0 Flares Twitter 0 Facebook 0 Google+ 0 LinkedIn 0 Buffer 0 Email 0 0 Flares ×

Yesterday I was talking to a business contact of mine who is building a chain of hairdressing salons across the U.K. ( I visited his latest fabulous new salon earlier in the week ). He told me that he only used his bank for some general financial activities – no loan account and no overdraft facility. He managed his business within his available cash and “ was an expert financial juggler “. ( even though it caused a few sleepless nights !! ). Why ??? Because, he said, banks cannot be trusted !! In good times they lent money and in bad times they took it away ( often leading to a crisis for the business ). There was no point building a relationship with your “relationship manager”  because when push came to shove the “ credit control department “ ruled ( That faceless, nameless, locationless department ! ).

Having said that I have one relationship manager who is always fighting my corner and is always being told off for what I call his “ Nelsonic attitude “. i.e. He shows initiative and boldness and does not always do things “ the way that they have always been done “ or “ exactly by the rules “.   ( It will not be lost on historians amongst us that Nelson did not follow the rules but won major victorys ).

Clearly, one of the reasons why we don’t trust banks in recent times is that some of them clearly forgot all they supposedly knew about “ risk management “, “ appropriate leverage “, “ security “ and “ serviceability “ when they decided to invest in “ derivatives “ of sub-prime loans. Most of them were bailed out of their mistakes by the government using our money. So, nobody pulled the plug on THEM then !!! The inescapable conclusion is that there is one set of rules for their own investments and another set of rules for their “ investment “ in our businesses. To add insult to injury having been bailed out of their multi-billion pound or dollar mistakes they then proceed to try and recover their profits and cash through cancellations of business loans and increasing service charges.

So, going back to my salon friend it is better off not to put yourself in a position where the banks can destroy your business because the likelihood is that they will. The recent “ recession “ is just a very extreme example of what has typically been going on for years – somebody decides to “ re-balance the bank’s loan book “ back in central office somewhere and the relationship manager is the last to hear about it.

Talking to my salon friend reminded me of two things that happened at Voyager. ( Where, by the way, we rarely were at the mercy of the banks ).

Firstly, the reason that we started Voyager’s forerunner, LanSwitch, on our credit cards was that we took our business plan to 3 different banks in Kenilworth ( ok, it’s a long story why Kenilworth !! ) who all said NO !!. Without writing a book on this you need to know that we had negotiated an amazing deal with our main supplier of the time, 3Com. Essentially we did not have to pay them until we got paid by the customer. Since most of our business revolved around 3Com this meant that there were essentially no cashflow issues.

I think that we were asking the banks for something like a £10,000 overdraft facility. Every one of them rejected our request for this facility and they basically did not believe our business plan. ( In hindsight it might not have been a good idea  to float an IT company business plan past bank managers who were more used to the car manufacturing industry – which was, of course, dying – and farming !! ).

So we got started ( using our cards ) anyway and like my friend the hair salon man, we just used the bank for basic financial transactions. After a couple of deals won and months we had something like £100K in the bank and a years or so later we had £500K – half a million !!!

Jonny, our Financial Director, called us one day and said that the bank manager had called and asked for a meeting with us. Despite the fact that we had nothing to worry about and they had no control over us we still sort of worried about it. Anyway, when they came over to see us they basically said that the reason that they wanted to meet us was that we had £500K in our bank account, we had gone through a number of their “ business turnover levels “ and they did not know who we were. We just looked at one another and grinned !!

Someone who bought one of my companies has a pretty sanguine approach to banks. Having been given a rough ride over the provision of funding he said that he would put up with banks as long as, at the end of the day, they enabled him to “ leverage “ his money. i.e. if he could get £100K for committing £30-40K that was ok. He accepted all the risks that went with borrowing money from banks  for that reason alone.

It is a sad fact that we don’t trust banks anymore or have any confidence in them. This will cost them dear one day as people do not forget this sort of thing. As the Governor of the Bank of England said the other day on the programme “ The Love of Money “, “ The essence of a bank is confidence “. Without confidence and trust in banks what is there ??




0 Flares Twitter 0 Facebook 0 Google+ 0 LinkedIn 0 Buffer 0 Email 0 0 Flares ×