Management and business planning (8) Flashcards
What are the 3 areas does a modern day lending banking need to consider?
1 - Management
2 - Non financial analysis
3 - Financial analysis
What components of a business’ management should a lending banker be considering?
- Who runs the business and how well they do it?
- Can they deliver their promises to the bank?
Why does the lending banker need to assess Management , non financial info and financial info?
- To determine the ability of the customer to repay borrowings
- Establish the future threats to repayment
- Establish an alternative source of repayment if lending on a secured basis
- Ensure all risks are identified
What is the objective of the Senior Managers and Certification Regime (SMCR)?
To regulate individual conduct and standards in banking.
As a result of LIBOR, market manipulation and the 08 crash
What is the approved persons regime (APR)?
A firm could not employ a person in a “controlled function” unless that person had been approved by the Prudential Authority (PRA) or the Financial Conduct Authority (FCA)
The Senior Manager Certification Regime SMCR has 4 main components to it, what are they?
1 - Senior Management Regime (SMR)
2- Certification Regime (CR)
3 - Rules of Conduct (RoC)
4 - Fitness and proprietary rules (FFR)
What is the Senior Managers Regime (SMR)?
Ensure senior members are professionally fit to perform their role and that before a new senior member is appointment they must be checked approved
Do individuals who fall under the SMR need to be approved by regulators?
Yes
Certificate Regime (CR)
The CR applies to staff who do not carry out a senior management function but who could pose a risk of significant risk to the firm or its customers (e.g. staff who give investment advice)
Who is typically affected by the Certificate Regime (CR)?
- Material risk takers
- Those in customer facing roles e.g. advisors
- Managers of certified positions
- ‘Significant influence’ function roles
Do those under the CR need to be approved by regulators?
No, it is instead the responsibility of senior management
What do the rules of conduct enforce and who do they apply to?
Under the SMCR, the regulators have the power to make rules of conduct that apply to senior managers, certified persons and other employees (so everyone?).
As the rule target a broad range of staff, this will instil standard of good conduct across the industry.
Who is affected by the individual conduct rules
All banking employees except (cleaners, catering, reception etc)
What are the fit and proprietary rules (FPR)?
All institutes must ensure that those individuals under the SMCR are verified as being ‘fit and proper’ to exercise their duties
What checks will be carried out to determine if an individual is fit an proper?
- Criminal record checks
- Financial credit checks
- Employment reference (last 5 years)
The FCA’s handbook to test if an individual is fit and proper will ensure employees act with?
- Integrity
- Skill, care and attention
- An open and cooperative manner
- Act in the interest of customers
They must also check a new starters previous 5 year working history, to ensure they have adhered to these rules
What 2 elements or breach are required for the regulator to take enforcement?
1 - The firm has broken the regulatory requirements and that the breach occurred in the area business area that a Senior manager is responsible for
2 - If senior manager cannot prove they took the steps a normal person would have to prevent the breach
What sort of disciplinary action can the regulator enforce?
Unlimited fine and up to 7 years in jail
What are the typical duties of the board of directors?
- Establishing broad policies and objective
- Overseeing the performance of the chief executive
- Ensuring the availability of adequate financial resources
- Approving annual budget
- Accounting to stakeholders for company performance
- Setting salaries for senior management
- Managing risk
What is a non-execuctive director (NED)?
- A board member who is not necessarily employed by the organisation e.g. someone will lots of expierience in the industry.
Often NED’s will sit on multiple boards
What is the true test for a management team?
How they perform in a tough trading environment
What are the components of a Managers role?
- Administer
- Focuses on systems and structures
- Relies on control
- Has a short term tactical view
- Asks how and when
- Does things right
What are the components of a Leaders role?
- Innovates
- Focuses on people
- Inspires trust
- Has a long-term, strategic perspective
- Asks what and why
- Does the right things
What are the 4 main styles of leadership?
