Managing your Money
September 26, 2013
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One generally accepted consequence of coming out of recession is an increase in insolvencies – largely as a result of operators responding to increasing demand by adding capacity without thinking through the cash-flow implications of such action.
I have said in the past that a business can run at a loss for some time, but it can only run out of cash once, and someone, probably the bank, will pull the plug on your company. The RHA has recently been talking to the British Bankers’ Association (BBA) about the current economic climate and how banks are responding to both the crisis in the banking sector, which arguably caused the recession, and the needs of businesses that are trying to grow in difficult times. These discussions have been interesting for a number of reasons, not least because of the range of activity that the BBA are involved in. For example, it has established a programme of activity under the banner “Better Business Finance”, which is designed to help banks’ customers to understand – and therefore manage – the relationship with their bank and the various different packages that are there to help. This includes an appeal process where a loan application has been rejected, and we were surprised to hear that almost 40% of appeals are upheld and the applicant got the credit that had been applied for.
Also, there is now a network of “mentors” who can give you guidance on a whole range of financial issues such as decisions relating to funding issues – especially important when you are trying to bridge the cash flow gap that is created in an expanding market. You can find out more about this service, and more information on the full range of information and support that is available from BBA at http://www.betterbusinessfinance.co.uk
One major influence on corporate funding is your credit score, yet I wonder how many proprietors or directors know how to manage this. Again, the BBA can provide help and advice on this subject. During our discussions, we received an explanation of why many banks are reducing or withdrawing overdraft facilities – an action that can cripple a company and one which, ironically, can occur when you ask for an increase in funding. It appears that this is being driven by the many changes that are being made in the banking world as a result of the funding crisis that engulfed the world recently, with banks being required to have all lending fully funded, even when it is not being used. And this is why the overdraft facility that you have never used might be withdrawn if you ask to extend it! We were able to explain to BBA the implications for a haulier who might be using the facility to meet the Financial Standing requirements of the O’ Licence regime. The contact that we have made with BBA will, I am sure, lead to closer cooperation between the two bodies, and I am confident that the advice that they make available will be of real value to firms seeking to expand.