Bank Presentation Blunders

You need money to expand your business…and you need it now!

There are many outlines for bank presentations and business plans. Choose one that is suitable for the business and presents the business in the best possible light.

You need money to expand the business and you need it now! Streamline the business and create greater profitability with the right infusion of capital. Have you tried, in the past, to make a convincing financial presentation, but nothing ever seemed to turn out right? Think your plan makes sense, but you can’t seem to get the presentation over the top? The reason it stalls may be due to one of the following blunders. Ask yourself the following questions and answer them honestly!

1. Are the right individuals making the presentation? Are the individuals making the presentation convincing, enthusiastic and compelling? Do they know the subject matter of the business? Can they talk sales and marketing, operations, administration, finance and profitability? If challenged, can they defend their position? Are they confident enough to present the best possible plan? Can they make a strong impression the banker will remember? If the answers to these questions are “yes,” then you have made a fine team selection. If the answers are “no,” then determine if there are other individuals in the company that could aid in the presentation. If no one fits the bill, the solution may be to enlist the help of individuals outside the company.

If, in the final analysis, there is no one person that qualifies, build a tag team. The team should consist of two to three individuals who know their specific areas of expertise. For instance, the company has a comptroller, a vice president of sales and a director of operations. This tag team could overcome the short falls of any one team member and multiply the chances for a positive outcome. With this approach, each team member presents his or her part of the plan and answers any questions related to his or her area of expertise. A way to further expand the tag team is to combine company team members with external team members such as accountants or consultants.

The purpose of the bank presentation is to convince the bank officer to meet the company’s funding requirements within the time frame of the plan. The presentation requires a plan with a realistic future that provides for growth, return on investment, positive cash flow and profitability.

The presentation needs to paint a picture of profitability. The person, or team, making the presentation needs the lender to see beyond past problems. The lender should be able to visualize the sales and marketing strategy, the planning and financial projections as future reality. The picture must show a profitable outcome.

2. Is the purpose of the plan stated up front? Action is required, so write a plan in terms of the actions that need to occur. Money is required, so state the amount and how it is going to be used. If the amount is important, state it more than once and include it in the cover letter and in the request for the loan. It should also be included in the first paragraph of the executive summary. As a part of this action, review the company, where it is going and why it needs the specified loan proceeds. Make sure the purpose is clear and easy to find. The lender should not have to cipher through the document to locate the purpose.

3. Does the plan include a one-page executive summary, and was it written first or last? This page could be the most important portion of the bank presentation. The banker may not read the entire document until he or she receives an overall impression regarding where the request for funding is headed. As a result, the banker may only read the executive summary and review the historical financials and projections. If he or she is not convinced by that point, the process may end there, so make sure the executive summary is written first as opposed to last. The summary should contain information regarding the key aspects of the detailed plan.

4. Are projected income statements and balance sheets included? If so, are the statements interlinked and tied together? A big mistake has been made if the projected profit and loss statements do not tie to the projected balance sheets. A company can make a profit but go broke as it runs out of cash. This can occur in two ways.

The first way is if an expanding company’s sales are increasing, but receivable days collected and payable days collected remain at the same level. For example, let’s say a company is collecting its receivables at 45 days and having to pay its payables at 30 days because vendors refuse to back off. As a result, the company is quickly expending money, covering the costs of expansion and running out of cash because it is not collecting receivables swiftly enough. If the company remains behind the curve indefinitely, it will most likely fall further behind at an accelerating rate because it continues to grow.

A company can also go broke if its sales remain constant, but suppliers must be paid faster than receivables can be collected. This could be the case with any company that is on a “cash on demand” basis with its suppliers or that has had problems with suppliers in the past. Either the company meets the payable requirements or critical materials are cut off. This is the case today in many construction-based companies, or in metal- or commodity-based industries. The key is that when there is a change in the income statement, appropriate entries must be adjusted on the balance sheet and vice versa.

5. Are the expectations stated in the plan realistic? Is the loan request amount realistic? If a company is currently occupying a 10,000-square-foot building and is requesting a loan in order to move into a 100,000-square-foot building, the request is only realistic if the company absolutely must increase tenfold in size. However, if orders have only increased five percent, and that is the reasonable expectation for each of the next five years, a 100,000-square-foot building may not be justified. There may be a more viable solution such as adding a second or third shift.

Other areas to check for reasonableness include sales and marketing, productivity improvements, profitability levels, financial expectations and management skills.

6. Does every projected action include a time frame? Use of proceeds should be stated in terms of time frames for draw downs and/or asset purchases to be made. Set realistic goals for repayment of loans, and state them in the presentation. Also, display monthly interest payments on the profit and loss projections and principal amortization on the projected balance sheets. Financial projections must display the impact of sales and marketing improvements, in addition to productivity improvements.

7. Is exit planning a part of the process? Everyone wants an exit! Bankers want to know the loan will be repaid in full with interest. Though they are seeking a long-term relationship, they expect to be paid in full at some point in the future. If bankers cannot plan on being repaid in full, they will most likely not extend the credit.

Stockholders and owners want an exit someday either in the form of a merger, sale or transfer of ownership to a family member. Discuss all parties’ exit strategy during the presentation meeting. Exit planning refers to the end game that is part of the beginning play. In addition to the bank presentation, exit strategy planning should be included in any company’s long-term planning. It takes great understanding regarding the actions of the past, and how past mistakes can be corrected, for maximum profits and return on investment to be realized. A strategy must be designed to assure the best possible exit.

