Very few entrepreneurs and managers question their way of operating with banks, the need or not to have debts, the costs and risks that this implies, and the optimal management of the resources obtained from them.
Why do we say that they do not question their way of operating with the banks? We say so, because the vast majority accept the imperative need to contract debts with these entities as a natural and necessary product of their management.
To this we must say forcefully that most of the loans contracted are the result of poor management both in terms of production and marketing, as well as financial.
Banking activity and its credit operations are critical for economic activity, constituting a fundamental component in market dynamics. But although they constitute a key element in the economic process, this does not imply that both banks and companies adequately, effectively and efficiently manage the monetary resources at stake.
Just as bureaucratic tasks are necessary for a correct administration of the company, not for this reason all bureaucratic activities are necessary and are carried out efficiently.
In the same way, many loans may be necessary, most of them are an expensive and dangerous way of plugging the holes caused by poor management of the company.
Bank loans are requested to:
- Investing in fixed assets Investing in inventories Granting loans Acquisition of inventories Covering unexpected expenses Overcoming the lags between the time of payment and the time of collection.
Whatever the type of investments made, it will only be admissible to take such loans when the expected profitability significantly exceeds the cost of the loan, which includes both interest, commissions and other expenses.
Every effort should be made to match expenses with income, and the best way to do this is through an effective treasury budget accompanied by the respective cash flow, in which probabilistic factors regarding possible check rejections should be duly taken into account. presented for collection or lack of punctuality in the collection of accounts.
An effective Dashboard that serves to permanently monitor real income and expenses by PC and compare them with those budgeted in order to have instant alerts in order to adopt corrective measures is of fundamental importance.
If we manage expenditures in such a way that it is a lower percentage of the expected income, and to this we add a security "cushion" made up of saved funds, possible gaps can be overcome without major inconvenience.
The objective of this technique is not merely to apply it so as not to have problems with the banks, but rather to dispense with them as much as possible by financing our operations through our own operationally generated resources.
For this, it is essential to avoid all those wastes that reduce our profits or even cause losses.
Having excess inventories, whether of inputs, finished products or resale goods, not only cause a financial cost due to the need to finance them with bank loans, but also reduce our ability to have funds to use them in more profitable activities or asset turnover.
All those costs generated by excess inventories such as insurance, salaries of warehouse personnel, the cost of physical space, losses due to breakages or obsolescence must be added.
Among the aforementioned wastes, which reduce the utility of the company, we have the problems caused by low levels of quality and productivity, as well as by carrying out activities lacking added value for both the company and the end customers.
Another critical factor is the lack of maintenance of the machines and equipment, which by generating breakages and repairs cause expenses that often require the classic advance in current account.
A good preventive and predictive maintenance plan will result in not needing such extra resources, most of the time not budgeted. What should be budgeted for are the maintenance costs that will prevent such inconveniences and headaches.
A no less critical issue is a sales forecast to avoid excess inventories, trying to work whenever feasible with the highest-output products (based on Pareto studies) and working with the rest of the products on request or having them on consignment.
Bad credit and collections management is another fundamental component. The more precautions are taken when granting loans and the better monitoring of collections is carried out, the less bank credit needs there will be.
When the activity of the economy as a whole is on the rise, entrepreneurs want to take advantage of the moment to expand their activities through bank credit.
In these cases, it must always be taken into account that Financial Institutions are also very interested in obtaining strong benefits through the more liberal granting of loans at higher rates, adding "fuel" to economic activity generates an expansion guided more in future projections than in real demands, with which, when said projections do not come true, the speculative bubble "punctures" with the consequences already well known throughout the world and especially in Latin American countries.
Finally, it should be emphasized a very common error of not having idle resources correctly, at the same time that there are debts with financial institutions. This is an issue that should be avoided through continuous monitoring and performance auditing.
For this, the speedy management of check collection, and the rapid transfer of funds is essential, gaining importance both the information systems, as well as the agreements and contracts that are signed with the banking entities.
