Jonathan Emmott Corporate Finance Partner Armstrong Watson Lifts Lid Some

Thursday, 27 November 2008

I don't think a day has gone by in recent months without the phrase 'credit crunch' being uttered and the word 'recession' is becoming ever more common place. This combined with the demise of some of the world's most iconic financial institutions means vital funding is coming under greater scrutiny.

So how should companies respond to the challenging times ahead to ensure that their business rides out this current economic storm and they have access to the essential finance needed to thrive?

1. Take advantage of your financial adviser. They have a wealth of experience - in other words they've been there, done that, bought the t-shirt, plus they'll be able to provide an objective view on the issues facing your business.  

Banks place a high value on the input and sponsorship of a proposal by experienced financial advisers which will increase the chances of funding success in the short, medium and long-term.

2. Get the right people on board and get the wrong ones off! The banks want to see a management team that works in harmony with a broad spread of experience and capabilities.

Any gaps will be seen as a key floor in the business proposition.

3. Have a goal. Good businesses set themselves goals and focus on achieving them - the best goals are SMART ones:

        

Specific

Be as concise and focused as possible.

Measurable

Goals should be quantifiable and progress should be easily monitored.

Achievable

Is the company structured so you have the resources to achieve the goals?

Realistic

The goals should be challenging and rewarding but still achievable.

Timely

Have realistic timescales that focus the company on realising.

 

4. Develop a strategy. With your goals in place you now need to plan how to get there. Consideration needs to be given to major drivers behind the business and strategies should be developed for key areas such as sales and marketing, purchasing, staffing through to operations management.

 5. Be totally honest about the current situation. Whatever the current financial and commercial situation of the business, you must be honest about it. Banks have seen it all, and no matter how bad you think the outlook is they have seen worse, but the key is honesty.

6. Understand what feeds your economic engine. Every company has a single denominator that drives success in the eyes of the owners. In many instances, however,it is not the obvious approaches that deliver the correct results, and therefore many companies fail to truly understand what drives success.

7. Write a "pitch" document. This should look to convey your message and desired funding in a professional, concise manner that meets the banks requirements in terms of information content. The pitch document will be the key source of information for the bank to prepare its internal application to their credit team. A good financial adviser will prepare this for you, meeting every requirement.

8. Understand the financial requirement and what it means to both your business and your personal finances. You must be able to demonstrate the impact any debt payments will have on cash flow and how the company proposes to deal with these.

On a personal level the bank may seek security over assets or require further investment of capital before they are prepared to lend.

9. Understand your market. As with the overall company strategy the management needs to first understand where they sit in the market, where they want to be and how they are going to get there.

10. Meet with the bank. This should be viewed as a pitch for funding and you should know every detail inside out. The focus should be on how the business makes money, not just the product or service and how the funds will be invested to improve performance.

 

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