Is Your Business Bankable?

Is Your Business Bankable?

Is Your Business Bankable
Businesses call us for many reasons but here are two very common reasons why we get called…
They are growing and want to strengthen the financial function.
OR
They are in financial distress and can’t find a way out.
Why does a business need to be bankable? What does being bankable mean? In this blog, we are going to answer all those questions and advise you how to strengthen your banking relationship (something all businesses need to do).
[box] What metrics are you using to gage your company’s performance? It’s important to identify and track those KPIs. Need help tracking them? Click here to access our KPI Discovery Cheatsheet, and start tracking those KPIs today! [/box]

Is Your Business Bankable?

Before we answer the question “is your business bankable?”, what does bankable even mean?
Bankable is a financial jargon that indicates that a business is sufficiently healthy to receive interest from lenders to loan. It’s a basic indicator of a company’s success. If a bank is willing to loan a business cash and/or support a business, then the risk of it failing or not paying is low. A bankable company has significant assets, profits, liquidity (cash), and collateral.
An article from Forbes says it like this, “The bank is your cheapest, but often most difficult, source of capital with which to operate and grow your company.”
So, is your business bankable? There are several things to consider.
Financial health will be the primary focus of determining if your business is bankable. There are other things, such as collateral and the character of the person, behind the loan.

Financial Things to Look for

Financial things to look for:

Non-Financial Things to Look for

Non-financial things to look for include the following:

  • Do you have a strong management team?
  • What does your industry or segment look like (strong, declining, etc.)?
  • Do you have a business plan?
  •  The character of the people behind the company and signing the loan documents
  • Will you provide a personal or corporate guarantee?

If you are unsure, then just ask your banker.

Is Your Business BankableThe Need to be Bankable

We deal with companies that are both highly successful or maybe in a distress situation. If you are successful, then you may want to acquire another company, have a distribution, or invest in CAPEX. In today’s market of relatively cheap access to capital, why would you use your own cash? If you are growing, then you really need to consider a line of credit to help you grow. We see very successful companies in a high growth scenario bleed out of cash and working capital. In those cases, a line of credit would make life so much easier.
[box] Click here to access our KPI Discovery Cheatsheet, and start tracking your progress to be bankable! [/box]

Bankable Business Plan

Now, that you have determined if you are bankable or not bankable, it’s time to put together a bankable business plan. There are several things that banks (and investors) want to see before they invest in your and your company. There are ten sections to a bankable business plan.
(HINT: If you do not have a good banking relationship with your banker, then even the most perfect business plan will not guarantee you will get the capital or line of credit you need/want.)

Value Definition

What ares in your business create value? In a bankable business plan, you need to define your value-generating centers (core-business activities). A successful business will continue to come back to the value that they provide to customers; however, an unsuccessful business will continue to get distracted by other areas of the business that are not generating any or as much value.

Needs Assessment

A Needs Assessment identifies the company’s priorities. It also defines what needs to be accomplished and the steps that need to be taken to achieve the goals. This is a great tool to use to identify what you know and don’t know about your business. Use this process to analyze every part of your business. Score.org provides a Needs Assessment that will gage how well you know your business and your needs.

Differentiation and Competitive Assessment

Porter’s Five Forces of Competition is used in the differentiation and competitive assessment to identify competing products/services and to start the process of differentiating yourself from the competitors. For example, there are 3 companies in Houston that provide the exact same product; however, ABC Co. is working to be bankable. So ABC Co. works to position their product differently and to provide more value than their competitors. Without conducting a differentiation and competitive assessment, ABC Co. risks loosing valuable market share.

Market Analysis

Bankers want to mitigate their risk. Conduct a market analysis to explain exactly that your market is doing. Is it new and expanding? Or is it saturated and declining? This will help explain your company’s growth potential.

Marketing Planning

Put together a marketing plan. Identify how you are going to market your product or service, what your target market is, and how you are going to continue to grow.

Sales and Promotion Strategy

Now, that you have built out your marketing plan, identify your sales and promotion strategy. For example, if a $1 trial for a subscription is critical to your sales strategy, then write that out and explain how it has contributed to your company’s growth.

Organization Design

What does your organization look like? Are you bombarded with too many non-essential personnel or administrative functions? Or is your company designed to optimize all positions to cover both value-adding functions and administrative functions?

Financing Needs

Identify your financing needs. How much do you need to sustain your company? How quickly do you need financing? Answer all this questions

Financial Projections

Next, build out your financial projections. Be sure not to have optimistic projections that are hard to near impossible to accomplish. They need to be realistic, detailed and logical.

Risk Analysis

Finally, what risk does your company have? For example, a company who relies heavily on the oil and gas industry needs to identify what risk they will face if that industry declines.

Conclusion

In conclusion, being bankable is a measurement of success. As previously stated, there are several things you need to watch to remain bankable and profitable. Measure and track those KPIs. Click here to download our free KPI Discovery Cheatsheet.

Is Your Business Bankable
[box]Strategic CFO Lab Member Extra
Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]

Is Your Business Bankable

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

IN CRISIS? GET A STRATEGIC CFO! – CEO Blindspots Podcast

Friend of the firm, Birgit Kamps, recently had Strategic CFO President, Dan Corredor, as a guest on her podcast, CEO Blindspots. CEO BLINDSPOTS HOST: Birgit Kamps. She was speaking five languages by the age of 10, and lived in five countries with her Dutch parents prior to becoming an American citizen. Birgit’s professional experience includes starting

Read More »

SHRM calls ICHRA the 401K for Group Health Benefits

Fed-up with group health insurance? ICHRA is the new way to offer great health benefits and avoid ACA penalties, SHRM calls it the 401K for group health benefits.  In 2020 the Department of Labor, HHS and IRS changed the rules for employer health benefits. They changed the Affordable Care Act mandates and penalties for every

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ SERIES

Strategic CFO™ Financial Leadership Workshop
The Art of the CFO®

Days
Hours
Min
Sec

September 12-15th 2022