The Bank Won’t Back Your Business Because You Don’t Have a Backup Plan

The first thing that has to be said about backup plans is that there is a definition of a backup plan that your bank uses for its purposes, and a quite different definition of a backup plan that you’ll want to use for your purposes. Trust me – you don’t want to experience the bank’s “backup plan”. When a bank talks backup plans, it usually means (at least as a first step) your banking relationship being transferred to “Credit & Asset Management” or some equally ominous sounding department that is typically interested in only one thing – getting the bank’s money back as quickly as possible and then sending you on your not-so-merry way. That’s the bank’s idea of a backup plan – commonly referred to in the industry as the “secondary exit” when described in credit papers. As you may have already guessed, this secondary exit usually means selling off your assets and placing your business into liquidation.The first question that the bank asks when considering an application for credit is “Is there an underlying, viable, sustainable business here?” Or, to put it into terms that we have been using throughout this series; “Is this business bankable?” In answering these questions, a great deal of analysis is done and your business is assigned a “PD” or Probability of Default based on the estimated ongoing viability of the business. The PD, expressed as a percentage, is an estimation of the likelihood that you will default on your loans within the next 12 months. If you default, the bank has already calculated what they need to know about what to expect from their “backup plan”. Another measure called the LGD or Loss Given Default would have been calculated for your business and is an estimate of how much the bank stands to lose (also expressed as a percentage) when they move from default to recovery – selling off your assets.The backup plan I’m talking about here is the one you need to have prepared for your business. Preferably, your backup plan will kick into effect long before you start defaulting on your loan repayments. Otherwise, the bank’s backup plan tends to take precedence over yours.So how do you go about putting this backup plan together? There are really four “steps” to putting it all together, and the great thing is, the first step is already nearly done for you. That is, it’s already nearly done if you’ve taken my advice from the first few articles in this series and you are now the proud owner of a business plan that includes a sound risk management plan.Step one is all about measuring the things that you need to measure in order to keep tabs on the key risks you’ve already identified in your risk management plan. Needless to say, it does absolutely no good to identify risks your business might be exposed to and then come up with ways to mitigate those risks if you’re not going to measure key elements of your business (internal factors and external factors) to see whether or not you’re being exposed to those risks on an ongoing basis. So step one is simply to regularly measure how your business is going against the potential risks you’ve identified in your business plan in the “risk management” section.Step two is the evaluation of the things you’ve been measuring. In other words, you need to be able to critically analyze the data you’ve collected and understand the implications of them for your business. This is the most important step in your backup plan, because without it, you cannot progress to step three and four and finish the backup plan. Not to mention, you’re left with a load of useless data that you’ve been collecting to mitigate identified risks to your business and you have no clue what it all means. Proper evaluation is required to see how you’re traveling at avoiding or minimizing the risks, but it also allows you to do step three, which gives you the practical, “what to do” part of your backup plan.Step three is to adapt your business plan in whatever way necessary to improve your business, make your business more successful and ensure the long-term survival of the business as a whole. In short, step three is about “reinventing” your business regularly based on the evaluation (step two) of the data you’ve been measuring (step one) to ensure that you NEVER have to revert to the bank’s backup plan, no matter what. The U.S. Marines have a motto that reminds their troops how to perform in any situation, even in the heat of battle – “improvise, adapt, and overcome”. Now, in business, as I imagine would be the case in war, I think it’s always better to do a lot of planning to reduce the amount of improvising necessary. But you get the point – things don’t always go to plan – that’s why you need the backup plan.These first three steps sound pretty straightforward, pretty simple. But getting it right couldn’t have more profound implications for the survival of your business. And properly thinking out what to measure, how you interpret the data collected, and how to constantly improve how you do business will definitely make your business more bankable. Simple? Maybe. Easy? No way. Even the best business minds in the world know that the first three steps don’t make for a complete backup plan if you don’t include one more step…Step four is to seek out expert advice. You will not be able to run a lasting, successful business without creating relationships with trusted advisers that can help you out from time to time. In fact, having established relationships with key advisers that you trust and are willing to “share” your business with comes in handy in almost every aspect of what I’ve been talking about in this series – from putting together a business plan to creating and updating your backup plan. A business owner that thinks he knows everything he or she needs to know without the assistance of some expert advice from time to time is fooling himself and no one else. He certainly won’t come away from an encounter with a bank without giving them at least one reason not to back his business. Connections with and, to an extent, reliance upon key advisers in key areas should never be considered a weakness but an advantage. Competent, trusted advisers can help even the most talented business owners keep a proper sense of perspective on the “forest” and the “trees” simultaneously.Consider some key areas where a trusted adviser could be helpful:Accountant- Do you have an accountant that can help you understand the numbers, what they mean, what the key drivers of your business are and how to act to improve the bottom line? Or do you have “some guy” that you talk to once a year when you need your taxes done?Solicitor – Do you have a lawyer that knows your business, your industry and your individual situation to the extent that he can look out for you and proactively keep you up to date with legal issues that could potentially impact upon you and your business? Or do you have a solicitor (that you only go to when something has become an emergency) that you know only because he did the conveyancing on your last property purchase?Financial Planner – Is your financial planner creating opportunities for you and growing your investment or retirement portfolio in a manner consistent with your appetite for risk and the plans that you have agreed to in regular consultations? Or is your planner just the guy that helped you set up your self-managed super fund that now consists of a term deposit and the commercial premises you operate your business from?Business Banker – Do you have a business banker that is like a business coach; that understands how to run a business and understands how you run your business in particular? Is he proactively looking after your needs whether or not it means he’ll sell you another product? How often does he call you? Visit your premises? Do you have a business banker or a glorified bank teller?Of course, you don’t really need a backup plan if these four steps sound all too hard. Remember, the bank has a backup plan prepared if you don’t already have one. But the bank won’t back your business if they think that they are going to have nothing to rely on other than selling up your collateral. They want to see that your business has made plans to adapt to adverse circumstances and that you are not so set in your ways that you cannot think of alternative ways to run your business if a problem arises.

