Balance sheet basics

It might not shock the cynical, but finance directors report that their
banking relationship managers often do not know their way round a balance sheet
– and it is the FD who has to walk them through the basics.

It is an opportunity for FDs. It can help your lenders get a more detailed
picture of your business; it creates trust; and, since those in the banking
community talk to one another, it delivers a valuable marketing message of your
own expertise – something they can put faith in and distribute around the
community.

“FDs need to lead open, thorough and credible communications with people who
don’t always understand their business,” one FD tells Financial Director.

The FD of a large food business says that increasing transparency of
information, as well as taking banks to task on the fine print, has become part
of his approach.

“We were recently told by two of our big lenders that our relationships were
too big to be run out of the region in which we are based, and had to be moved
to London. But we have an important commitment to this region. I personally
wrote to the CEOs of both banks outlining this and the fact that moving the
management to London would damage our relationship.” They reneged.

“FDs need to stand up for finance at an early stage,” he says. “I also take
our lenders around the business a couple of days each year, through shops and
factories. They say it really helps them understand us.”

The banks advise going one step further. “Think about expressing problems you
see two to three years away – and prove that there is little risk in it for that
lender,” one banking manager says.

This does not need to be a time drain. “Don’t give every lender a direct line
to the FD. But don’t be afraid to give all the meaningful information you can to
them,” the big food FD says. “Too much is better than not enough.”