04 Jun Series 3 – Knowing the Ins and Outs of your Business
Know your business
What is to come?
Robinson Sewell Partners are committed to sharing the educational journey in financial literacy with their audience. We aim to demystify banking, and place all borrowers on a stronger beach head when cementing their funding requirements. Stay tuned for the following 3 mini documentaries to be released every two weeks covering the critical topics of;
If any of these topics trigger a reactive response, please pick up the phone and give us a call. We look forward to hearing from you and assisting you in placing some financial muscle back into your business.
Chapter 3: Know Your Business
The question is thrown out, do you know your business? Do you know the characteristics and sensitivities of the various risks inherent within your business? Do you know which risks you can control & mitigate and ones you can’t. Do you truly understand funding risk?
Risks in Borrowing
Ian clearly articulates that all businesses have risks, and that banks need to you know that you know what these risks are and what strategies have been implemented to minimise the impact of these risks should they materialise. The take home message being: Do you know your business?
Hi, I’m Ian Robinson and welcome to another edition of Robinson Sewell Partners Business Insights.
Today we are going to talk about the second critical element required when seeking a financier, and that is; KNOW Your Business.
How well do you really know your business? Do you know where your breakeven price is for the product you sell, or for the cost of your major inputs including your cost of funds? Do you know what your tail end risks are and what potential impact that would have on your business? By tail end I mean low probability but high risk: an example is yourself as the key man becoming permanently incapacitated. What flexibility do you have in scaling your business down with regards to your fixed overheads? What funding risks are inherent within the business?
Risk analysis is a technique used to identify and assess factors that may jeopardize the success of reaching a goal. From a banking perspective it is financial viability risk. Remember banks are not risk takers, owners of private enterprise are. Banks are trained on assessing risk and they need to know that you know what the risks are and what procedures have been implemented to reduce the bank’s exposure to risk.
Risks that you need to be aware of are ones you can control and risks that you can’t. Risk within your management may include:
1) Production Risk
2) Operational Risk
3) Management Risk
4) Financial Risk
5) Funding Risk
6) Price Risk
7) Cash flow risk
Risks you can’t control or potentially foresee
1) Political risk
2) Regulatory risk
3) Economic risk
4) Seasonal risk.
Question: If there was only a 1% chance of a certain risk event occurring, but if it did occur it would wipe out your business, is that an acceptable risk? What would you pay to protect that risk?
Knowing your Business is ensuring that you constantly recognise your ever evolving exposure to these risks and that you have financial, operational and managerial control measures in place to monitor, report and mitigate these risks on an ongoing basis. Also having a sympathetic understanding of what impact each of these risks potentially have on the business and what mechanisms have you implemented to soften, ring fence or protect your business from these events.
Remember, financiers need to know that you know your business, and that you have systems in place to mitigate risk. Acknowledging and presenting your business in its entirety is what financiers seek. All businesses have risk, do you know your business?
Thank you for listening in. Feel free to make contact with Robinson Sewell Partners to discuss further and I look forward to connecting with you again soon.