Phil Dibbs
Phil Dibbs

Member Article

How to improve your chances of success

YAS Presentation. This the transcript of a recent presentation that I made to the Yorkshire Agricultural Society about sucession, the economy, how the banks think, and how to increase your chances of obtaining financial support. I think the messages apply to almost any small business seeking bank support or invrestment from a third party.

I just want to give you a bit of background to where we are in the economic cycle and tell you a little about what is driving the banks behaviours now, and probably for the next 2,3, even 5 years. This will hopefully help you to understand how the finance world is thinking, and how to increase your chances of securing the support you need.

Kinsey have published a report on the analysis of boom/ bust cycles in developed economies over the last 100 years that points to a process and time-frame for the recovery of our economy.

The cycle from low government debt/ GDP peak and back to the same pre-recession point takes, on average, around ten years with personal/ GDP debt shrinking more quickly as recessions bite and people stop spending. It is only when personal spending has started again that recovery starts to take place. There is recognition though that government must de-leverage in order to bring their economies under control again. There are signs that retail spending is rising and recovering over recent weeks.

So far in the UK, government debt has not yet begun to fall in real terms, but consumer debt is falling so we are in the very early stages of recovery. The good news is that this is a sign that the economy is following a well-worn path. The bad news is that all the banks economists will be very aware of this process and will feel that right now credit quality is poor and consumer demand is weak.

The Bank of England comments over recent days have pointed to a long and windy path to recovery, so anyone hoping for a ‘silver bullet’ to cure our current economic ills will be disappointed.

Therefore it is not entirely an unfair comment when the banks say that they would like to lend more but that credit quality is just not good enough. In addition to this cycle, the banks also have to contend with the Basel II and now Basel III capital adequacy regulations that require them to hold far greater amounts of cash than before. This is hampering their ability to lend and is actively discouraging any type of unsecured lending. The Banks are far from out of the woods and will I think continue to behave in the way they are now, for some time to come. So that is the bad news!

On a more positive note, Banks like agricultural business!!! British agriculture appears to have turned the corner, with rising Wheat prices and increased worldwide demand for meat. In addition to which it looks as if the dairy industry has bottomed out and is recovering. Land is in demand like never before – which is driving prices upward – although this is of course a double edged sword – and means that with land prices in some cases exceeding £10k pa – returns on capital look poor. The trend now seems, like in so many industries, that big is beautiful and certainly it is the bigger and more modern farms that are the most profitable – mainly due to significant investment in land and technology.

OK so that’s a bit on the economy and the financial outlook – You can’t do much these issues.

That said, there are key areas that you need to be aware of, and which will help you secure finance –

1) Your pitch. When you go to your bank or investor have you prepared your presentation? Have you worked with a friend or adviser to make it perfect? It is always a good idea to rehearse and even roll play important presentations. It really helps to iron out problems and to identify possible questions. There is nothing quite like being prepared.

2) Your business plan. Your bank manager or investor probably has several potential propositions to look at and you need to give him or her an abiding reason to invest in you and your idea. The plan needs to be clear and concise. It needs to cover the main points without the need to refer to other sources of information. If you make life difficult for these busy people they will probably not ‘buy in’ and will move on to another client.

3) Know your bank/ investor. Your bank might have a specialism in a certain sector or type of business. If you find a bank that knows and likes your type of business they will be far more likely to be supportive. The same applies to investors and indeed is even more important as the investor may well also bring expertise that could help you improve your business.

4) Banks are not the only place to go! Alternative sources of finance. Peer-to-Peer lenders, funding circle, investors, business angels, family. You just need to know where to go to get the finance.

5) Banks and lenders in general like to know that you have had the appropriate legal and taxation advice from your advisers – so make sure you can demonstrate this if/ when they ask the question.

Phil Dibbs

www.hawkmoorassociates.com

phil@hawkmoorassociates.com

This was posted in Bdaily's Members' News section by Phil Dibbs .

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