Time firms researched their bankers

May 13 2009 by Bill Midgley, The Journal

AT a meeting of some of the region’s senior bankers recently I was encouraged by their statement that they are open for business with cheque books at the ready!

Certainly it was a marked change from the earlier months of the year when the banks seemed to have closed their doors to new businesses and were concentrating on improving the strength of their balance sheets.

What was disturbing, however, was the statement that they were receiving few applications for loans and that what was being put to them was either of poor quality in terms of the project or more often than not in the detail provided. Perhaps it is hardly surprising businesses have stopped asking banks for assistance, but there can be little excuse for an inability to submit a comprehensive business plan.

One of the principal criticisms was that new ventures take an over-optimistic view of their projected sales with perhaps a tendency to make the figures fit the plan.

Any good plan should ensure there is an alternative scenario or what might be described as a plan B.

What is the impact on the business if sales fail to meet the projection and how can this be dealt with, particularly in the early years of a venture? A lack of understanding of the impact of cash flows, combined with the unwillingness to pay as speedily as required, is often the death knell of many a new venture, however innovative the project may seem.

The old axiom that cash is king is more relevant now than it probably has been for a quarter-century.

As the banks are complaining that the quality of information is inadequate, the first approach for any new business is surely to ask the banks for details of exactly what they require.

There is often no more than one opportunity to sell a business and responding to such requirements may be absolutely critical. Businesses will research their customers, so why not also research their bankers to establish exactly what they are looking for, with the response tailored accordingly.

It maybe that what we are now hearing from the banks is an early stage towards a real recovery in the economy.

Perhaps there is some way to go, but at least if they are listening, new ventures should not be afraid to take up the message and respond.

Bill Midgley is a North East business executive and former chairman of the British Chambers of Commerce