Finance, Credit, Investments – Economical Categories

Scientific works in the theories of finances and credit, according to the specification of the research object, are characterized to be many-sided and many-leveled.

The definition of totality of the economical relations formed in the process of formation, distribution and usage of finances, as money sources is widely spread. For example, in “the general theory of finances” there are two definitions of finances:

1) “…Finances reflect economical relations, formation of the funds of money sources, in the process of distribution and redistribution of national receipts according to the distribution and usage”. This definition is given relatively to the conditions of Capitalism, when cash-commodity relations gain universal character;

2) “Finances represent the formation of centralized ad decentralized money sources, economical relations relatively with the distribution and usage, which serve for fulfillment of the state functions and obligations and also provision of the conditions of the widened further production”. This definition is brought without showing the environment of its action. We share partly such explanation of finances and think expedient to make some specification.

First, finances overcome the bounds of distribution and redistribution service of the national income, though it is a basic foundation of finances. Also, formation and usage of the depreciation fund which is the part of financial domain, belongs not to the distribution and redistribution of the national income (of newly formed value during a year), but to the distribution of already developed value.

This latest first appears to be a part of value of main industrial funds, later it is moved to the cost price of a ready product (that is to the value too) and after its realization, and it is set the depression fund. Its source is taken into account before hand as a depression kind in the consistence of the ready products cost price.

Second, main goal of finances is much wider then “fulfillment of the state functions and obligations and provision of conditions for the widened further production”. Finances exist on the state level and also on the manufactures and branches’ level too, and in such conditions, when the most part of the manufactures are not state.

V. M. Rodionova has a different position about this subject: “real formation of the financial resources begins on the stage of distribution, when the value is realized and concrete economical forms of the realized value are separated from the consistence of the profit”. V. M. Rodionova makes an accent of finances, as distributing relations, when D. S. Moliakov underlines industrial foundation of finances. Though both of them give quite substantiate discussion of finances, as a system of formation, distribution and usage of the funds of money sources, that comes out of the following definition of the finances: “financial cash relations, which forms in the process of distribution and redistribution of the partial value of the national wealth and total social product, is related with the subjects of the economy and formation and usage of the state cash incomes and savings in the widened further production, in the material stimulation of the workers for satisfaction of the society social and other requests”.

In the manuals of the political economy we meet with the following definitions of finances:
“Finances of the socialistic state represent economical (cash) relations, with the help of which, in the way of planned distribution of the incomes and savings the funds of money sources of the state and socialistic manufactures are formed for guaranteeing the growth of the production, rising the material and cultural level of the people and for satisfying other general society requests”.
“The system of creation and usage of necessary funds of cash resources for guarantying socialistic widened further production represent exactly the finances of the socialistic society. And the totality of economical relations arisen between state, manufactures and organizations, branches, regions and separate citizen according to the movement of cash funds make financial relations”.
As we’ve seen, definitions of finances made by financiers and political economists do not differ greatly.
In every discussed position there are:

1) expression of essence and phenomenon in the definition of finances;

2) the definition of finances, as the system of the creation and usage of funds of cash sources on the level of phenomenon.

3) Distribution of finances as social product and the value of national income, definition of the distributions planned character, main goals of the economy and economical relations, for servicing of which it is used.

If refuse the preposition “socialistic” in the definition of finances, we may say, that it still keeps actuality. We meet with such traditional definitions of finances, without an adjective “socialistic”, in the modern economical literature. We may give such an elucidation: “finances represent cash resources of production and usage, also cash relations appeared in the process of distributing values of formed economical product and national wealth for formation and further production of the cash incomes and savings of the economical subjects and state, rewarding of the workers and satisfaction of the social requests”. in this elucidation of finances like D. S. Moliakov and V. M. Rodionov’s definitions, following the traditional inheritance, we meet with the widening of the financial foundation. They concern “distribution and redistribution of the value of created economical product, also the partial distribution of the value of national wealth”. This latest is very actual, relatively to the process of privatization and the transition to privacy and is periodically used in practice in different countries, for example, Great Britain and France.

“Finances – are cash sources, financial resources, their creation and movement, distribution and redistribution, usage, also economical relations, which are conditioned by intercalculations between the economical subjects, movement of cash sources, money circulation and usage”.
“Finances are the system of economical relations, which are connected with firm creation, distribution and usage of financial resources”.

We meet with absolutely innovational definitions of finances in Z. Body and R. Merton’s basis manuals. “Finance – it is the science about how the people lead spending `the deficit cash resources and incomes in the definite period of time. The financial decisions are characterized by the expenses and incomes which are 1) separated in time, and 2) as a rule, it is impossible to take them into account beforehand neither by those who get decisions nor any other person” . “Financial theory consists of numbers of the conceptions… which learns systematically the subjects of distribution of the cash resources relatively to the time factor; it also considers quantitative models, with the help of which the estimation, putting into practice and realization of the alternative variants of every financial decisions take place” .

