10 tips from bankers: Manage your money

Though the Budget 2014 may not be filled with big ideas, there is intent to put the economy on the growth path. And as S V Sukumar, partner and head strategy and operations practice, KPMG in India, says, the Budget 2014 is a statement of intentions for the manufacturing sector.

19 Jul 2014 | By Noel D'Cunha

Fitch, the ratings agency, says, that the measure to ease funding is particularly noteworthy and will be critical for driving new investment cycle.

Further with the Budget set to revive the Indian consumption story, print will perhaps benefit from it. If that happens, there will be demand to add equipment and with manufacturers making print operations smoother to handle, there will be print companies who will be willing to invest in those that will enable their business to achieve operational objectives.

In the past, print companies have used cash to finance their equipment. While this method provides security in owning the equipment outright, it also ties up valuable cash resources that could be used to expand business. Today a sizable number of investments are financed using loans extended by banks, private banks, non-banking financing companies and government-linked institutes. But, as US poet Robert Frost says, a bank is an organisation that will lend you an umbrella in fair weather, and then ask for it back at the first sign of rain. The analogy may be simplistic and cynical, but for printers it will sound like the RD Burman-Gulzar classic Mera Kuch saman tumhare passa padha hai, woh lauta do  from the Hindi film Izaajat.

During Maharashtra Mudran Parishad’s Funding ka Funda panel discussion hosted during a half-day seminar last month, Pramod Gosavi of Tata Consultancy Services said, “Most printers are familiar with equipment financing but there’s a need to know the kind of specific information to make the best financing decisions for their investment. Every financing institute has its advantages, but it’s important that printers understand how it can affect their business operation.”

The panellist comprised of speakers from State Bank of India, Janata Sahakari Bank, Yes Bank, Electronica Finance and Sibdi.

Here are 10 tips the bankers have suggested that will help you make your equipment financing a smart investment in a solid future.

1.        Do your homework. Whenever considering an investment in a brand new machine or a pre-owned machine, take a realistic view of the revenue you expect to generate from new customers, new markets, efficiency gains, etc.

2.        Right place, right time. Be prepared and approach the right institution at the right time with the right information. It could make the difference between getting a loan approved and chasing around for months with no real prospect of success.

3.        Have a clearly thought out rationale for the purchase. The rationale is a base reason as to why the printer wants to spend this money and how it will benefit the business going forward. A lender would be looking for a new contract secured; current work being outsourced that the investment will bring in-house; greater production efficiencies that offer a payback on the investment over a realistic term; or strong opportunities in the market that can be exploited.

4.        Long-term or short-term financing? Your decision for short- or long-term financing will likely depend on the equipment life-cycle and the value of your equipment over its life-cycle.

5.        Demonstrate a solid business plan. Demonstrate the ability to repay with a cash-flow forecast for the next few years. This is a self-help exercise as it can show the strengths or weaknesses with an investment.

6.        Update management information. Bank statements show a snapshot of the cash availability of the business – and cash is king. Management information has to be current, and should include last audited or draft accounts, management accounts to the most recent date possible, aged debtors and creditors, together with bank statements going back few months. Also be prepared for collateral security, if the cash deposit is not available.

7.        Scale of investment. Will a stepped investment programme present a better proposition or spreading the investment between finance houses may relieve some of the pressure of just going to one finance house? That’s a question that needs a consideration.

8.        A good customer spread. Bankers would like to see a good customer spread, rather than one client with a higher percent of sales.

9.        Schedule of finance commitments. Prepare a brief of finance commitments that shows the monthly cash-flow of business, for this could be the first point of call for the lender.

10.      Seek expert advice and plan ahead. Speak to someone who knows which lenders will be able to help can save valuable management time. And be realistic about the timescales. Give your business proper planning, say two years advance planning, to increase your chances of success.