- Autocratic ( leaders just tells you what to do)
- Benevolent autocrat (tells you what to do but gives rewards)
- Consultive (the team gives their view but the decision is still made by the leader)
- Participative - Everyone is involved with dieas and decision making
List the 5 main types of business skills
1 - track record and experience
2 - strategic thinking
3 - business acumen
4 - financial acumen
5 - succession planning
When assessing track record and experience, what types of consideration should be given
- Character (can the executives be trusted?)
- Integrity (openness and willingness to share info)
- Ability (they must be proficient if not experts)
What is financial acumen?
- Understanding the factors that influence financial performance.
- Also understanding the operating cash flows need to be managed to ensure sound liquidity through the business and conducting stress testing and sensitivity analysis
- Generate accurate and timely Management info
- Analyse key financial trend and ratios
What is succession planning?
Planning for the event of a key member was to leave the team.
The planning must be over both short and long term
When considering appointing a finance director, what are the key considerations?
- Their capacity and experience
- The breadth/depth of the team they’re leading
- The finance team is commerically orientated to support the business
- That the finance team has a strong voice at board level
- That the business produces financial management info quickly and that is acted upon
When reviewing the marketing ability of a business, what are the areas that require consideration?
- Evidence that manage talk to customers to understand their needs
- The business should have a marketing plan that differentiates themselves
- Innovation
- Understand revenue of the products
- Understand the company brand ( do they go for price or quality?)
What are the 8 components of business operational skills?
1 - Planning 2 - Operations 3 - Finance 4 - Marketing 5 - Sales 6 - Production 7 - Procurement 8 - IT
For an effective production process within a business, what should they be considering?
- Quality
- Return on assets
- Productivity of employees
- The balance between fixed and variables costs (operational gearing)
A well produced business plan will give a clear overview of the business and what it is trying to achieve.
The best types of business plans are what 4 things?
1 - Logical
2 - Rational
3 - Structured
4 - Current
What is the point of having a business plan? (in an already existing business)
- To test the feasibiltiy of a business
- To give the business the best possible chance of success
- To make business planning manageable and effective
- To secure funding such as bank finance
- To attract investment
The reason for a plan will influence the type of plan you produce.
What are the 3 main types of plan?
- Strategic (identify targets and general guidelines to meet them)
- Operational ( internal goals of the business, division or department)
- Project plans (e.g. the introduction of a new IT system)
What are the five main points a banker should consider when evaluating a business plan?
- viability (will the business succeed)
- feasibility ( can the plan be put into action)
- profitability
- management of cash flows
- exit routes (contingencies if the plans fails)
Profitability is usually the primary indicator for the business’ success. What aspects of profitability should the plan detail?
- Pricing
- The costs involved with acquiring a customer
- Cost of the product
- The cost of supporting a customer
- The underlying investment required to sustained operations
But it is fundamental to remember that profits do not repay debts, only cash can do this.
For the lending banker to establish an understanding on the business’ future cash flows, what 2 documents must the business plan contain?
1 - SOFP
2 - SOCI
apparently not the statement of cash flows?
Why are the assumptions in the business plan so critical?
The assumptions are driving factors of the projections that come out of the financial model.
It is essential to understand how sensitive the financial model is to changes in the underlying assumptions. Therefore it is critical to do sensitivity analysis and scenario planning to test the assumptions.
What factors do we usually consider in sensitivity analysis
- sales
- margins
- direct and indirect costs
- interest rate movements
- receivables in days
- payables in days
- inventories in days
- inventories (stocks) in days
- the timings of capital expenditure or other investments
- divestments
What 3 types of sensitivity analysis should we take?
- Base case
- Best case
- Worst case
One at a time
What is the difference between sensitivity analysis and scenario planning?
Sensitive analysis tweaks one input parameter and measure the output
Whilst scenario planning considers the impact of multiple adjusted parameters (a new scenario)
It is important for a business plan to identify and address potential risks.
What 4 aspects will they be looking to consider?
1 - How risks are monitored in a timely way to identify them early
2 - What can be done to reduce the impact of bad news
3 - Which risks remain
4 - The provision of a plan b
