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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).

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!

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.

 Click here to access our KPI Discovery Cheatsheet, and start tracking your progress to be bankable!

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
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Is Your Business Bankable

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Financial Jargon

See Also:
Categories of Banks
Finding the Right Lender
Funding Source Versus Lender
How to Manage Your Banking Relationship
Interest Rate
Is it Time to Find a New Bank?

Financial Jargon

My client, Elliott, met a friendly banker at a networking function. The banker told him, “I like your business and would like to loan you and your company money”. Elliott spent time with him because he believed if he got to know him it would be easier to borrow money. But, when the time came for Elliott to borrow the money, the answer he got was no.

Elliott called to tell me he did not get the money and was upset because he thought the banker was his friend. My answer to Elliott was, “he probably is your friend. But, you are not getting what you want from the banker (money) because you are not communicating in his language.”

Elliott got mad during our conversation and said things like banks don’t loan you money unless you really don’t need the money. Then to make matters worse, I told him you, are probably right. He thought just because the banker was his friend and friends help friends in time of need, the money would be his for the having. After we talked a while and he settled down, I told him the problem. Bankers are the individuals who have invaded earth from another planet. They come from the planet known as Financial World. They look and act exactly like the rest of us that inhabit earth with one exception, their language. The language they speak is known as Financial Jargon.

Financial jargon or the language of accounting can make it difficult for the CFO and CEO to work seamlessly together to move the company forward. Learn the language of business in our CFO coaching workshop – the Financial Leadership Workshop.

Learn More About Our Coaching Program

What is this Language of Financial Jargon?

Elliott asked, “What is this language of Financial Jargon?” I told him financial jargon is English or any other language spoken on planet earth but the majority of the human race does not understand the meaning of the words bankers speak. He asked, “Are you talking about financial ratios?” I told him yes, and gave him examples such as current ratioreceivables turnover, net working capital, gross margin, debt coverage, and debt to equity, which are just some of the terms in the language of Financial Jargon.

Sure, Elliott owns a business and survived college where he had taken a finance or accounting course. He even told me he had to memorize all the formulas to earn the grade he received. However, he went on to say, nobody told me I needed to understand the true meaning of these ratios to communicate with an alien known as a Bankers.

Ratios Hold Different Meanings for Bankers

Well, I told him these ratios do have different meanings to your banker than you were taught. Not enough time to teach him the entire language so I just explained one. I said debt to equity ratio could be defined as total debt to shareholders net worth. In college, you were taught this shows how leveraged a company is, in that the lower the ratio, the stronger the company.

To your banker, this ratio tells him who really owns your company; you or your creditors. Bottom line, if this ratio is high, your banker feels they are not talking to the owner of the company and will not loan you any money. So, Elliott, before you try to borrow money again, let’s make sure you are presenting your case in banker’s language.

Instead of using financial jargon around the executive team that doesn’t understand that language, break it down for them. Learn how you can be the best wingman with our free How to be a Wingman guide!

financial jargon

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

financial jargon

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