How to Travel and Places to Go

Traveling is an absolutely beautiful activity that a person or a group of people can do. To travel, is to explore not only different places, but different cultures, different foods, different people, new and exciting languages and accents, enjoy the great and vibrant sites and scenery, and smell the fresh fragrant air of another place, not of your own. You will able to venture and explore different lands and paths leading to new and fun adventures that you will remember for the rest of your life.Travel is great in so many ways, it would be almost impossible to name them all. Some of the awesome benefits of traveling are: It is a chance for you to get away and escape your life for a while, you can learn a lot of new things and do a ton of activities that you probably would never had been able to do back home, you meet new people – possibly even life long friends and you will have great memories for a life time.Some of the places that I would recommend enjoying a getaway in would be Italy, London, Mexico, the Amazon rain forest, Thailand and numerous other beautiful scenic areas. Or better yet, visit the place that you’ve always wanted to go to and make that your priority. I’ve listed some tips of how to travel and make your trip the best as possible:Bring ample money with you – Mostly, this refers to credit or debit cards, so that you can have enough money to shop, pick up souvenirs, to pay for your hotel and food and to have just in case of an emergencyBring cameras – Take a video and a still camera with you so that you can make a photo book of the trip when you get back home.Make arrangements early – Make arrangements for your hotel, flight, transportation, tour group (if any), transportation, etc. weeks, if not months ahead of time. You want everything to go as smoothly as possible.Take a close friend or family member – Why not that a friend or a loved one to double the enjoyment and fun of the trip!

US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%

US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 1.14%. While S&P 500 was trading at 3,701.66, up by 0.98% and Nasdaq Composite 10,690.60 was also up by 0.71 per cent

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US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%
Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. Source: Reuters
US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 345.25 points or1.14 per cent. While S&P 500 was trading at 3,701.66, up by 35.88 points or 0.98 per cent and Nasdaq Composite 10,690.60 was also up 75.75 points or 0.71 per cent. A Reuters report said that today’s strength was on the back of a report which said the Federal Reserve will likely debate on signaling plans for a smaller interest rate hike in December, reversing declines set off by social media firms after Snap Inc’s ad warning.

Source: Comex

Nasdaq Top Gainers and Losers

Source: Nasdaq

Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. The BSE Sensex ended at 59,307.15, up by 104.25 points or 0.18 per cent from the Thursday closing level. Meanwhile, the Nifty50 index closed at 17,590.00, higher by 26.05 points or 0.15 per cent. In the 30-share Sensex, 13 stocks gained while the remaining 17 ended on the losing side. In the 50-stock Nifty50, 21 stocks advanced while 29 declined.