Borrowing money to help fund the development or growth of your business is pretty much standard practice today as it has been in the past. That relationship (lending) is often with the bank and is key to the success of any business.
The relationship itself is based on good consistent lines of communication. That means providing the bank with the right sort of information for them to act the way you want them to act – i.e. help support your business. When that communication is effective, relevant and appropriate, the relationship ticks alone even when things might not go quite to plan. The key in that case is keeping them informed. In other words, what is going on and how you plan to rectify the situation. Communication being key.
For example, if the bank knows that there is an element of seasonality in your operation, they can help you manage that with tweaks to the type of funding they offer. If there are periods where you need more funding than the norm then in most cases they are willing to oblige. Particularly if the forecasted outcomes are presented to them in a way that makes sense. I know of a client in exactly that situation. The bank sees them as a good client and they have tailored a solution around the tricky nuances of that business, allowing extra funding for the short peak period they need it. That only happened because the business presented enough relevant information to the bank for them to act.
So when seeking funding it’s a good idea to present a plan of what you need, why you need it and just as importantly, how you intend to pay it back or at least service the funds you seek. Essentially you need to put together a business plan. That gives them a clear idea of what is involved, not only helping them make a positive decision on your behalf but also helping them select the right type of funding to suit your needs.
Once you have the funding, the relationship doesn’t stop there. You need to keep them informed of how things are going. Whether any changes have impacted the business (good or bad) and give them some insight as to what is around the corner – i.e. early warning signals to help them help you should it be needed.
Business disciplines like cash flow forecasting and sound management reporting go a long way in helping banks understand your business better. And also help them position solutions to best fit your needs.
If you’re not using these tools, if you’re not presenting that type of information to your bank on a regular basis, chances are they could see you as a potential risk. That may well impact your ability in the future to get extra funding from them when you need it.
Does your relationship with your bank need a little improvement? Examine whether it’s to do with the information they are asking for and you aren’t yet providing. Don’t necessarily think short term. Think also about what may be around the corner and what your needs may be then. It pays to put the necessary measures and disciplines in place now that bodes well for future negotiations.
If you don’t know what or how to do it, get in touch with us! We’ll help you forge a better relationship with your bank. And with these tools also help you better understand your own business.