8. Does the written plan match the historic financials and financial projections? There is nothing more disconcerting to a financial group than to review a plan that does not match the sales projections, or one that displays direct expenses as a fixed cost rather than a variable cost. If this occurs, a distorted profit picture is presented. If the profit picture is outright wrong, the loan could be rejected without an explanation. The written plan needs to support the historical financial statements and financial projections, and the financials and projections need to support the written plan.

9. Are all relevant material facts disclosed? From a lending standpoint, certain facts are more important than others. However, if a financial institution discovers that a portion of the truth was left out, the loan could be denied and legal problems may ensue. Failure to disclose lawsuits, tax liens, garnishments, judgments, defaults, foreclosures, criminal records, bankruptcies or other problems could cause a time bomb to explode. In today’s world, most material facts are public knowledge and are located in a database somewhere. It is simply a matter of time before they are uncovered.

10. Was the plan written so that everyone can understand it? Like it or not, not everyone understands your business like you do. Bankers are financial people. Sometimes when they are presented with technical details and they relate them to financial impacts, the conversation never extends beyond the technical details. Therefore, it is best to present an overview of the technical details.

Here are two ways to test your ability of explaining the business: 1) Find an eighth grader who knows nothing about the business. If you can clearly explain the business to him or her, chances are that explanation will be understood by someone of a higher educational level. 2) Explain the plan to a friend or relative who knows nothing about the business. Ask whether this person understands the presentation, and present him or her with a list of questions. Perform as many trial runs as necessary.

11. Is the plan supported by assumptions? Loan documents are always reviewed. A loan can be turned down when the assumptions are valid but not documented. For instance, let’s say a company has a contract pending that will increase sales by 40 percent per year. The company has a draft of the contract, but it will not be signed for another month. In addition, the contract will be written for the next 12 months. The plan will show an increase in sales of 40 percent for the next five years because the tentative verbal agreement from both sides is to review and renew the contract on an annual basis. Presenting this plan without an explanation could cause a loan to be rejected because the historical information does not support the increase, nor has a contract been signed. However, the assumptions provide details about the situation and the tentative contract could be attached as an exhibit. This action provides more credibility than showing nothing at all.

12. Does the plan address ownership succession? No one wants to become involved with a company that could fold if something happened to the owner. A lone ranger does not provide for the perpetuation of the business; therefore, this must be addressed in the plan. Make sure to include a paragraph regarding the heir chosen to run the business in the event the owner dies or becomes incapacitated. Also, be sure to document how the transformation would commence.

13. Was the proper research performed regarding the selected financial institution(s)? Presenting a cash flow presentation to a lending source that is an asset-based lender will accomplish nothing unless you have the assets to secure the loan. On the opposite end of the scale, presenting an asset-based financial transaction to a cash flow-based lender will have the same result unless the cash flow is present to support the loan. Failure to perform the requisite homework could end the process with a resounding “no!”

Though most lending institutions will inform the lender if there are problems with credit reports or assets, it does not hurt to take a look at credit scores and determine that the proposed assets are truly “free and clear” from any Uniform Commercial Code (UCC) filings. Make sure resolved credit situations have, in fact, been removed from credit reports and UCC filings were properly removed as well.

14. Does the plan speak in terms of the company’s primary markets? Speaking in terms of the company’s primary markets, versus speaking in terms of the industry, gets the point across. If the company is in the sheet metal fabrication business, discuss the company’s immediate market and the new markets the company would like to enter. The metal industry is large, but the sheet metal industry is also significant.

Let’s say a company has a regional service area extending 150 miles from Wichita, Kansas and only sells to HVAC contractors. The real business is constructing duct work to order and acting as a distributor for sheet metal to HVAC contractors that have the ability to construct their own duct work. The company has been approached by 10 HVAC contractors (potential new customers) in Kansas City. As a result, one month ago, management sent its sales manager to Kansas City to meet with the 10 HVAC contractors. Prior to the trip, the sales manager had his secretary call all of the HVAC contractors in both Kansas City, Kan. and nearby Kansas City, MO., to set up appointments with the larger operations and conduct a mini-marketing survey.

Due to the company’s quality work and competitive pricing, the response was overwhelming. Also, due to the economic downturn in the industry, many potential Kansas City competitors had exited the business. By establishing an additional operation in Kansas City, the confirmed volume could double the company’s sales throughout the next 15 months.

All of this information should be outlined in the description of the company’s primary markets. Results from the mini-marketing survey should also be included. The point is to describe the company’s real markets rather than the industry’s real markets.

15. Are the historical financial statements included in the plan accurate? There is nothing worse than to walk into a bank presentation and present inaccurate financial statements. Many times, inaccuracies will be self-evident to the loan officer. Chart of accounts discrepancies on the profit and loss statement (which should have been on the balance sheet) and vice versa will be instantly discovered. Incorrect chart of accounts locations will also be discovered. Other issues, such as zero depreciation incurred when depreciable assets are present, will stand out because the addition of depreciation will lower net profit. Taxes owed by a C corporation could also be discovered. If there is a question regarding the accuracy of the financials, the best course of action is to have them reviewed by a competent accountant or CPA.

There are many outlines for bank presentations and business plans. Choose one that is suitable for the business and that presents the business in the best possible light. Also, choose one the management team can piece together and utilize to make the best presentation possible.

Never commit a bank presentation blunder.