Whether you like it or not you’re going to have to present a case to a bank if you want to borrow money from them. Most banks ask you to fill in some standard forms. Here’s what the forms include, and a few tips on presenting the best possible case.
THE UPSIDE OF THE DREADED BANKING FORMS
Bank managers have heard it all before. Almost all business people tell them that their particular business is different and that a banker shouldn’t use the same parameters to judge their business as they do others. Bank managers therefore spend a lot of time convincing their new customers that, whilst to a certain extent it is true that all businesses do have different detailed characteristics, nevertheless no business can ignore the universal issues that any profit-making company has to take into account. No matter how difficult it is in, for example, a service company to calculate and monitor gross margin, the managers of the business must do it. Another truth that people sometimes plead to be different in their environments is the rule that everything in business is negotiable. No one – lawyer, accountant, financial adviser or supplier of anything – works in a vacuum, therefore everything is negotiable. You don’t have to fill out their forms if you’ve done your own cash fl ow. They’ll be impressed that you’ve gone to that trouble before you were asked. All this is to defend the generalized forms that banks make their potential business borrowers fill in before they’ll consider their case. If the ideas in this section seem like reasonable preparation work, then I’ve made the point. I’ve used the headings and order of one of the major banks’ start-up forms. We should take them seriously for a number of reasons:
• You need to manage carefully your relationship with the bank, and this is their first taste of the new boy’s or girl’s professionalism.
• Whatever business you are going into, the grand majority of the forms are completely relevant.
• Filling them in ensures that you’ve thought through the points they ask for and then converted them into a profit-and-loss account and cash fl ow statement.
• They are comprehensive. If you’ve filled them all in apart from bits that genuinely do not apply to your business, you can rest assured you have covered all the angles.
• They are the first and probably the last bit of free consultancy and subsequent discussion that the bank will give you. Don’t take too much notice of bank managers though. If they really knew about making money, they’d be doing it rather than sitting behind a desk talking to you.
• The forms are mainly there so that bank managers can tick the box and cover themselves should it all go wrong later. Make sure you’ve done your own cash flow and profit calculation exercises and that they’re realistic. Now, don’t forget the point about negotiation. If you find it difficult to fill in one set of bank forms then you may not relish the thought of doing two. And yet, that is what you’ve got to do if you’re to get the best deal. You need to play one off against another. If, for some reason, one turns your case down, then go to a third and try again. Perhaps that way you can still get two offers to compare after all. You may also find, if the second bank has turned you down, that there’s a fl aw in your plan that you really do need to address. Presenting a good business plan to your banker is highly important. It forms part of the ‘contract’ between you and them. They will use it, particularly the numbers part, to monitor your progress and spot things that are slipping early on. So don’t make it so rosy that you are seen to come unstuck in the first six months. They’ll never believe anything you say if that happens. I would add one more significant point. The objective of the business plan for the bank is to get the money. It’s not necessarily everything that you have in your mind and there may be some bits in it that you’ve written down to please the potential lender. It’s a selling document, nothing more and nothing less. If it’s convincing, you get the money; if it’s not, you don’t. Bank managers worry about their jobs and have targets to make. Wow them with your professionalism and upbeat manner and you’re half way there. Everyone likes a winner.
THE FORMS THEMSELVES
Here are the questions you’re going to have to answer. What is your target market? Think long and hard about who your customers will be. Paint a picture of the people themselves, and make sure you’ve talked to as many of them as you can. The more evidence you can give that the target market exists, the stronger this part of the plan will be. Now, try to group them in some way. It may make sense to think about large and small customers, or ones that will travel for your type of service and those who only shop close to home. Only you can organize a sensible grouping. A sandwich shop might group their customers as:
2 Passing trade
3 Offices and shops who order in advance.
The point of this grouping is to identify later on in the process where greater opportunities lie and where better margins and profits can be found. This may mean that you’ll start off looking for the business that’s easiest to get, just to get some sales. But you may decide in the longer term that an emphasis on marketing and selling to another group will, once you’ve cracked into it, give you better profits or larger contracts. Even at this stage there’s a point to dreaming a bit. If you made some alterations to the product or service, could you reach another type of customer? Write the options down: once a great idea is documented it can never be lost. Remember while you’re at this planning stage that dreams are about the unknown as well as the known. Indeed, it is bound to be true that following your dreams will take you in unexpected directions.