These basic conceptions and quantitative models are used at every level of getting financial decisions, but in the latest definition of finances, we meet with the following doctrine of the financial foundation: main function of the finances is in the satisfaction of the people’s requests; the subjects of economical activities of any kind (firms, also state organs of every level) are directed towards fulfilling this basic function.

For the goals of our monograph, it is important to compare well-known definitions about finances, credit and investment, to decide how and how much it is possible to integrate the finances, investments and credit into the one total part.

Some researcher thing that credit is the consisting part of finances, if it is discussed from the position of essence and category. The other, more numerous group proves, that an economical category of credit exists parallel to the economical category of finances, by which it underlines impossibility of the credit’s existence in the consistence of finances.

N. K. Kuchukova underlined the independence of the category of credit and notes that it is only its “characteristic feature the turned movement of the value, which is not related with transmission of the loan opportunities together with the owners’ rights”.

N. D. Barkovski replies that functioning of money created an economical basis for apportioning finances and credit as an independent category and gave rise to the credit and financial relations. He noticed the Gnoseological roots of science in money and credit, as the science about finances has business with the research of such economical relations, which lean upon cash flow and credit.
Let’s discuss the most spread definitions of credit. in the modern publications credit appeared to be “luckier”, then finances. For example, we meet with the following definition of credit in the finance-economical dictionary: “credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying percent. Credit represents a form of movement of the loan capital and expresses economical relations between the creditor and borrower”.

This is the traditional definition of credit. In the earlier dictionary of the economy we read: “credit is the system of economical relations, which is formed while the transmission of cash and material means into the temporal usage, as a rule under the conditions of returning and paying percent”.
In the manual of the political economy published under reduction of V. A. Medvedev the following definition is given: “credit, as an economical category, expresses the created relations between the society, labour collective and workers during formation and usage of the loan funds, under the terms of paying present and returning, during transmission of sources for the temporal usage and accumulation”.

Credit is discussed in the following way in the earlier education-methodological manuals of political economy: “credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufactures, organizations and population. Credit has an objective character. It is used for providing widened further production of the state and other needs. Credit differs from finances by the returning character, while financing of manufactures and organizations by the state is fulfilled without this condition”.

We meet with the following definition if “the course of economy”: “credit is an economical category, which represents relations, while the separate industrial organizations or persons transmit money means to each-other for temporal usage under the conditions of returning. Creation of credit is conditioned by a historical process of fulfilling the economical and money relations, the form of which is the money relation”.

Following scientists give slightly different definitions of credit:
“Credit – is a loan in the form of money or commodity, which is given to the borrower by a creditor under the conditions of returning and paying the percentage rate by the borrower”.
Credit is giving the temporally free money sources or commodity as a debt for the defined terms by the price of fixed percentage. Thus, a credit is the loan in the form of money or commodity. In the process of this loan’s movement, a definite relations are formed between a creditor (the loan is given by a juridical of physical person, who gives certain cash as a debt) and the debtor.
Combining every definition named above, we come to an idea, that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of firm percentage rate. It expresses definite economical relations between the participants of the process of capital formation. Necessity of the credit relations is conditioned, from one side, by gathering solid quantity of temporarily free money sources, and from the second side, existence of requests of them.

Though, at the same time we must distinguish two resembling concepts: loan and credit. Loan is characterized by:

o Here, the discussion may touch upon transmission of money and also things form one side (loaner) to another (borrower): a)under the owning of the borrower and, at the same time, b) under the conditions of returning same amount or same quantity and quality of the things;

o The loaning of money may bear no interest;

o Any person may take part in it.
With the difference with loan, credit, which is somehow a private occasion of the loan, represents:

o One side (loaner) gives to the second one (borrower) only money, and _ for temporal usage;

o It may not bear no interest (if the assignment doesn’t foresee something);

o In it creditor is not any person, but a credit organization (at the first place, banks).
So, a credit is the bank credit. To our mind, it is not correct to use “credit” and “loan” as the synonyms.
Banking crediting is the union of relations between bank (as a creditor) and its borrower. These relations touch upon:

a) Giving a certain amount of money to the borrower for definite purpose (though, we meet with the so-called free credits, aims and objects of crediting are not appointed in the assignment);

b) Its opportune returning;

c) Getting percentage rate from the borrower for using the sources under his/her disposal.
The essential foundation of the credit essence and its important element is existence of trust between the two sides (in Latin “credo”, from which comes the word “credit”, means “trust”).
From the position of circulation of money forms (in the abstraction, historical process of formation economical relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. And truly, from the position of movement of the money forms, finances represent the process of formation and usage of the funds of cash means. Very often such movements are fulfilled without returning, but sometimes, it is possible to give loans from the budget for the investment projects of other needs. Also, when a manufacture or corporations use their cash funds and we mean the finances of industrial subject, such usage may be realized as inside the manufacture or corporation (there is no subject about returning or not returning of the usage), so gratis under conditions of returning. This latest is called commercial form because of transmitting the sources to others, but even in this occasion, it is the element of financial system of the manufacture and corporation.