Some last issues to be highlighted are: first, the need to correctly assess risks, for which purpose special attention should be paid to both the relationship between total assets and bank debts, as well as terms, type of currency, rate interest rates, currency and currency risks, and the types of guarantees.
Secondly, the businessman must always remember and keep it in mind that the banker will supply him with the umbrella when it is sunny, but he must ask for it when it starts to rain, therefore he must always be very careful with what type of banking entities he contracts his debts.
Banks like any other type of organization have their cultures, values and policies, and for this reason the employer must take good care of who has to contract their debts.
Just as there are unscrupulous companies, there are also financial entities that, lacking ethics and morals, first put aside their responsibility when granting loans, enthusiastic about the possibility of generating juicy profits without much effort, and then faced with collection problems. launch the collection of said credits without further consideration.
Bankers must assume before society what has come to be called corporate social responsibility.
They are both responsible for the funds that are given to them in administration, as well as for the funds that they grant on loan, because behind them there are families, workers, and entrepreneurs who together make economic and social life.
The points to take into account are the following:
- Avoid bank debts and take them that always represent a minority part of the liability structure Carefully analyze the values, culture and policies of the Financial Institutions with which you plan to work Carefully analyze the terms, rates and structure of the liability to contract.
You should always compare the difference between the profitability that you will obtain from the application of the requested funds, with the total costs of said debts. If you contract debts in foreign currency, take out exchange insurance or acquire future contracts to avoid capsizing. To do this, consult a good financial engineering specialist. Detect, prevent and systematically eliminate all those waste or waste that reduce your profits. Those profits that you no longer obtain today may be the funds you need tomorrow. The fact of obtaining good profits does not imply that you set aside the need to continuously improve in pursuit of less waste and higher profits. With the profits obtained, constitute special funds for current and non-current expenses Conveniently manage risks,hiring whenever feasible and necessary the respective insurance. Avoid the loss of resources due to fraud, mismanagement, internal control errors or lack of precautions. Professionally manage Treasury, Credits and Collections procedures. Generate and control budgets and Cash flows. Track continuously and in real time through a Dashboard the evolution of both income and real expenses. In the case of wanting to take advantage of a substantial opportunity to obtain benefits, set goals and limits, rigidly adhering to them, making use of the aforementioned continuous monitoring.Professionally manage Treasury, Credits and Collections. Generate and control budgets and cash flows. Track continuously and in real time through a Dashboard the evolution of both income and expenses In the case of wanting to take advantage of a substantial opportunity to obtain benefits, set goals and limits, strictly adhering to them, making use of the continuous monitoring mentioned.Professionally manage Treasury, Credits and Collections. Generate and control budgets and cash flows. Track continuously and in real time through a Dashboard the evolution of both income and expenses In the case of wanting to take advantage of a substantial opportunity to obtain benefits, set goals and limits, strictly adhering to them, making use of the continuous monitoring mentioned.making use of the aforementioned continuous monitoring.making use of the aforementioned continuous monitoring.
Most only take into consideration financial issues, not relating these to operational issues, but also do not proceed to use technical tools such as budgeting, cash flow and management control.
And even less do they take the trouble to evaluate the entities in which they will deposit their funds or request the credits.
In this regard, it is good to have competent and expert personnel who closely follow the evolution of operations with banking entities, since these, taking advantage of the ignorance of legal regulations or financial processes, tend to harm clients with over rates, non-agreed commissions, differences in the terms of accreditation of funds in their accounts, services not agreed, errors in the calculations of the numerals, among many other issues.
The error of the majority is to record and accept bank debits for the mere fact of having been calculated by financial institutions, even the same external auditors only manage to verify the correspondence between the amounts recorded with those reported by the banks.
Never, under any point of view, should you stop controlling the aspects mentioned above. And something important, if in the face of a complaint about a bad charge the bank does not return the funds, or does not prevent errors from happening again, do not hesitate to change banks.
Constantly control and evaluate the quality of the services provided by the financial institutions with which you work or have ties.
