This is the final post in the series about bank financing. In Parts I-IV, we explored topics such as profitability, cash flow, industry outlook, balance sheet impact, and collateral. In this final article, we consider the important roles that management experience and strategic planning play in the lender’s approval process for manufacturing and wholesale distribution companies.
All chapters in this series:
- Cash flow, historical revenue and earnings trends, diversification of revenue
- Industry outlook, product demand
- Balance sheet and liquidity
- Collateral and personal guaranties
- Management experience and strategic planning (you are reading this now)
While you have no control over your past tenure in the industry, it is no small issue for your lender. Nor is it a trivial matter how your company has performed during the most challenging times in the business cycle. Many of you have decades of experience, and already have feathers in your cap for successfully navigating the perils of the recent “Great Recession.” But there are other controllable factors in this category that can position your company for greater stability and success. These will make your company a more attractive candidate for lenders.
Particularly if you are planning significant growth, the quality of the management team your surround yourself with plays a vital role. No one can do it all alone; and few owners have extensive personal experience in multiple disciplines, such as marketing and sales, operations, finance and accounting, IT, human resources, etc.
Smaller companies may not require a separate manager for each discipline, but you should not take lightly how quickly a company’s fortunes can turn south during a growth spurt if one or more of these areas fails to keep pace. Unfortunately, I have witnessed many times during my career how the failure to have competent 2nd level managers in place has brought previously thriving companies to their knees.
Also, you should ensure that each of your key managers has ample opportunities for additional training, and for access to industry functions that will assist them in staying ahead of the changing industry curves.
Management succession is also a consideration for lenders in the event you are suddenly no longer at the helm of the business. The grooming and training of a successor is prudent for the long term continuity and viability of the enterprise and should be considered as one of the most important functions of the owner.
How often do you take the time to think strategically about the direction your company should take? If you are doing this, some of the activities that will likely be in place are: (1) meeting with your key managers at least annually for a strategic planning session to plot the future path of the business, (2) setting goals and objectives for the company annually, (3) completing a written business plan incorporating these ideas, (4) capturing the financial impact of these objectives in the form of annual budgets and cash flow projections, and (5) scheduling follow up meetings quarterly with key managers to assess how the business is tracking against the intended results, making adjustments to operations as required to correct any underperformance.
Any shortcomings in the management experience category can be mitigated at least in part through an intentional and thorough strategic planning process. Your lender will recognize and appreciate your efforts to manage the business in such a professional manner. These efforts will greatly enhance the chances of getting the credit your company needs to capitalize on future opportunities.
In summary, the short list of activities you should consider in order to impress your lender that your company is well managed consists of the following:
- Assemble the proper configuration of competent 2nd tier managers
- Provide them with ongoing training and exposure to critical industry issues
- Groom a successor to eventually replace you
- Diligently plan the future course of your company and project the financial impact of those goals and objectives
If you own a manufacturing or wholesale distribution company with annual revenues of $5 to $50 million and want to improve your results in any of the areas discussed in this series of articles, please call 704-575-5809 or email jchristian@trinitas-consulting.com for a complimentary Profitability Optimization Session.