From the point of cash means movement, main character of credit is the process of formation and usage of the funds of cash means under the conditions of returning and, as a rule, taking the value-percentage. If gating the credit value doesn’t take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. If gating credit value takes place, by the appearance form, credit is discussed to be financial modification.

From the historical point of view, finances (especially in the sort of the state budget) and credit (beginning with usury, later commercial and banking) were developing differently for considering credit to be the part of finances. Though, from the genetic-historical point of view, previous loaners, before giving loan, needed gathering the permanent capital not returning, that is the net financial foundation. The banks analogously needed concentration of the important own capital for influxing the consumers’ means and for getting higher percentage rate under the conditions of returning. Herewith, exactly on the financial basis, in the sort of financial fund (which later partially becomes loan fund) part of the bank capital appears to be the reservation (insurance) part of the fund, which by nature is financial and not loan. So notwithstanding the essential distinctions between finances and credit form the genetic-historical point of view, credit appears to be formed from finances and represent their modification.

From the essential position of expressing economical relations of finances and credit, we meet with cardinal distinctions between these two categories. Which mostly expressed by the distinction of the movement forms notwithstanding they are returnable or not. Finances express relations in the aspects of distribution and redistribution of social product and part of the national wealth. Credit expresses distribution of the appropriate value only in the section of percentage given for loan, while according to the loan itself, a only a temporal distribution of money sources takes place.
Herewith, there is a lot of common between the finances and credit as from the essential point of view, so according to the form of movement. At the same time, there is a significant distinction between finances and credit as in the essence, so in the form too. According to this, there must be a kind of generally economical category, which will consider finances and credit as a total unity, and in the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

Funding of the cash means is common to the researched economical categories. It takes place in any separate system of finances and credit, which have been touched upon during the analyses of defining finances and credit. Word combination “funding of the cash sources (fund formation)” reflects and defines exactly essence and form of economical category of more general character, those of finances and credit categories. Though in the in economical texts and practice, it is very uncomfortable to use a termini, which consists of three words. Also, “unloading” with an information hardens greatly its influxing into the circulation even in the conditions of its strict substantiation and thoroughness.
In the discussing context we consider:

1) wide and narrow understanding of economical category of the finances;

2) discussing finances in narrow understanding under general traditional meaning;

3) discussing finances, as funding of the cash means, in wide understanding, which concerns finances – in narrow meaning and credit – in complete meaning.
Termini “funding” and its equivalent “fund formation” are used by us as the purposeful structuring of cash means, which is based on two poles – accumulation of money sources (gathering) and its usage for definite purpose in the way of financing and crediting.
We have established a new termini – “finance-investment sphere” (FIS). Analyses about interrelation of finances and credit made by us give us an opportunity of proving, that in the given termini, the word “financial” is used with the meaning of funding cash sources, its purposeful structuring. In this process we consider at the same time financial, credit and investments’ economical categories.

Let’s sum up middle results of discussing new concept – “finance-investment sphere” and discuss its investment consisting parts.

The concept “investments” was brought into the native economical science from the West. In the Soviet economical science they for a long time used in the place “investments” the termini “capital placement”, which expressed the usage of the industrial factors in the sphere of real industrial activities during realization of capital projects. From one glance, this termini in its concept is identical to the “investments”, consequently it is possible to use them as synonyms. Though the termini “investments” and “investing” have the advantage towards the termini “capital placement” from linguistic and philological points of view, because they are expressed with one word. This is not only economical and comfortable in the process of working with the termini “investment” itself, but also it gives an opportunity of termini formation. More concretely: “investment process”, “investment domain”, “finance-investment sphere” – all these termini are much more acceptable.
Changing native economical termini with foreign ones is purposeful, if it really matters (by keeping parallel usage of the native termini for the inheritance). Though we must not change native economical termini into foreign ones all together, when by ordinal traditional language easy to explain private and narrow concrete processes and elements get their own termini. The “movement” of these termini is approved in the narrow professional bounds, but their “spitting out” into the economical science may turn economical language into the tangled slang.

Let’s discuss termini – “investment” and “capital placement’s” usage in the economical literature.
Investments are placement of funds into the main and circulation capital for the purpose of getting profit. “Investments in material assets – are the placements of funds into the mobile and real estate (land, buildings, furniture and so on). Investments in financial assets are the placements of funds into the securities bank accounts and other financial instruments”.

We don’t meet with the termini “investments” in the earlier economical dictionary, but we meet the combined termini “investment policy” – the union of the industrial decisions, which guarantee main directions of the capital investments, the activities of their concentration in the determinant suburbs, on which the reaching of planned rates of development of the society production is depended, balancing and effectiveness, getting more and more production and profit of the national income for every lost Ruble”. For today, in the most actual definitions, the capital investments are bounded only by financial means, when not only financial, but also the investment of natural, material-technical and informational resources takes place. Labour resources take an actual place in the investment process. They themselves fulfill this or that investment process.

