Why SMEs Need To Upskill On Finance
I spend a great deal of time working with SMEs and notice that what many have in common is a lack of appreciation of how important it is to have a basic understanding of the way your business’ finance works and how accountants and investors/lenders look at things.
Finance these days isn’t something you bother with when you need a loan. You need to work at your business’ financials from Day 1. It needn’t take much time, but you need to be able to answer several questions when confronting lenders or investors:
• How strong is the business financially?• How profitable is the business?
• What mainly drives revenues?
• Is the business liquid?
• How much debt does it have?
• How much can it earn in the next 12 months?
Regulation and oversight have evolved over the years, meaning that lenders and investors have to jump through more hoops to get money out of the door (even if they want to). A business that can’t provide a coherent financial picture is going to find getting support.
Another reason to have a good understanding of the financial strength and drivers of your business to be able to evaluate offers.
In addition to knowing your own financial position, you’ll need to understand how to evaluate offers. A lot boils down to going through the details and asking “awkward questions”. For example:
• If you were to actually calculate the charges laid out and add them up, what effect would that have on your finance costs?
• What security is being asked for and how will it impact your ability to trade?
• What “wriggle room” do you have in terms of charges and interest rates? Is the interest rate charged the highest you can afford (leaving little room for manoeuvre in case of a problem), or does it allow you “room to breathe”?
• What happens if the business experiences a run of bad luck?
Once you’ve answered these questions and others you’re then in a position to understand whether the offer is acceptable or not. Don’t just take it for granted that the lender won’t negotiate. They may or they may not. You won’t know until you’ve tried and you may still be able to negotiate better terms in some form or another. With your understanding of your company’s financial performance and bases as well as what will be happening over the foreseeable future, you have authority. You may be able to make concession son pricing, security or even amount lent to get yourself to the best 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: Crisis Management, Financial, Risk, Strategy
posted by William Martin @ 08:31
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