10 Banking Essentials
You would not skydive without a parachute, so don't do business without these.
From a banking perspective, every business should have these 10 items in their kit bag to either save, make or protect money - whilst maximizing their banking relationship.
Assess whether your business has these as you go (Yes/No responses) and be honest - pass/fail thresholds are at the end.
- a contact (or preferably three) at their bank. When you need assistance, you need to be able to quickly bypass the web and IVR tools and speak to a real person. For a deeper understanding on the benefits of this, check out my post "relationship counts".
- an awareness of your debt position. This means having a good understanding of working facility (overdraft) levels, loan value and any guarantees and leases that you have. It cannot be forgotten that this money is owed - so awareness is important as a motivation for success whilst also being a reality check when the temptation is to spend.
- a good cashflow management process. Cash is the lifeblood of every business, so it is critical that you have a solid process in place to monitor and predict where you are going to be. This also includes regular and timely reconciliation of your bank accounts, debtor collection monitoring and credit payment planning.
- control of credit cards and the cheque book. Two points here, 1. Is security as these are high fraud items in the wrong hands, and 2. As the owner of the business, you need to be responsible and in control of where money is being spent.
- strong security around passwords and authentication devices. Once again, this is driven by security, as passwords and authentication devices are your electronic signatures. If you provide easy access to these, then they will be stolen and you will lose money.
- the "right" level and "type" of insurance to mitigate your risks. Insurance protection is important to mitigate risks, so I am a strong advocate of insurance cover. The key is to ensure that you have the right type and level of cover. Start with identifying what you want (need) to protect – ie. assets, income, capital or the family home etc, and then seek a professional to assist. I have seen businesses fail and others survive - based purely on the insurance cover they maintained.
- oversight on the costs of your banking services. Banks charge for their services and providing these are within acceptable ranges, accept them and spend your valuable time on more productive aspects of your business. Negotiate a good package up front, then monitor monthly and review/renegotiate annually.
- a simple, well integrated banking structure. Rarely will a highly complex banking structure be the most effective for a small/medium business. The more moving parts - the more likely it will cost more, require more time to manage and.... have more opportunity to go wrong! A simpler structure which is integrated and well understood by the owner (or business) will always be my first choice.
- awareness of your interest rate exposure. Is it fixed, variable or a bit of both? Whilst I will go into more detail on hedging in a future post, the reality is that both fixed and variable rates have pro's and con's and these can also change depending on the economic environment. When borrowing money, get a full understanding at that time - inclusive of the costs and restrictions and make the most informed decision you can. Practically, all rate types have an element of speculation to them.
- good front end and collection mechanisms. As mentioned earlier, cash is critical to a business, so having processes which enable the quick and efficient collection of money - into your bank account can save thousands. Merchant systems, direct credit options, automated invoicing (even from your iPad), regular physical banking or cash collection services (yes - some people still deal in cash) can all aid in getting the money in quicker. Equally, a simple phone call to your debtors the day before an account is due can also provide amazing results.
So how did you score for your business? - add up your Yes responses. If you scored 9 or 10, then you are maximizing your banking relationship and enhancing your business potential - keep it up!
If you scored 7-8, then you are doing ok, but there is likely some real value that you are missing out on. Have a look at the areas you missed on and consciously decide what you want to address and map out a plan.
6 and below - then your bottom line is suffering and some immediate action is recommended. Whilst it will vary a bit depending on the mix, with a score of this level you are also making your business more vulnerable to outside impacts.
Running a business successfully means that you need to have the right tools – so don’t free fall without a parachute and make sure that you pack these essentials.