A positive side of the discussed definitions is that they connect investment policy and capital placements (investments):

– economical development according to the key directions to the concentration;

– providing high rates of economical growth;

– raising an economical effectiveness, which is expressed:

a) by growing the throw off of the production and national income for every lost Ruble;

b) by fulfilling the branch structure of the investments;

c) by improving their technological structure;

d) by optimization of their further production structure.

Compared with such definition of the investments (capital placement) the definition of investments in the dictionary attaching the “Economics” seems to be unimproved: “investments – the expenses of gathering production and industrial means and increasing material reserve”. In this definition current expenses (production expenses) are mixed with the investment (capital) expense. Also, not the investment expenses but (though the investments are followed by the appropriate expenses) exactly advancing. It differs from the expenses by that the means (means) are put by returning the advanced values, also, under the conditions of growth, to which the concept-advanced capital is corresponding. the advancing may be realized in the money, natural-material and informational forms.

Except the termini “investments”, there are two more termini related with the investment. They are shown below.

“Human capital investment” – any activity provided for rising the workers labour productivity (in the way of growing their qualification and developing their abilities); at the expenses of improving the workers’ education, health and raising the mobility of the working forces”. It is very useful to use the mentioned termini, though it needs one correction: the human capital investments do not concern only workers, but also the servants, representatives of every kind of labour.
“Investment commodity, capital goods – a capital.”

In the official manuals of political economy of the reformation time the capital investments are discussed as “expenses for creating new main funds and widening, reconstruction and renewing the active ones”. In this definition the investments (capital placements) during separation of the forms (types) of further production of the main funds are bounded only by main funds (without increases of the circulation funds and insurance reserves):

a) creating new ones;

b) widening;

c) reconstruction;

d) renewing.

Also, the concept of the industrial gathering appears, at the expenses of widening of basic, circulation funds and also insurance reserves takes place”.

You’ll meet below the definitions of investments from “the course of economy”: the investments are called “placements of fund into the basic capital (basic means of production), reserves, also other economical objects and processes, which request long-termed influxing of material and cash means. “According to the division of capital into physical and money forms, the investments too must be divided into material and cash investments”.

They apportion investment commodity, to which belong industrial and nonindustrial building objects, vehicles purposed for changing or widened technical park and the furniture, increasing reserves and others.

“They call the total investments of production an investment product, which is directed towards keeping and increasing the basic capital (basic means) and reserve. Total investments consist of two parts. One of them is called the depreciation; it represents important investment resources for compensation of renewal till the level of before industrial usage, wearing out and repairing of the basic means. Second consisting part of the total investments is represented by net investments – capital investments for the purpose of increasing basic means”. Depreciation is not a compensation resource of wearing the basic funds out, but it is the purposeful financial source of such resources.
Human capital investment is “a specific kind of investments, mostly in education and health protection”.

“Real investments are the investments in the economical branches and also, they are kinds of economical activities, which provide influxing the increases of real capital, that is increasing material values of the industrial means”. We can agree with such definition with one specification that material and nonmaterial values too belong to the real capital (wealth), consequently science-researching experimental-construction results, various information, education of he workers and others. Such service as organization of the excitable games, also the service of redistribution social wealth from one private person to another (except charity).

“Financial investments represent placement of funds into the shares, obligations, promissory notes, other securities and instruments. Such investments, of course, do not give increases of the real material capital, but they help getting profit, consequently at the expenses of changing the course of the securities in the time of speculation, or distinguishing the course in different places of sell and purchasing”. We share wholly such definition, hence it follows that financial investments (if it is not followed by real investments as a result) do not increase real material wealth and real nonmaterial wealth. According to this context, the expression below is very important: “we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities for the purpose of getting profit and financial investments, which become cash and real, moved to real physical capital.”

In the “economical course” quoted before long and short-termed investments are separated. Recognizing the existence of the bounds between them, the authors ascribe short-termed investments to “one month or more” investments. If we get such conditioned criteria, that we can call the investments which overcome the terms of some months, long-termed ones, which is very doubtful and we don’t agree with it. A long-termed character of the fund placement is a significant feature of the investments (short-term doesn’t combine with the concept of investments). Principally, it would be better to point out quick compensative, middle termed compensative and long-termed compensative investments:

– less then 6 months – quick compensative;

– from 6 months up to the year and a half – middle termed compensative;

– more then the year and a half – long termed compensative.

We stopped at the definition of the investments in the capital work “economical course” for the special purpose, as, in it the author tried to discuss the concept of investments systemically and quite completely, herewith the book is published just now.

We’ll return to the discussion the definition economical category of “investments” in different publications in the following chapter. The definitions given here are quite enough for having a notion of the level of lighting up the given category in the economical literature.
What conclusions may be made according the definition of the mentioned economical category in the published works, except the made notions and specifications?

