Evaluate Lenders Effectively
One challenge for SMEs who are able to obtain finance from
banks (or other sources) these days is to ensure that they get terms that are
right for them.
By "terms" I don't mean just the amount of
finance, but also the period for which it will last, the purpose for which it
will be used, the price you will pay (interest AND other "one-off"
fees and charges), any security required and the legal terms and conditions
that will govern the finance.
In some cases, you may have little negotiating power (e.g.
if there's only one bank willing to lend). That still doesn't stop you from
covering the basics to ensure that you know what you're getting, how long for,
for what price, any special terms and conditions and what happens if things go
wrong.
We’ll assume that you have several lenders all of whom are willing
to lend. The only problem is, their proposals are all on different terms. The
first thing to do is reduce everything to the same common terms. Sometimes,
this is easy. Sometimes, you'll be dealing with phraseology that would baffle
the wisest of men. Lenders tend to look at things in their own way, and
although regulators are making a determined effort to simplify borrowers'
lives, things will only change very slowly.
The main items you’ll need to make sure of are:
·
Amount of loan;
·
Actual interest rate per annum* (you need
to convert so you can understand it);
·
Fees and charges – how much, when taken,
added to interest or not;
·
Term of loan (how long will it last);
·
Instalments and frequency.
* “Annual Percentage
Rate” (APR) is different to monthly rates.
For example, a credit card that charges 7.5% interest MONTHLY on an
outstanding balance is charging an EFFECTIVE interest rate of 138% per annum
due to the “compounding effect” of interest.
Don’t be afraid to ask questions and get the lender to
explain exactly what things
mean. After all, it’s your money that you’ll have to pay out.
A few of the key points to look at are:
1. Amount
- is it enough?
2. How
long for?
3. Does
forecast cashflow allow you to pay it off within the term agreed?
4. Interest
– fixed or floating? Charged monthly/quarterly/annually? In advance/in arrears?
5. Will
it be charged on the reducing balance of any loan, or on a "straight
line" basis?
6. What
other fees or charges are there, and when will they be taken?
7. Is
it payable in instalments, or "bullet" payments?
8. What
happens if you pay off early - are there penalty charges for this?
9. Under
what conditions can the lender demand full repayment? Are they within your
(reasonable) control?
10. What
security or covenants (other conditions) does the lender require and can you
meet them? Is it/are they reasonable,
given the circumstances?
Depending on the answers to these questions (and others that
you may think of) will you need to renegotiate?
Now flip this around, and before you go to a lender, work
out yourself what you can afford given your projected cashflows, etc. Which conditions will you accept? Which conditions could be “deal breakers”? This gives a great view of your negotiating
position.
I have spent more than half my
life delivering change in different world markets from the most developed to
“emerging” economies. With more than 20 years in the world financial services
industry running different service, operations and lending businesses, I
started my own Performance Management Consultancy to offer solutions for
improving performance, productivity and risk management. I work with individuals, small businesses,
charities, quoted companies and academic institutions across the world. An
international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of
services. For strategic questions that
you should be asking yourself, follow me at @wkm610.
Labels: Financial, Risk, Strategy
Financial Literacy For SMEs
Small & Medium-Sized
Enterprises (SMEs) operate in a world where knowledge is more important than
ever. Banks and investors are much more regulated and therefore have to be more
discriminating. There are many more
opportunities out there for lending or investing than before IF
lenders'investors' criteria are met.
What this means for the smaller
business owner is that he/she needs a degree of financial savviness to make
sure that he/she gets noticed. The
so-called "Small Business Units" of many commercial banks won't help
you (despite their rhetoric and glossy adverts) unless they're making (lots of)
money out of you. SMEs are seen as labour-intensive, higher risk, and therefore
subject to higher costs and charges. Equally, they don't have the bargaining
power that the "blue chip companies" do.
A small business owner pays a
comparatively higher price to borrow $100,000 from his bank than a
multinational wanting to borrow $10,000,000. If the loan goes bad, the lender
to the SME stands to lose "only" $100,000 compared to the $10,000,000
he/she will lose if the multinational goes bankrupt. however, the banks
consider that the SME is more likely to have problems than the multinational.
