How do you manage the bank manager?

I spoke very recently with one senior partner who had a tough time back in 2008 with a downturn in the housing market due to the financial crisis. He told me quite candidly: “I wish that I had learned, early on in my career in running a law practice, how to manage my bank manager.”

During my time banking the legal market in Edinburgh, it was clear some firms and their managing partners had worked that out really quite well. One said to me and a colleague of mine that “I would never ask a bank for money when I really need it… I would have done so long before that point!” (I know that although long since retired, he will read this and have a quiet chuckle to himself.)

Honestly, he was right with these thoughts. The smart thinking behind this strategy was knowing when was the correct time to put the funding in place, and what it would be utilised for to help develop his practice.

What bank managers respond to

1. Let us start with stating the very obvious: have a clear idea of your finance needs and exactly what the funding will be used for.

Choose a suitable lender and establish the type of funding you are going to seek. The catchall pot of the big overdraft facility is really a thing of the past.

Establish who you are meeting, and what their background is. Check them out on LinkedIn.

Establish what information you need to give them. Typically, this will be:

• full financial accounts for the last three years. Don’t send them the abbreviated or filleted version;
• current management information (MI), including aged debtors and creditors, work in progress (WIP) and fee earner breakdowns; business plans and cashflow forecasts; and if need be personal asset and liability statements.

Send these in advance. There is nothing worse than being handed information like this at the meeting.

2. Put in some preparation time for the meeting or call.

Know your business and be ready to answer questions on sales, departments or fee earner performance, costs, WIP, debtors and creditors, and future plans and requirements (which are reflected in your business plan and cashflow forecasts in particular).

It is worth always thinking about things in percentage terms. For example, “Our Private Client team generates 40% of our turnover.” If you turn over £1 million a year, you would like to think they can fathom that 40% equates to £400,000.

3. Demonstrate that you understand the financial information you are providing. Take an external sector specialist in with you.

• Explain any figures differing from the previous years, such as positive or negative swings or variances in performance.
• Share your terms of engagement and pricing structure.
• Consider what are your firm’s trading positives and negatives.
• Completing a SWOT analysis (strengths, weaknesses, opportunities, threats) may help.
• Check that your HMRC tax and VAT payments are up to date. Confirm this to them: volunteer it up as evidence.

4. Show your commitment to the business.

• Check your website. Does it give a good impression of your firm?
• Decide whether you are prepared to provide security for the requested facilities if required. If so, exactly what type and how much?
• Understand the value of what the lender already has.
• Consider what personal funds you have available to invest yourself. This shows your support for the business and means the lender is not being asked to take the majority of the risks.
• Talk the lender through your firm’s personnel: who has the experience and capability to manage the staff and finances?
• Who are the management team and what is their track record in running a profitable business?
• Explain in detail how your cashflow is calculated and then managed. Support this with evidence such as your aged WIP and costs.
• Know your key performance indicators (KPIs) and which ones are most relevant to the meeting. Which KPIs are you most and least confident of achieving?
• Be prepared to discuss your firm’s policies, recruitment, training and other risk minimisation measures, especially on topical issues such as fraud and cybersecurity.
• Be clear on your firm’s strategy and what your competitive edge is versus that of your identified competitors.

Make their life easier

Put something credible and well thought through in front of the bank manager, and the greatest commodity a business needs will in all likelihood be made available to them – time!

Just in case you were wondering how that senior partner and his firm that I referenced at the start were now doing 13 years on, the answer is very well, thank you – debt free with cash reserves building nicely, giving him and his stakeholders the flexibility to develop and grow their business still further. He has worked out just how to “manage his bank manager”.