There is quite deeply, concretely and thoroughly defined the concept of “investments”, different definitions in the economical literature; but mostly in every works about the investments discussed by us until now, there is not opened the essence of investments as an economical category. In every monograph , even if it has a title investment, as an economical category , there is given only the definition, concept of investments. But, as the Academician Vasil Chantladze explains, “a concept is a discussion, which proves something about the distinguishing feature of the researched object. A concept out of much essential characteristic features represents only one, and essential in it is only – definition”.

But the categories are much wider; it is “a key, the most fundamental concept of every science”. Economical categories theoretically represent real, objectively existed productive relations. A category is the defining of occasions of existed characters, connections, relations of the objective world. Generally, any educational process is fulfilled by the categories, which give opportunities for dividing the processes and occasions semantically, for expressing the definitions of a subject and realize their specific peculiarities and economical relations of a material world.
Our goal is exactly to substantiate investments – as an economical category and also, as a financial category in the narrow understanding.

Here we apply for another manual thesis made by the academician Vasil Chantladze: “every financial relation is an economical one and every financial category is and economical one, but not every economical relation and economical category is financial relation and financial category”.
In the process of defining the investments, it is important to take in mind the sides of resources, expenses and incomes, because investment, from one side, is the result of the manufacture’s activity, and, from another one, – a part of income, which, in this case, is not used for usage.
Another occasion: it is advisable to discuss investments in two aspects: as a category of reserve and flow, which will reflect exactly the connection between “placement of funds” and “investments”.

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Bank Sales Management – 4 Steps to Boosting Sales of Corporate Finance-Capital Markets

With notable exceptions, commercial bank efforts to boost revenue by selling corporate finance and capital markets products to middle market have not met expectations. This, despite significant investments in investment banking capabilities, product training, and corporate finance training that have kept corporate finance teachers busy for several decades. Why is this? What can sales team leaders and market managers do?

Two Key Factors Reduced the Growth Rates for Capital Markets Capabilities

While the reasons for under-performance vary bank to bank, there are two universal themes. First, marketing strategies. The “service” organization (i.e. the capital markets group) and the field sales force did not mesh. The groups had different objectives and different compensation plans. Many sales people considered the investment bankers arrogant and transactional. The investment bankers considered the relationship managers dim-witted and antiquated. As a result, the two groups could not collaborate to define effective marketing strategies and to exchange the information each group needed to fully take advantage of opportunities.

Second, sales process. Bank sales managers took the view: “RMs are already talking to these companies. They can cross sell or refer opportunities for capital markets.” The sales managers did not see that customers don’t buy capital markets services the same way they buy more traditional bank products. Loans and other bank products have been sold through a “features/benefits/price” conversation. Capital markets products and services must be sold as if they are “professional services,” where ideas and professional competence are the primary value.

What will it take to close the gap? While much progress has been made, the most critical elements are:

1. better definition of market strategy and sales processes,

2. a new approach to training,

3. more focused sales management, and

4. a recognition and compensation philosophy that, at minimum, does not distract sales people from the task.

Better Definition of Market Strategy and Sales Processes

Market strategy, particularly target selection for each capital markets capability, is critical. Specialists and relationship managers must share a common understanding of “what a qualified prospect looks like” for each capital markets product or service. These definitions should be specific, for example: “Manufacturing companies with sales > $50 million who meet criteria for Bbb debt ratings and that are interest rate sensitive.” RMs must know these criteria for each of the opportunities they’re expected to find. These criteria enable RMs to plan their sales efforts and to forecast prospective business effectively. They also reduce the amount of “noise in the system” from opportunities that don’t deserve attention from scarce investment banker resources.

Crisp sales process definitions will help boost the number of opportunities identified and reduce effort expended in sales process. The field sales organizations and product specialists must define (for each product or service):

Sales process steps (from initial conversations through origination to the end of execution) respective roles in the sales process.
Hand-off points (as from RM to specialist and back again).
Information requirements for each service (what information RM or specialist passes to the other).
Service standards for response times to inquiries, lead times for presentations, and other sales support activities.

These definitions provide a framework for RMs and specialists to work together effectively, each knowing what they can expect from the other and when.

New Approach to Training and Sharing Information

To meet client expectations, bank training must prepare RMs for their roles in the sales processes (which differ by product or capability). Depending on the RMs’ roles in opportunity identification and selling, product training and sales training should be modified.

This is not a new problem. For example, in 1998, describing Merrill Lynch’s initial attempts to generate additional mergers and acquisition advisory business, Fortune magazine reported: “[Clients] wanted bankers who came to them steeped in knowledge of their industry and full of creative ideas…That was a problem for Merrill’s M&A bankers, who were generalists… Many bankers simply didn’t know enough about each of the industries to make provocative presentations…” (Fortune Magazine, April 27, 1998, page 138) Data provided by Greenwich Associates and other firms confirm that clients today expect the same from investment bankers and commercial bankers who want to provide the more strategic capital markets and corporate finance services.

