FD Centre, Banking Webinar, part-time FDs

• 1. FD Centre Webinar Getting The Most Out of Your Banking RelationshipJames Nicholson-SmithRegional Director, WestMidlands

2. Agenda Who is going to benefit? Credibility? Common mistakes Your needs The Banks needs The people involved Simple toolkit Top tips What next?Market leading Open Progressive Passionate 3. Whats The Point? Entrepreneurs think that products/services and theircustomers are their business But cash flow is the oil in the machinery Do you run a business that needs the oil in themachinery? Do you need to keep some funding in reserve for arainy day? Will you need bank support for an acquisition? Market leading Open Progressive Passionate 4. Who Am I? I am one of the founders of The FD Centre. Largest providers of part-time Finance Directorsto SMEs in the country. Over 250 clients we are FD of more than 2bn ofSME turnover across the UK. We dont just advise our clients on how to buildrelationships, we do it with them. Weve built constructive banking for more than500 clients over the last 4 yearsMarket leading Open Progressive Passionate 5. Common MisconceptionsWhich undermine the ability to build a productive relationship: Entrepreneurs that think banks invest in theirbusiness rather than lend to their business Entrepreneurs that think banks are scary and allpowerful Entrepreneurs that think banks are only there to sellthem more products. Entrepreneurs treat their relationship manager as thebanks decision maker.Market leading Open Progressive Passionate 6. Balance SheetA business needs a bank for the following: Where the business has to pay for its supplies andstaff before it is paid by its customers, it has a workingcapital requirement. The business needs to buy an asset now but willreceive a revenue stream over time. The business may need to borrow money to purchasea competitor or a complimentary business. The business may need to borrow money to fund anexpansion either geographically or to increase densityof market penetration. Market leading Open Progressive Passionate 7. The Banks NeedsThe bank needs: To LEND money if they sat on it their depositorswould have no need for them. To earn an income from lending the money. They need to be certain that they will get repaid. In the event that they do not get repaid how willthey mitigate this to avoid a nasty shock to theirdepositors and funders? Market leading Open Progressive Passionate 8. Reality Pill For Most EntrepreneursBanks are not investors they are LENDERS. There isa big difference: Investors are generally looking for the value of theirinvestment to increase over time. Consequentlyinvestors generally back strategic projects that aremore risky but carry a higher rate of return. Lenders are looking to be repaid with certainty onpredetermined dates and to earn a pre-determinedregular cash income for as long as the loan isoutstanding.Market leading Open Progressive Passionate 9. Reality Pill For Most EntrepreneursUnfortunately, over time the line between investor and lender has blurred: Banks had started to lend to much higher riskcustomers and roll up their regular income... ...Whilst Investors have provided more debt typefunding through complicated funding mechanismsdesigned to protect their initial investment andprovide a guaranteed income stream Market leading Open Progressive Passionate 10. The Relationship ManagerThe clue is in the title: the Relationship Manager ofthe bank is tasked with building the relationship: To understand the businesss financial funding needs and categorising these into different levels of risk. To understand the risks facing the business which might impact on the ability to repay the loan. To understand the safe level of profitability of the business to ensure that any interest and charges can be paid for by the business. Market leading Open Progressive Passionate 11. The Relationship Manager To understand what plan B will be if the initial needs of the business escalate. To understand the capabilities of the management of the business. To build a level of trust between the owner of the business and the bank so that if the original plan fails and repayment looks in doubt, to be there to help recover the position. Market leading Open Progressive Passionate 12. Understanding the IndividualNowadays the relationship managers do not make the creditdecisions to lend: There are sophisticated risk models used by credit to assess the risks on both a macro economic (the sector) and the micro economic (the business itself) level. The relationship manager is there to sell your requirements to the decision maker credit and fight your corner if they say no. The relationship manager is tasked with cross selling other products to its customers to meet the clients other business needs.Market leading Open Progressive Passionate 13. Understanding the Individual The Relationship Manager needs to have your trust so that he can help if there are any early warning signs. The Relationship Managers need to find other business for the bank hes keen to satisfy your needs and win referrals The relationship manager could have 50-500 clients depending on his role. Therefore he/she need to achieve the above without too much work on each client. Not so different from you eh!!Market leading Open Progressive Passionate 14. SummaryGood ManagementCredibility and DecisionsTrustGood quality MIRelationshipCredit decides ManagerRepayment Viability Security Price Market leading Open Progressive Passionate 15. Successful Relationships Generally have open dialogue with the Relationship Manager. They donot need to know everything but they do need to know important stuffthat is actually happening. The bank will have built up a history of credibility around the businessthrough the submission of quality MI on a regular basis. You can ask for help with non bank things. Most banks have a very,very wide network of contacts that could help. The bank will be trying to lend you money when you dont need it. The relationship will feel balanced. This is really important. Market leading Open Progressive Passionate 16. Best Advice Present your business case to the bank so thatthey can clearly see when they will get repaid andwhat the business risks are and how you willmitigate those risks. Banks are suppliers of a semi-commodity product- cash flow to your business. Work with the Relationship Manager Banks generally turn nasty when you ignorethem. They generally imagine the worst if theyare told nothing. Market leading Open Progressive Passionate 17. If Youd Like To Speak To Us In PersonPlease fill out theform on the righthand side Market leading Open Progressive Passionate