Stuck in a Rut?
In the intervening years since I last viewed an end of year school report, things may have changed. Rarely containing a personal comment, they had to be scrutinised for hidden meanings to talk over on parent’s evening. Promises of trying harder were made for after the summer break… the fresh start of un-graffiti-riddled folders and un-bitten pen sets.
Similar to an end of year school report, commercial lending annual client reviews have content which rarely deviates too far from standard statements. Comment of the, could do better or has the ability but needs to focus ilk is made to those whose promises go unfulfilled, with the more usual fare being about fiscal sustainability and continued improvements, steady and measurable progress, operational effectiveness and manageable growth.
Capital, cash flow, credit, reserves, liquidity, surpluses and reorganisation are boring (for the most of us). It’s only when I get my teeth into a project that the structure of those elements take on a different shape, when their life-cycle comes alive, then I get interested. But, for the smaller business owner, when there’s little or no co-operation from the channels or instruments used for these elements, it can be very frustrating – and easy to see why focus disappears. There’s a trajectory to the great unknown which is daunting enough without increasingly hearing the latest in vogue F-word lavishly bandied about.
Distracted focus from a commercial liability can undermine its strength when the base-lines used to measure creditworthiness or business performance keep shifting.
Aversion, happening further up the food chain of global markets, acts to exacerbate the problem of financing for the smaller business owner. Limitations are trickling down in the real economy, at the same time as costs rising; disconcerting the independent business owner and disorienting general financial conditions. Even with positives to a business investment, even for the risk-averse and even in an F-for-Frugal environment, sustaining profitability can suffer from caution as businesses are being forced to operate differently.
Lending banks won’t deviate from their deposit base as they shore up their capital base. The UK inflationary pressures are low, with a likelihood of interest rate increases looming ever nearer.
Banks, and other lending sources, are businesses – hugely complex businesses. They have a business plan or operating strategy (that includes a marketing presence). They’re run with strategic focus, which has strategic objectives and a perception of risk. They have lending profiles and use cost control. Targets seek returns and are derived from KPI’s (Key Performance Indicators), monitored by KRI’s (Key Risk Indicators) for losses (immediately and effectively). They often have a mix of funds and borrowing, debt and equity to operate with. They use monitoring systems for their operating expenses and price margins. Sometimes mid-term reviews are implemented for corrective measures to their targets. They look to minimising their cost of capital and balance their own capital, borrowed funds or reserves and their internal management systems expect customers to operate similarly.
What happens when a businesses system doesn’t have those elements available or implemented?
The only difference between a Rut and a Grave…. is the depth.
Image credits: Sonny Abesamis and SUF Article credit: Copyright SUF © 2014