Like Merrill, bank leaders now must make specific decisions around how they are organized and how their bankers are prepared to respond to these client expectations of advisors. The same logic applies in small business, middle market, and large corporate banking. Whether you’re offering M&A advice, Treasury Services, mutual funds, or debt financing, product training should be transformed into “customer training” to focus on:

Owner, CEO, or CFO issues and concerns.
The problems that the bank’s capabilities solve.
Questions that will help the RMs assess a customer’s goals and circumstances and draw conclusions about which investment bank capabilities are appropriate and what potential benefit will be created for the customer.
Answers to customer questions, including:
What does this do (explained in terms normal people can understand)?
When does this approach benefit a company like ours?
What are the alternatives?
Who have you done this for?
What will it cost and how long will it take?

Sales training should shift toward a professional services model in which the value comes from the expertise of team members, of which the RM is one. Clients want counsel from people who have been down particular roads before. They are looking for advisors who can take a view or a position about market conditions and other factors. Sales training should prepare RMs to probe these issues deeply and to offer opinions. RMs must be good representatives of the expertise that will later come from the capital markets professionals.

This begins with intimate customer knowledge. Generally speaking, RMs know their customers well at a transactional level – specific needs which the customer has decided to address. Generally, they do not know their customers well at the level needed to identify opportunities or capital market services. Key missing ingredients include:

Customer goals, strategies, policies and market positioning (which provide the context for proactive opportunity identification).
Ideas and strategies that are in “entering discussions” and have not moved to the “take action” stage.
Variables (such as commodity prices) that bring risk into the customer’ business.

The sales training must also teach the RMs to position the capital markets group’s capabilities and begin prescribing sales processes. Often, this will include the ability to describe “success stories” that demonstrate capabilities and market savvy.

Finally, make sure your RMs are receiving and reading information that they will need to discuss in sales calls and conversations over meals:

Capital markets activity (rates, players, deal structures, etc.) and current trends/opportunities.
Up-to-date information about internal processes, players, and methods.

More Focused Sales Management

Sales managers (from line-of-business head to sales team leader) must decide how their teams will “play the game.” Since all product suppliers in the bank are competing for sales force mind-share, the sales managers must set a strategy and priorities for sales force attention. With the basic direction and expectations set, there are several important goals for sales managers:

First Priority: Field Coaching

Get into the field to observe calls and to coach…even though you don’t have time.Sales management coaching disciplines drive sales results. If you want to identify more opportunities for capital markets and corporate finance, you have to increase the amount of time and attention you pay to them through your questions and through your time in the field. This is particularly true if you want RMs to do more than spot opportunities and toss them over the fence. If you want them to question deeply to reach the pain and the payoffs that will sell capital markets and corporate finance, you have to be there with them, and you have to model it.
Help the RMs learn to anticipate customer issues and present ideas by asking questions about customers’ plans and strategies and prompting them to anticipate needs and generate ideas. The main rule here is: You get what you ask about. If you ask about ideas and customer plans, you’ll get more of them. If you ask about loan renewals and administrative matters, that’s what you’ll get.
Use whatever information you have about products, internal processes, and success stories to drill and coach the RMs. To be confident speaking to business owners or senior officers, they have to master the language and the stories. Use sales meetings, time in the car or on the plane, or phone time to ask questions like: “How do you describe our private placement capabilities?”

Second Priority: Planning and Review

Create good sales process descriptions and measures so that you can accurately determine where RMs are working in the sales process. You should be able to say to an RM: “To be successful in your territory with capital markets, you need to identify 50 opportunities, make 30 idea presentations, submit 20 proposals, and close 15 deals with an average fee of $X”. This knowledge comes from tracking and studying RM activities so you know, for your market, what the guidelines are.
Help the RMs prioritize their accounts – which accounts should get the “financial advisor” treatment, which match the profiles of companies that would benefit from particular capital markets and corporate finance services.
Insist on planning – a 1-year territory business plan and account plans for the top 5 – 10 customers and 5 – 10 prospects. The planning will (1) help focus the RM’s time on accounts most likely to be productive and (2) help the RM think through customer’s goals, strategies, policies, and obstacles.
Review progress toward targets through:

Monthly business review meetings with RMs, to review their short term action items and forecasted business.
Quarterly account reviews, to revisit their one-year business plans and all account plans – where are we versus what we’d planned, why, and what do we need to do to close the gap?