Small business owners need to
be able to talk to their banks, investors/lenders, accountants and other
suppliers of credit with authority about how their business is structured and
how it performs. To do this, you need to
understand:
·
What a balance sheet is
and how it works;
·
What a Profit & Loss
Statement is and how it works;
·
What a budget is;
·
What
"Cashflow" is and "Cashflow Statements" are;
·
Your monthly "burn
rate";
·
The implications of
"Gross Profit Margin" and "Net Profit Margin";
·
What key ratios you must
use to see what's going on in your company and where you may be having
problems.
·
What
"liquidity" is.
This doesn't take long to
learn, and with modern accounting software (or even Microsoft EXCEL), you can
easily put together a set of tools that will keep you informed. You need to
review these regularly (I suggest at least once a quarter). As you become more
familiar with them, you'll find yourself more confident when it comes to
dealing with bankers, accountants and investors alike.
As a lender to SMEs, I often
found that my clients were surprised when, based on knowledge of the above
items, I was able to ask why their buyers seemed to be slower to pay, or who
had increased their pricing. It was simple - their accounts told me what had
happened, it was just a matter of finding out how/why it had happened. Imagine
how much more confident and in control you'd feel if you already had the
answers to the "hows" and/or "whys"and a plan to either
exploit the good news or deal with the bad when your lender asked.
A knowledge of:
·
Sales growth and trends;
·
Profitability;
·
Balance Sheet structure;
·
Capital structure;
·
Debt structure;
·
Liquidity.
are the main areas with which
you need to become familiar.
It takes little time, and with
modern technology keeping track of things is easy. I know one business owner who spends a lot of
time outside the country of his business, but a daily set of figures tells him
all he needs to know about the direction in which the business is going. He has a trusted team “on the ground” and so
can concentrate on building more business.
I have spent more than half my
life delivering change in different world markets from the most developed to
“emerging” economies. With more than 20 years in the world financial services
industry running different service, operations and lending businesses, I
started my own Performance Management Consultancy to offer solutions for
improving performance, productivity and risk management. I work with individuals, small businesses,
charities, quoted companies and academic institutions across the world. An
international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of
services. For strategic questions that
you should be asking yourself, follow me at @wkm610.
Labels: Financial, Productivity, Strategy
Pay Attention To Social Media
I comment frequently on the power of the internet to publicise poor service. I’ve come across two examples over the last few months of what can happen.
One appeared as a
Facebook comment. At the time I spotted it, it had achieved 61,293 “Likes” and 5,371 comments. That means that over 61,000 people saw the comment. Imagine how long it would take you to get that sort of story out by word of mouth. The only other way to do it would be to have the story published in a newspaper with a wide circulation (and remember, not everyone reads every article in a newspaper).
There was, among all the comments, one from the airline concerned, but I wonder if anyone saw it. More to the point, did management appreciate that over 61,000 people knew how uncaring their staff appeared in this particular instance? No matter how many satisfied customers they had, this one incident could ruin their reputation.
More recently, I came across a
BBC news article concerning a person who had bought a Twitter advert to publicise a case of poor service by another airline.
I’m sure that it’s pure coincidence that these two cases (which occurred some time apart) concern airlines. My point is that businesses and other organisations need to be aware of the part that internet and social media play when it comes to publicity. Many organisations now have websites and also “Twitter”, “Facebook” and other social media presences. Fewer, I feel, make a proactive effort to actually shape and monitor what others say about them and to address any issues of concern or that may cause negative publicity if posted to a wider audience.
In the case of the Twitter advert, it was targeted at New York and UK readers (how many are there, I wonder?). According to the site in which the article appeared, paid-for tweets get pushed up the Twitter feed of the relevant company. They act as normal messages and can be re-tweeted by others.” In other words, they appear prominently in the “victim’s” Twitter feed and readers can “relay” them to others. To cap it all, the article goes on to say that six hours after the tweet went live, and was picked up by news website
Mashable, it had been read by thousands of Twitter users, re-tweeted and commented on but that
it took another four hours for the airline concerned to pick up on it. In other words, 10 hours elapsed before they took any action.
The damage had been done.
