29 Nov 7 Habits of a Financial Winner

When borrowing money for a business, the process of bank engagement can be as daunting as child birth.  It can be an emotionally (and financially) charged experience. 

For the experienced, it is another decisive deed in corporate governance and strategic manoeuvring to improve profitability and capital liquidity.

So, what do the astute borrowers do to attain the financial windfall from their efforts? Our article, The 7 Habits of Financial Winner, can guide anyone through the journey safely. 

1.                   Get well informed.

The first step in the process is to learn about the banking landscape.  It is all about optionality.  It can generate funding fall back positions and safety nets within the business, create depth of product availability for enhanced execution capability, create capital flexibility to capture investment opportunity and capture alternative pricing structures for improved profitability.  Bear in mind that this strategy is only from a high-level helicopter view.  Getting to know the intricate internal policy details of the all the available financiers is not only onerous, but it is also a continual moving feast.  It is known from personal experience that high performing business owners certainly partake in this initial level of research to steer objectivity within the decision-making matrix beheld by their management team.

2.                   Financial Control.

Integrating with financiers will be a flawed process unless the business has strong financial control.  Banking is a numbers game, and the first demonstration to any financier is management having a strong grip on the numbers within their business.  This will come down to the reporting processes and procedures.  It is considered indifferent if this process is in-house or externalised, as long the information is timely, accurate and relevant.  Astute operators have noted the importance of financial control within their business to make well founded rational strategic decisions with the ability then to report their analysis clearly to the financiers.

3.                   Know your business.

All business owners are passionate about their business.  That goes without saying.  Most business owners are passionate about the operational side of the business.  This is, of course, the engine room of private enterprise and where all the excitement takes place.  The astute business owners though take full ownership of all aspects of the business, even the elements that are deemed dry and non-financially beneficial, but are in fact essential.  This could be human resources, accounting, reporting, compliance, risk assessment and management, business planning, budgeting.  The list goes on.   They also recognise their personal skill gaps and are comfortable in outsourcing these skills to ensure a healthy holistic management team is empowered within their business.

4.                   Know your banks business.

Knowing the banks business is the toughest of them all.  There is no manual to prescribe best practise against borrowing money.  Financiers are not that strong in articulating the technical sensitivities that underpin strong borrowing behaviour.   Knowing the bank’s business goes beyond understanding bank policy that reinforce loan submissions.  It is also understanding the behaviours, culture and motivators driving engagement in the market. But astute operators make it their business to know.  And if they don’t know they bring someone in that does.  This allows them to make good managerial decisions that drives the business towards their objectives whilst dovetailing their financial requirements neatly into the realm of banking to ensure financial continuity is maintained (and funding risk is minimised).  These business owners, either through experience or education, understand the critical importance of understanding the bank’s business, as complacency is the fool hardy’s playground for disappointment.

5.                   Know how to present your business.

A common mistake is throwing a budget, balance sheet and a set of historical financials in front of a banker and asking for a business loan.  Remembering, it is not a bank’s position to take risk.  A bank does not reap the reward for private enterprise success, the borrower does.  Consequently, the borrower takes on downside risk, not the bank.  Hence, a bank undertakes great pains to ascertain viability and feasibility of each loan in each of its unique set of circumstances.  The core metrics go well beyond the elementary level of data provision.   Great business owners present their business to a bank as if they were a potential investor to the business.  Understand the realms of third party private equity investing and you are on the path to understanding banking.

6.                   Professional courtesy vs loyalty.

Loyalty is a word loosely associated with a bygone era.  The current whirl pool of bank managers is a clear demonstration that personal commitment to a client base (or financier) does not exist beyond the personal agenda of professional development.  Reciprocating loyalty to a financier can come at a major economic opportunity cost.  Every year a banking institution passes down a revenue target to its account managers.  A borrower’s loyalty program to a financier can manifest itself into an accumulation of revenue targets over time resulting in an inflated interest rate and a colourful product cross sell.  Great operators hold a clear distinction between professional courtesy and loyalty.  A regime of professional courtesy is still a relationship enabler, but with a healthy appreciation that banking operates in a competitive environment, and the bank offering at any given time should be reflective of such.  Otherwise the financier will be at risk of losing a client to a competitor who will provide a competitive offering.

7.                   Do something about it.

The most compelling point to take home is ACTION.  A thought bubble that vaporises into the cognitive stratosphere is one that constricts a business from moving forward.  The characteristics noted above will not only improve bank engagement and funding outcomes, but it will also drive innovation, efficiencies, productivity and profitability within a business.  Great operators with excellent financial discipline get rewarded on several levels, not just funding.