Talent, Sales and Cash.
You can have great talent and be a killer sales person but with no cash how are you going to get the work done? You’re going to need staff, insurance and materials. Also, you might not get paid in full for months as you work to complete the work. This is a problem especially in construction.
So whatcha gonna do?
Get bankable…that’s what!
Getting bankable is the cure to slow growth. It means that a bank will stake their cash on you as a savvy business leader. This can be a difficult process. It can take some time. But, with some clear direction, you can do it. And, you and your business will accelerate forward.
Now, I’m not a banker. I’m a bookkeeper. We help business build and keep strong banking relationships. There is no question that great record keeping is at the core of this. But exactly what records matter to the bank?
I wanted to get to the core of what a bank needs to see from a business leader to seriously consider working with them. I reached out to one of my friends who is a banker, and I asked them the only question that matters:
“What are the core things that a business owner needs to organize for themselves to be taken seriously by a bank?”
My banker friend gave me five things that if you as a business owner have organized, you will be taken seriously. You will be able to have a real conversation about your operation. You’ll be that much closer to being bankable.
Here are the five things your banker needs to see::
You need to show a profit. We meet a lot of business leaders who choose to show very little profit. However, when you go to a bank and you haven’t shown a profit in your business that is going to be a significant problem in terms of getting a loan The bank is going to assume you have an unprofitable business If you are in this position and it’s because you are choosing to minimize the profit you show call your CPA and ask them how you can do things differently.
This is an opportunity to make a positive change in the way that you’re managing your bookkeeping and accounting. Let your CPA know that you want to get a loan or a line of credit and that you need to show a profit. They will be able to help make this change. Making this change may cause a larger tax liability. However, It is a small price to pay to be able to grow your business.
You need to have two to three years of monthly Balance, P&L and Cash Flow reporting.
Your Balance Sheet absolutely has to balance.
Your P&L needs to show in general that you’re profitable, as we just discussed above.
Your Cash Flow has to be positive as well.
Everybody has good months and bad months, but the bank is going to look at these reports to judge how safe you are as an investment. This may be a time for you to talk to your financial leader, your CPA, your bookkeeper to see how you can manage your Cash Flow differently or more strategically, so you can build a better reporting mechanisms.
A banker would love to see your Your WIP (Work in Progress) schedule.
This is a really interesting one, because it actually shows that you have projects in the pipeline. If you can show projects for six months to a year out that you have contracts for, that’s amazing. You’re not going to have any invoices yet for this work because the projects haven’t begun, but you have commitments that you will be doing that work and getting paid. That is incredibly powerful. This is an opportunity to make a positive change in the way you’re doing business.
Collateral. In this case, we’re going to call collateral accounts receivable.
This is money that people owe you, or that will be owed to you in a very short period of time. And, versus the WIP report, these are actual invoices that have been sent, or you can show benchmark periods in a project you’re doing where money will be owed to you. Having collateral is going to show your banker you have cash coming in based on projects that you are working on right now.
This one’s personal. This has to do with your financial soundness.
Your personal credit score is going to matter as part of the overall narrative your business story. What my banker friend told me is that if someone is at 670 or better it may be strong enough depending on the strength of the business. But if you really are a new business a credit score of 700 or better credit score is going to have real value.
Those are the five key things.
Those are the boxes you have to check as a business owner in order to get a loan or a line of credit for your business.
I hope you found this helpful. If you know someone who you think would find this helpful, share it with them or connect them with me. I’d love to talk them through what I just did here.