Although it may not be familiar territory, organisations need to consider how to:
- Develop a social media strategy;
- Shape their image on social media;
- Monitor social media effectively (not just having a Facebook page, blog or Twitter presence);
- Direct unfavourable comments to an effective customer complaints department and a PR department or person;
- Act on favourable comments;
- Monitor “trends” to see whether a particular area or service is the recipient of attention (both welcome and not-so welcome);
- Monitor whether favourable or unfavourable comments or stories are “trending” favourably or unfavourably.
Organisations that can assist in this already exist. Even if they’re too expensive, what could you be doing NOW to make sure that you can act according to the points outlined above?
Remember, even if you’re just a small business, people can still “tweet” unfavourably about you or tell their friends on Facebook about you.
I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy to offer solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Crisis Management, Customer Care, Selling, Strategy
Getting Great Service
I
read and hear plenty of comments on how to provide
great service. But what about how to obtain great service?
By this time, most of you will be thinking
I’ve finally gone off my head – too many late nights or something like that. Shame, he was such a nice guy before he went
mad…
Great service takes two. It’s reasonable to expect the staff serving
you to be:
·
Knowledgeable;
·
Courteous;
·
“Professional” (e.g. not to
deceive or lie, keep promises, etc).
Equally, what can you do to make sure that you encourage people to provide great
service?
1.
Smile: OK, I know this sounds simple,
but a smile lightens the mood (particularly if the staff in question has just
finished dealing with a “difficult” customer).
A smile shows you’re welcoming and pleasant to deal with. Ask yourself, if you had to serve a smiling
person or a frowning person, whom would you rather serve first?
2.
Greet them: again, so simple. A pleasant “Good Morning/Afternoon” puts
things on the right footing. I remember
checking in for a flight on Flybe and, having said “Good Morning” to the check-in
staff being met with “Where are you going?” No “Good Morning!” in return, no
smile, just an abrupt dive straight into business. How do you think that made me feel?
3.
State your business: calmly, clearly and
briefly. Never assume anyone will
understand you completely the first time round.
4.
Be prepared to clarify: especially if
they need more information or haven’t understood completely the first time
round – it happens (particularly if you’re upset).
5.
Stay positive: a positive attitude is
infectious and reduces the chances of upsetting others. People want
to be around people like this. Don’t
overdo it and become too cheerful, though; just remain pleasant, polite and (if
necessary) persistent. Some cultures
consider it offensive if you show anger (whatever the reason) and you will
suddenly find all cooperation disappears.
If you have a complaint, your natural instinct
is to be more assertive (if not aggressive) as you have been “wronged”. Just remember, your attitude needs to be one
of “win/win”. Both sides should come out
well of any encounter. Both you and the
organisation you’re dealing with usually want your problem resolved quickly and
without financial loss. Acting like an
enraged tiger is no way to get cooperation and may actually harm your case
depending on how far it goes. This is
exactly where the guidelines above come into play. Make sure that you have your facts right and
that you haven’t done anything that might have either caused or contributed to
the problem.
Even if you feel that people are taking
advantage of your good nature, or even refusing to recognise the seriousness of
the problem, remain calm (difficult though it is) and persist. If necessary, ask to see the person’s
supervisor. If that doesn’t work (or
they refuse) then ask for a copy of the organisation’s Complaints Procedure
which (by UK law anyway) has to be available for all customers to inspect. Follow the steps laid out there. If you still don’t receive satisfaction, you
may be able to complain to the industry ombudsman or regulator, whose decision
will be final.
Remember: follow the above steps, whatever
the situation. It gives you personal
satisfaction as well as the moral, high ground which will always count in your
favour. And who knows, you may end up
making a useful ally!
I have spent more than half my
life delivering change in different world markets from the most developed to
“emerging” economies. With more than 20 years in the world financial services
industry running different service, operations and lending businesses, I
started my own Performance Management Consultancy to offer solutions for
improving performance, productivity and risk management. I work with individuals, small businesses,
charities, quoted companies and academic institutions across the world. An international
speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of
services. For strategic questions that
you should be asking yourself, follow me at @wkm610.
Labels: Customer Care, Productivity, Social
