Many directors will continue to operate their business and find themselves being approached by their bank and being put into receivership wondering how it all happened. Voluntary administration is always an option to manage a company before it enters liquidation – your best chance of saving what is left of your company. Once the creditors move in, your chances have become none, and often they will move swiftly. As a director have you been caught up in your own dream, waiting for a turn-around that will never happen? Are you operating your business in disguise? Here are a look at the ways that banks constantly check on all business to predict and monitor performance.
- Overdraft. Your overdraft is a big give-away of your business to any bank. They look if you are always at the limit or borrow above your limit. They call this ceiling borrowing. Further to this they analyse your borrowing and look at the trends. If you have any returned cheques, it is like flying a red flag to your bank you are in trouble.
- Computer programs. Did you know that banks use sophisticated computer programmes to highlight badly performing accounts? Banks are constantly monitoring all of their accounts and particularly business. You should build your relationship with your bank if you have any cash problems so it is not them approaching you first — where they do approach you first, it is the start of a slippery slope downwards.
- Commitment. What of the commitment of the key directors/managers – are they demonstrating their commitment? Again this is demonstrated in the relationship those individuals have with the bank. The bank also will monitor how well their advice is taken. As you can see if you start to have a bad relationship with your bank, you may also rapidly lose their support.
- Capital. The amount of capital that a bank has invested in any business, will greatly influence their involvement.
- Other signs. Banks are very interested in the way that you communicate with them. They are very interested in your monthly managements accounts, how well you are audited and how well you can produce forecasts. How fast your company can be audited. All of these factors, will have a great influence on the opinion of your bank towards you.
Your bank can quickly become your enemy if they decide that you are not giving them the relationship and information that they require. If a bank decides that you business does not have the future potential that they require for their own steady profits, they may turn-around very quickly on your business. You must meet all of the professional requirements and beyond to keep any bank on your side. If your creditors turn on you, your business could fall apart rapidly, and you must remember that your bank is monitoring your business from many angles all the time. It is important that you are the one to take initiative with your bank.
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