Blog

If the past few years taught us anything, it’s that global markets can change overnight, and often. Rosy outlooks sour. Dour outlooks flower. And your banker’s feelings about financing small and medium sized enterprises (SMEs) ebbs and flows with the capital markets.

While lending prospects are expected to improve for SMEs this year after a three year drought (see recent Financial Times article), finance industry experts say bankers and businesses will often remain at odds. Most bankers believe that SME’s business prospects are still tenuous and thus are higher risks.

Herein lies the conundrum for CEOs. Many tell us they feel the time to expand is now, but they need greater access to capital to act on strategic expenditures such as IT projects, mergers, acquisitions, and R&D. However, this doesn’t mean your business can’t defy both the markets and bankers’ sentiment when it comes to financing.

“The companies that are best positioned to receive external financing have a tremendous competitive advantage in the marketplace,” says Buck French, SME investor and former CEO of OnLink Technologies.

French says SMEs are “best positioned when company executives understand their banker’s mindset and needs, and can provide exceptional insight into company operations.” Hit these hot buttons, stand out from the mass of less-savvy applicants, and your application will quickly rise to the top of the pile.

WALK A MILE IN YOUR BANKER’S SHOES

Why are bankers hesitant to lend in an economic climate that is improving? One reason is due to the fact that bankers who focus on the SME market often base their lending decisions on limited financial data provided by corporate applicants. Banks place a high premium on audited financial statements plus any additional reports that can provide them better insight into the company’s cash flow and customer demand. If SMEs can provide this data that helps mitigate the banker’s perception of risk, they are more likely to get financing.

The successful SME CEOs are those who are prepared to help their bankers close on a decision. Their secret: provide detailed, credible data that makes it easy for them to understand key financial metrics such as days sales outstanding and receivables aging, company financials, and what they’re doing to head off potential weaknesses. “If companies can’t provide clear visibility into their key performance indicators, the lending process is delayed if not dead,’ French says.

BANKERS WANT IT ALL—AND SO DO YOU

It turns out that bankers and SME executives are not such strange bedfellows. Both want a clear, concise, complete, and credible view of the business. Both want information that mitigates the risk of making bad business decisions.

When preparing for banker meetings, here are some of the major categories they’ll want to examine, to determine your company’s credit (or investment) worthiness:

• Cash flow: history and projections
• Profit: history and projections
• Accounting policies: does the company apply the same rigor as the big companies?
• Inventories: does inventory track with projected demand?
• Investments in joint ventures: how are they valued and accounted for?

Look familiar? That’s the same list seasoned company analysts use to analyze internal business processes, and determine where to make improvements. Unfortunately, many companies find it difficult, if not impossible, to quickly examine and understand these areas, because their business systems aren’t well aligned or integrated.

That’s the bad news. The good news: dramatic improvements can be achieved when a company creates a “single version of the truth” by consolidating various accounting, and systems on a single technology platform.

CASE STUDY: DISHMAN NETHERLANDS

SAP solutions do more than provide greater, more efficient insights into your business. They also help provide a higher degree of credibility for bankers—especially if your company’s shares are not publicly traded.

Based in Veenendaal, Dishman Netherlands BV is an R&D specialist and producer of active pharmaceutical ingredients for vitamin D, as well as different grades of cholesterol for cosmetics and shrimp feeds.

Dishman was challenged by growing compliance regulations imposed by the government agencies, as well as the need to replace its legacy information system. After moving to a new plant and acquiring another company, the company’s leaders decided to integrate budgeting and operational planning, so they could forecast liquidity and minimize working capital requirements.

Dishman chose SAP Business All-in-One, because it embodied a peerless depth of experience in pharmaceuticals that could help the company implement an integrated solution in a short amount of time. Within 11 weeks, Dishman was live on the new SAP-powered system.

“We have integrated budgeting, sales planning, and rough-cut capacity planning,” says Mark Ipema, Dishman’s operations manager. “We were able to reduce stock by €600,000 in the first [few] months, and more is possible as we optimize production planning.”

In addition to these results, Dishman also increased its supply chain productivity by around 30 percent. And for the first time, the company can track variable costs accurately, and see integral product and customer margins. “The consistency and availability of reporting are vastly improved and period-end reports for our parent company take a week’s less effort,” Ipema says.

It’s just another real-world example how SAP can help midsize companies standardize cash flow, inventory, and compliance processes.

GETTING THE BANKER TO “YES”

It turns out that the same business process improvements that help you run a tight ship also support your reputation with customers, partners, investors, and bankers. When you invest in SAP for financial management and integrated business processes, you are getting more than a streamlined, more efficient, more effective organization. You are also preparing your company to be ready to with the financial reports that increase a lenders confidence and respond with agility to a myriad opportunities that will surely come your way.

To see SAP Business One in action, watch this video.

How can I find out more about SAP Business One?

Contact Blue Ocean Systems’ team of ERP specialists who can guide you in finding the best SAP Business One solution for your organisation.