Five steps to a longer lasting banking relationship

28 July 2011
Five steps to a longer lasting banking relationship

Trying to work out where that next cash injection is going to come from? Mike Saul, head of hospitality and leisure at Barclays Corporate, provides five steps to a longer lasting banking relationship…

With the economic outlook set to remain challenging, getting the capital you need to keep your operation firing on all cylinders may appear tough. But don't assume that the banks won't lend to you. As a key stakeholder in your business, banks want to help and support as much as possible. Here are five tips on how to keep your relationship with your lender sweet:

Just as any relationship needs trust, honesty and communication, a banking relationship is no different. Experience has demonstrated the importance of working alongside our clients, acting as a business partner to them, helping at each stage of a business' life cycle. In order to do this, however, we need businesses to help us be a part of and really understand their company inside and out.

An essential element of this is being able to have open and honest lines of dialogue with your lender. This can flag early opportunities and ensure the best chance of success or pick up warning signs of any difficulties that the business may have to face and in doing so, better prepare the business to address them. The last thing any business or lender wants is a surprise, particularly one that could have been averted or dealt with at an earlier and more manageable stage. Regular catch-ups or explanations behind the numbers are key.

Engaging with your lender requires the appropriate consideration of presentation and substance, so put your best foot forward. Lenders are looking for a clear, solid business plan supported by a credible management team. This means ensuring you have a real, demonstrable understanding of both your short-term and long-term outlook as well as your designs for the business. This should be considered in two parts.

First, there's the short-term outlook. This is the 12- to 18-month view, which should look at your business' immediate needs, how working capital is used on a day-to-day basis, and crucially, where you want to take the business in the short term. Having this sort of appreciation of your near-term needs and aspirations will be essential for both you and your lender to understand the sort of working capital and funding requirements you have or may need, and will impact the types of discussions that will take place.

Second, you should look at your five- to 25-year plans. Be ambitious, but importantly, be realistic. Where do you want your business to be, and how do you anticipate getting there? Projecting forward in this way will help your lenders see your vision, and having supported many businesses before, will be able to help put you in the best possible position to realise these goals.

Hopefully in taking time to put together your projections and plans you will have taken the opportunity to take stock and consider what is really right for your company. The funding environment and cash cycle implications are challenging, and you may not be aware of the various options available. Once you understand what your needs really are, you will be able to clearly articulate them to your lenders.

Businesses in the hospitality industry have the added challenge that their needs are very specific and are subject to a range of factors that may not affect other parts of the economy, such as the wider impact of alcohol taxes on the sector and the effect of seasonal weather or natural disasters on supply chains or destinations. Readily available working capital is, therefore, a key area of finance for many companies in this industry and there are a range of variable repayment mechanisms which can be geared to the business and its trading cycle.

In the restaurant and pubco sectors, for example, there is necessarily a need for regular maintenance and as such having a credit facility that allows for significant and regular capital outlays is also important; while this spending may be somewhat discretionary, it is vital in terms of the overall business plan and customer retention strategy.

Understanding your needs and being able to articulate them clearly is thus key. In turn, your lender should be able to advise accordingly as to whether or not you are asking for the right financial product.

How do you compare with your peers? When speaking with your bank or lender you need to demonstrate that you not only understand the dynamics of your business and how it sits within the industry, but also how it compares with your competitors. What really makes you stand out from your rival across town? Importantly, this will also involve understanding the end-to-end processes throughout your supply chain. Where do you source your produce from, and what were to happen if, for whatever reason, that supplier failed to deliver. It's surprising how many businesses can't detail the elements of such an essential part of their business, but it can offer a competitive edge if understood fully.

Understanding your business and industry inside and out will unfortunately mean very little without employee engagement. While the sector will inevitably have a higher workforce turnover than other sectors, staff loyalty will add to the brand. These sentiments really do penetrate throughout the business. It is, therefore, imperative to take the time to understand staff dynamics and how to engage them effectively: are there clear markers for career progression, or opportunities to learn new skills? If not, why not?

Simultaneously, a focused approach to attracting new and retaining existing customers cannot be overlooked. Businesses need to demonstrate that they have thought about and are initiating methods of drawing in new clientele without forgetting existing customers.

Lenders will want to see evidence of considered long term marketing campaigns. Customer relationship management (CRM) tools and social media can offer a real edge here. The UK falls behind its American counterparts in this area and lenders are aware of the value and growth opportunities effective use of these tools can offer. While they may not be appropriate for all businesses, exploring these avenues and adopting where suitable will demonstrate a keen awareness of, and appreciation for, new routes and strategies to market.

 Banks are not fair weather friends, we want to help you succeed, but in order to do so, we need you to work along side us. While many of these points may seem obvious, they can often be overlooked. If we can get the basics right we will be laying the foundations for a solid relationship with your lender - a necessity in today's environment.

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