A Supportive Recognition and Compensation Plan

The basic test we apply is: “Do no harm.” Relationship manager recognition and compensation plans are typically complex because of the large array of products and services available for sale and the impact on a bank’s balance sheet and income statement. Separate recognition and incentive compensation plans. The recognition plan should kick in for activities that drive sales. The compensation plan should kick in for sales results. Having said that, our “no harm” guidelines include:

Create a system of immediate and visible recognition to be awarded based on high quality completion of activities – capital markets or corporate finance opportunities identified, proposals submitted, and so on. You want to stimulate and recognize the activities that will ultimately lead to the results. Use personal notes, peer recognition in team meetings, circulation of good proposals to team members, and other techniques that call attention to both what was done and how it was done.
Establish incentive compensation plans that reward RMs for generating capital markets or corporate finance revenue. To shift RM attention toward certain capabilities, make some revenue count for more in the plan than other types of revenue. (Example: private placement fees might count for $1.25 per dollar of fee, while loan commitment fees might count for 80 cents per dollar of fee). DO NOT run sales contests based on product sales (numbers of installations or revenue by product). The dynamics of these approaches are completely counter to the “advisory” approach needed to position and sell capital markets and corporate finance services (and other bank products as well).
Establish incentives for retaining accounts. This compensates the RM for the time and risk associated with working accounts that are worth keeping but not, in a given year, big revenue generators.

Compensation and recognition plans must recognize that RMs must invest time to develop their knowledge, competence, and confidence with their customers’ circumstances and with the services they are representing. The plans must recognize the time RMs invest with their customers, learning far more about them than they had to learn when selling ZBA accounts, loans, or corporate trust services. The plans must recognize the risk the RMs take when selling these services; the risks to their compensation and sales production are higher for capital markets and corporate finance capabilities than they are for standard loans and operations-oriented products.

Summary

Sales management coaching drives sales results. To accelerate sales of capital markets and corporate finance products and services toward optimum levels:

Clarify market strategies and sales processes by product, including the specific roles and hand-off points for RMs and specialists.
Increase emphasis on “customer and industry” training. Make sure RMs see a constant flow of market information (about deals, rates, and market activity) that they need when they talk to customers.
Focus sales management attention and recognition on the activities that lead to the results you want (high sales of corporate finance and capital markets products). Field coaching and planning are the highest two priorities.

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Business Loans Glossary: Part 4 – Property Development Finance to Yield

The final part of this guide to business loans and finance raising covers ‘property development finance’ through to ‘yield’.

Property development finance – Finance to cover site purchase and building costs designed to fund property development.

Prospectus – A package of information prepared for provision to potentially interested investors in a flotation.

Prudence – The accounting concept of recognising losses as soon as they can be identified, but profits only once they have been earned.

Public limited company (PLC) – A company that meets statutory requirements about the level of its issued share capital and which may therefore be entitled to sell shares to the public (although not all PLCs are listed on a stock exchange).

Quick ratio – See the definition of acid ratio in part 1 of this series.

Ratchet – Arrangement for increasing management’s shareholding if business hits targets.

Receivable – The US equivalent to the UK term debtor.

Recourse – Arrangement where a factor or invoice discounter can recover any advance made to you in respect of any debt that is subsequently not recovered. A non-recourse arrangement provides you with protection against this.

Regulated loan – A loan where a first charge is given on a domestic property or on a commercial property where over 40% of the area is used as your residence.

Reserves (1) – A business’s retained earnings.

Reserves (2) – Reduction of your availability applied by a factor or invoice discounter to cover any potential exposure (for example to supplier contras).

Rolling bridges – The use of a series of bridging loans typically to fund a phased property development project.

Sale and leaseback – A way of raising cash by selling an asset and then renting it back.

Second round funding – Further equity investment into a business which has already had external equity investment (for example where a venture capitalist invests into a business which has had start up or seed money from a business angel, to enable it to take its products to market).

Secondary buy out – Purchase of a VC’s stake by another VC.

Section 320 – Provision in the Companies Act that prevents a director purchasing substantial assets (broadly anything worth more than £100,000 or 10% of the net assets of the company) without first obtaining the consent of the shareholders.

Security (1) – A source from which a debt can be repaid if the borrower does not make repayments in the normal way, such as a charge over property or other assets.

Security (2) – A document acknowledging that the holder has certain rights (such as repayment of a debt from the issuer).

In the US can be extended to cover a share certificate.

Self certification – The process whereby a borrower confirms that they are able to make repayments on a loan rather than proving it by providing accounts.

Share capital – The capital contributed to a company by its shareholders.

Shareholders funds – The total book value of a company (the net assets on its balance sheet) which is owned by shareholders.

Small Firms Loan Guarantee – A scheme where the Government provides a partial guarantee to lenders for loans made to small businesses.

Sole trader – An individual in business in their own name.

Stapled finance – A package of potential borrowings pre-arranged for the buyer by the seller of a business.

Statement of source and application of funds (SSAF) – Statement showing how profits generated by the business combine with investment in or realisation of assets, together with credit received or repaid, result in a movement in the businesses cash.

Stock (1) – A company’s trading stock comprising raw materials, work in progress, and finished goods stock.

Stock (2) – A company’s shares.

Stock days – A measure of the time taken in converting goods purchased into sales.

Stock exchange – A market in which shares and other securities can be traded.

Structured loans – Loans from an asset based lender across more than one type of asset (eg factoring and a property loan).

Sub prime – Borrowers with significant levels of adverse making them unattractive to mainstream lenders.

Swing – Movement in a bank current account.

Syndication – Situation where a number of funders join together to each fund a share of a project.

