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Common Finance Mistakes

Banks are charities (not)

Some small business owners believe that banks should take on a sort of charitable role to help the business community and society in general. Such an attitude often leads to a poor relationship with banks characterised by one or more of the following:

  • A feeling that banks are 'arrogant', because they turned down a particular loan application

  • A reluctance to provide the bank with 'sensitive' information - 'Why don't they just give me the loan without all this messing about…'

  • A habit of changing banks frequently resulting in a number of rarely-used bank accounts with different banks

    In case there’s any doubt, let’s be clear, banks have one sole objective – to keep their shareholders happy and make them richer. And before you get all hot under the collar about that, it's worth noting that these 'shareholders' are mainly UK pension funds who are acting on behalf of - yes, you've guessed it - you (assuming you have a pension that is).

    It's highly likely that, at some stage in your business life, you'll need finance from the bank of some sort. The best thing you can do is to anticipate this requirement and build a good relationship with the bank in advance. That way, when you need the money, you can be pretty confident of getting it.

    Building a good banking relationship is easy.

  • Start by treating the bank with the courtesy you would give a new and important client.

  • Be pro-active in your communication, for example by sending your annual accounts to your manager with a short covering letter summarising your (excellent) year.

  • Anticipate your funding requirements well in advance. You're much less likely to raise finance if you leave it to the last minute and seem desperate.

  • Finally, treat your account manager's comments with a degree of respect and, if it's at all possible, consider implementing one or two of his or her suggestions.

    If you don't think that a small business account manager with fifteen years of experience has anything of relevance to say about your business, then dare we say that you're not in a position to accuse anybody of arrogance.

    Bookkeeping (again)

    Many small businesses struggle endlessly to find a bookkeeper that they trust and get on with. Small business owners are, by nature, risk takers, whereas bookkeepers are, by nature, cautious and risk averse. There's a difference in culture here, which often results in a poor quality relationship.

    Some companies hardly have any contact with their bookkeepers other than sending plastic bag loads of receipts occasionally and receiving VAT returns, payroll slips and annual accounts in return.

    This might be fine if you have good procedures in place, but if you haven’t and the bookkeeper is left to his or her own devices you may find that (a) the accounts don't reflect the true state of the business and (b) you're paying more tax than you should because items are being overlooked.

    Ignore the differences in outlook and work with, not against, your bookkeeper. This can be as simple as sorting out invoices and receipts into categories and sending them in separate pocket files (rather than chucking everything in a Tesco bag).

    If your financial skills aren’t up to much, you should consider getting someone, perhaps your accountant, to check over the books from time to time during the year. Otherwise if your bookkeeper is doing a poor job, you wouldn’t find out until the end of the year.

    Due to their frustration with their bookkeeper, many small businesses ask their accountant to do the bookkeeping at the year end. Accountants are rather for this job, however and it can be very expensive. Don’t do this unless the accountant has a dedicated bookkeeping function which charges itself out at bookkeeping rates.

    © Envestors 2008

    Reproduced with the permission of Envestors Ltd.

    For extensive information about starting a business and raising finance, see www.envestors.co.uk


    More pages

    Page 1: What management accounts?
    Page 2: Banks are charities (not)

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