, with the theory of buying more (debt). Using debt to finance debt just doesn’t sound right, and I couldn’t help wondering whether a better strategy would be to encourage the eastern countries to buy from the west to help finance the west to start buying from the east again.

We all rely onb each other everywhere in this world in which we live, and the theory seemed to make sense.

So I put the questions to my local MP, Sally Keeble from Labour, and also to the Conservative candidate Mike Ellis. I must say Sally wasn’t keen to get involved in the conversation, cutting me short saying “the Chinese need to focus on their own problems” and the UK Government has a strategy in place to recover our economy. I wasn’t convinced, especially as she cut me short and asked for any other questions.

Michael Ellis took the time to give a more detailed response, albiet he obviously included a sales pitch for his party!

Your assessment of our position vis a vis low cost production from Asia these last few years is accurate. They have been producing lots of goods for us, most of which we, as both individuals and companies, have paid for with credit. This has resulted in large reserves for the Chinese government. So again your description is spot on. It is also true that most people feel the Chinese want to increase demand at home.

However, they are in as much of a bind as we and the Americans are, despite their large cash reserves. Our credit-fueled buying has allowed the Chinese to expand their capacity to meet our needs and this has resulted in more wealthy and middle class Chinese, but nowhere near enough to make up for the sudden drop in consumer demand we are now experiencing here – and that their factories are feeling as a result.

It takes a long time to build a stable consumer class, usually requiring a large middle class, and when combined with a Chinese culture that still understandably values saving I think they have a long way to go to build anything close to the internal demand needed to soak up the production capacity they have right now.

In fact they have kept their cash reserves in the USA and the UK mostly to ensure their currency remains relatively low in value compared to ours so as to keep the cost of their goods low – hoping we will continue to buy. This has provided an additional benefit to us in the West because their demand for government bonds keeps the interest rate low on our government debt, which again you rightly point out we are now creating lots more of…the CBI were just complaining about that today as you may have seen.

If the Chinese took all their cash home, our currency would weaken further than it has already, the cost of our government debt would soar, their currency would strengthen and their exports would get much more expensive to us, driving down demand from us for their goods and creating more unemployment and slower growth for them! We are in a sense all in this together in the most complicated way….

In short – it would be great if the Chinese had the capacity to create more demand internally, and I am sure they will over the coming decades, which one hopes will increase our share of exports. However, their using their cash reserves alone would likely make a small immediate impact and would have some rather scary immediate consequences for everyone.

So I do stand corrected in that where the Chinese Government are storing their cash reserves is actually helping our economy to a degree, and it does show someone in the running for a chair is definitely more willing to spend some time answering a potential voters questions. His response has also helped me understand some aspects of the economic environment that I didn’t realise.
Despite everything said though, I just find it extremely concerning how the government can get our country in so much debt, and before long we could find ourselves in the same situation as Canada on the verge of a whole country becoming Insolvent! (It’s also interesting that they can find billions to bail out the banks for their danm right wreckless management, yet unable to find millions for the NHS). This debt has to be paid for at some point, and the only way this going to work is be increased taxes and interest rates, so let us all sit back and wait for the big hikes in taxes to ultimately pay for the mistakes of the banks, and the money we the tax payers have ploughed into them.