Term loan – A loan repayable by an agreed level of installments over a period of years.

Top up funding – Additional mezzanine or equity finance to cover the difference between total costs of a property development project and the sums available under normal property development finance.

Trade finance – Specialist funding of trading transactions such as importing goods for resale.

Transaction at an undervalue – Selling an asset at less than its fair value. In the event of an insolvency, a liquidator will review significant transactions preceding the insolvency and can act to set aside transactions at undervalue.

VC – Venture Capital or Venture Capitalist.

Veil of incorporation – The protection offered to shareholders by a company’s limited liability.

Vendor finance – See deferred consideration.

Venture capitalists (VC) – A firm set up to hold investors’ money and to invest it in high growth opportunities. Generally look to achieve a return of 30% per annum and hold investments for three to five years before selling. Generally tend not to be interested in deals below say, £0.5m investment.

Whitewash report or agreement – Accountant’s report used to enable a business’s assets to be used as security on which to raise money to buy it.

Work in progress – Goods which are in the process of manufacture but which are not yet finished, or work on a contract which is not yet complete.

Working capital – A business’s current assets less its current liabilities.

Working capital cycle – The concept that a business’s working capital turns over as it goes through its cycle of trade; suppliers providing goods which become stock and then debtors once sold, with the cash received from debtors then being used to pay suppliers.

Yield – The amount of return received (E for earnings) for the price (P) paid. Usually shown as a percentage.

We hope this short series has helped to de-mystify some of the jargon used in finance.

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Personal Finance Articles Finally Show You How to Change Your Mind About Your Personal Finance Now

Many personal finance articles have been written on the issue of money. Can’t say I have been moved to action by many. First I’d like to say it is OK that you feel down about the current situation about your personal finances. I give you permission to feel your feeling for the next 24 hours and then pull yourself by your boot straps and let’s what we can do.

There exist many a definition, I want to share with you my personal finance definition:

Financial freedom is not an event, it is a skill.

I bet right now with the current economic situation you are saying to yourself, “I just wish I could the lotto!” Boy don’t we all and yet statistics and personal finance facts show that the majority of people who win the lottery, end up broke and worse off before their winnings! Imagine that. You among the many seeking wealth, riches, fame few people realize that money isn’t the solution to their problems; the way you think about money is the problem and the solution.

I can almost see you going oh yeah, give me the money and I’ll show you change in mindset! My favorite entrepreneur of all times, Henry Ford was once asked, “What if you lost everything you own?” He responded without missing a beat: “I’d have it all back and more within 5 years.”

Being a master of your own personal finance is not about what is in the bank; it’s about the ability to acquire the skill that will show you how to produce new streams of income and wealth based on your knowledge and experience.

So before we go any further on this issue let us tackle the real problem here that is impeding your personal finance for good! Why you might ask? Well without the mastery of these 5 steps, your desire for your goal for financial success and financial freedom is highly unlikely! This is why big players in any industry have coaches, Oprah has a life coach, football players and basketball players have coaches and mentors. Tiger woods after every bad game will go in for coaching and training. Why? Those who achieve great financial success do not go it alone. They always have a team. Those who achieve great poverty have the do it yourself mentality!

Why is it important to plan personal finances? As you have figured out by now, the cliche is true, when you fail to plan, you are planning to fail!

5 Personal Finance Guidelines That Will Guarantee You Become Master Your Personal Finances

1. How do you think about money? Say you come up with an idea to do something. Do you think that will never work? Are you afraid to follow through? Are you scared of losing money or do you see every dollar spent as an investment?

2. How do you manage and invest your time? The average man has at his disposal 6 discretionary hours. This is time they can do whatever they want. No work, no chores etc. Many will watch T.V., attend pricey sports events, spend money on meals at a restaurant and movies, see where I am going with this? Do you do personal finance budgeting?

3. How do you leverage the talents and life experiences you ALREADY POSSESS?
Most people see their experiences as failures. They only talk of how they tried to do something as failed. Thomas Edison failed more than I care to count, and yet he persisted to light the whole world. Many of life’s failures are people who did not realize how close they were to success when they gave up. Thomas A. Edison

4. Do you have a mentor and coach with a proven personal finance curriculum? This is the true measure of your desire for financial freedom. This is where you literally put your money where your mouth is, can’t afford a mentor you say? Well what was the last book you read? Gossip magazines do not count as literature sorry!

5. What do you think is “risky,” and what do you think is “safe and secure”? Most people never break into the realm of the 5% wealthy group who own 95% of the worlds resources because they want to play it safe. They want the money, the fame, the accolades but they feel they should not have to go through the process of creating this wealth. No wonder the internet and other places are full of scams and get rich quick opportunities. Remember this success does not happen overnight, but one night success does happen. Someone once said to me, it takes 3 years to be an overnight success!

If you’re tired of living paycheck to pay check discover how to build your home party & direct sales business with hot prospects, well attended home parties, and spending less money than you make, then your troubles have ended…

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