How To Monitor Your Business And Keep It Safe: Relationships with Lenders
Managing and monitoring a business is always a difficult task, from market influences to staffing issues, keeping one’s business on track to succeed and grow is a true balancing act.
Sometimes, however, despite best efforts, things don’t go to plan and the balance tips towards uncertainty for the business. It is essential therefore for early warning signs to be recognised and acted upon.
Usually business owners, especially those that maintain close links to good quality external advisers, will spot the symptoms themselves and take early corrective action. It only becomes a problem when any issues are not noticed or, even worse, ignored and that symptom turns into a potentially fatal illness for the business.
We will be highlighting the triggers to watch out for in a series of news items to be published over the coming months.
The sixth in our series we look at Relationships with Lenders.
Relationships with Lenders
With unsecured lending becoming increasingly rare except for the largest and most stable companies it is in most cases ultimately the secured lenders who will be in a position to “pull the plug” on a company.
Banks and other institutional lenders like to see the following profile of a borrower (the list is not exhaustive)
- Company instigates meetings with lenders
- Requests for finance are supported by a sound business plan
- Problems with the business plan implementation are seen in good time and additional funding requirements are discussed in advance of the need
- Good information flow of regular figures, including budgets, cash flow forecasts and management accounts together with general market information
- Overdraft level swings with the trade cycle and does not become “hardcore”
- Preferably only one main lender
Warning signs of an impending break down in the company’s relationship with the lender are therefore:
- Information flow stops (this is usually to conceal the bad news!)
- Accounts produced late
- Bank has to request meetings with the company
- Overdraft becomes hardcore
- Unauthorised overdraft excesses
- Other lenders “discovered” (particularly if there are many of them
- Returned cheques
Open and regular dialogue between lender and borrower will help in times of financial distress. A good axiom to remember is “Creditors would rather hear the bad news than no news at all”. What might appear a huge problem to you may be a situation the lender has seen many times before and can help with.
In our next article, we will be looking at Production Efficiency.