Our very own Uncle Nige explains why a business owner should NEVER attempt to borrow money when he actually needs it…
It had been a busy day at THP, what with me spreading sweetness and light in the form of five-figure savings for some of my favourite clients. So when I noticed the hands of the office clock pointing to six o’clock, I reasoned that I was probably due a snifter.
Five minutes later I was in my favourite Wanstead hostelry asking the barman to line up the necessaries. “A large brandy and soda,” I hallooed, “with the emphasis on the b. rather than the s.”
Just as I set about inhaling the aforementioned nectar, I saw a familiar outline from the corner of my left eye. It was my old friend Ned, purveyor of fine window cleaning services to the City and assorted glazing owners of Greater London. He had a sheepish expression, rather like a burglar who has just realised he has tunnelled into the police station rather than the bank next door.
“What ho, Ned!” I said, “Didn’t recognise you there without your bucket and chamois leather.”
The poor fish looked at me agog, as though my words hadn’t quite sunk in. After goggling a moment or two longer, the light of recognition finally appeared in his eyes. “Uncle Nige?” he groaned. “Is it really you?”
“The one and the same,” I chirruped consolingly, for it was indeed I. “Something tells me that all is not well in the window cleaning business. Why don’t I recharge your glass and you can tell me all about it?”
I motioned to the barman to get his pouring arm to work, and waited for young Ned to spill the beans.
“Well, it’s like this,” he began. “I always forget, but January isn’t exactly the best month in the window cleaning game. Like a donkey I took on quite a few extra window cleaners before Christmas, and now it’s coming up to payday I’ve discovered there’s not enough cash to pay them all.”
“This is a rum affair, my dear fellow,” I replied, for it was indeed a rum affair. “How are you going to bring it to a happy conclusion?”
“Well, it looks like I’m going to have to tap up my Aunt Helen for the missing thousands. And, to tell the truth, asking her for money is like asking a prize-fighter to demonstrate his skills on your upper maxillary – dashed painful.”
“I see,” I said, nodding sagely. “Could you have used your overdraft instead?”
“That’s just it,” groaned Ned hollowly. “As soon as I realised I’d be short, I shimmied round to see the bank and asked them to let me dip into their funds for a month or so. The unhelpful blighters wouldn’t listen to reason and ushered me out before I could even finish my coffee.”
“Ah, that’s where you made your mistake,” I said. “Listen to Uncle Nige on this one. You made the cardinal error of trying to borrow money when you actually needed it.”
Ned looked at me as though I had just lost my marbles. “So you’re saying I should borrow it when I don’t need it? What help is that if I don’t, er, need it?”
“Think about it old horse,” I said. “It’s a matter of training these bank chaps to give you money before you actually need it. It’s a bit like Pavlov and his dogs – train your bank well, then when you ring the metaphorical bell, they hand out largesse.”
Judging by Ned’s features, none of this had sunk in. So I tried a different tack. “Look, if you go to your bank and say, ‘What ho old money lender, business is brisk at the moment and we plan to take on new staff when we get to December. All good news, but we need to gear up for a busy January and my cash forecast shows cash may well be tight in late December early January.’ Well, if you say that, I can almost guarantee you’ll be given an overdraft on the spot. Bank people like businesses that can think ahead. It reassures them.”
“I see,” said Ned, finally beginning to see the light. “Tell me more.”
“Well,” I continued, “You get yourself the overdraft in advance by proving you know what’s happening with your budget over the year. Then, if you do need the extra cash a few months down the line, it’s already in place. If you don’t use it, all you’ve lost is a small arrangement fee. But your work is done – you have trained your bank to lend you cash before you actually need it.”
“But how will I know when I need it?” asked Ned. “I know January is tough, but we’ve run pretty close to the last of our cash in other months.”
“This is where I can help you,” I replied. “Three years ago your business turnover was half a million. Since then you’ve grown to turn over more than two million – but despite what I keep telling you, you’re still using the reporting and planning procedures you used three years ago. And now I think about it I bet you have not set up departmental accounting costing as I advised ‘back in the day!’”
“No,” admitted Ned reluctantly.
“You’re also in the business of contracting,” I continued expansively, “and those contracts allow your clients to examine your records. You need to ensure you can satisfy your ‘open books’ obligations under those contracts, but allow clients to look no further than the records of the department you have allocated to their contract. In fact, you have to as all your contracts will have confidentiality clauses, so you must have departmental accounts so you can show each client that wants to inspect them the records that relate only to them. Do you see my point?”
“Yes,” said Ned, seeing my point.
“So my advice to you, my chamois wielding friend is to make a beeline for my office at THP tomorrow. We’ll get your systems upgraded to a cloud version so we can work better with you and then we’ll work out with you the departments you need and set them up. Then we’ll roll up our sleeves and work with you and the rest of the board on setting budgets – you know we could be attending your quarterly board meetings – and we’ll get our bookkeepers keeping your records in tip top condition. And then, having made all these changes from the top down, you’ll have trained your bank to lend you money in less time than it takes to drop a bucket of soapy water from a big glass skyscraper. And now,” I concluded, feeling that I had done enough to brighten young Ned’s day, “I seem to have emptied my glass. If you could see your way to filling it with another brandy and soda, I am sure I could squeeze another in before home time.”
Do you have a question for Uncle Nige? If so, get in touch today.
P.S. Brainy cove that Uncle Nige is, he recommends you talk to him or one of his colleagues at THP before you act on the advice on this page. Your circumstances are likely to be different, and he’d hate to see you get landed with accounting systems that’s aren’t right for your business. Call today to book a proper consultation and we’ll spring into action.