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Managing Banking Relationships in SME’s

An Article by Patrick  Sutton, partner of O’KellySutton in the Sunday Business Post November  2013,

It’s said that relationship banking is over. This may well be the case when things go wrong, however in normal trading circumstances for SME’s there is great value in keeping you bank up to speed.  Not every company can go to the market to raise equity or get access to state funding so banks will always have their place.

Business owners have responsibilities to shareholders, employees, lenders, themselves and their family. Those responsibilities include knowing what is going on in the business, running an efficient operation and having credible plans for the future. There’s a much better chance of success with banks if they understand your business and have confidence in how it’s being run.  The type of information typically required by the bank is the same that you should be producing for yourself such as (1) regular management accounts with up to date aged trade debtors and aged trade creditors reports (2) monthly cashflow projections (3) working business plan and (4) a clear long term strategy. A good tip for any owner is to run the business as if you are about to prepare it for sale. That means it doesn’t matter who comes in to review the books and records as they will always be up to date and accurate. If you are unsure whether your business is being run as efficiently and effectively as it could be you can always get an independent business review carried out which will give you a series of recommendations for improvement.

SME’s should meet their banks regularly whether it’s for sharing good news or to advise on issues coming down the track that may require temporary or long term financing solutions. Although bank managers do not have the power that he/she once had they can be great advocates for your business when going up the line for support. Indeed on occasions banks can make introductions for you to other lending vehicles where it may be appropriate such as their equity partners or other micro or government funding agencies. A local bank manager recently said to me they are often surprised as to how ill prepared business owners can be for bank meetings. Just because you have a fancy plan doesn’t mean you’ll get past the ‘interview’ stage. Answers can be vague when asked pretty basic questions such as – what was your sales last week? What is your monthly running costs? What is the breakeven point of the business? Tell me about your competitors? What’s the size of your market segment?

In spite of the ongoing negative commentary banks are indeed lending, even if not as freely as we’d all like. With current annual lending targets of €4bn for each of the pillar banks and a real desire to achieve organic growth, banks are active and have money to lend. I have firsthand success over the last twelve months in assisting clients to secure overdrafts, business loans, invoice discounting, stocking finance and property financing. A word of caution though as banks are only interested in new business if it is profitable for them so be careful with hidden fees and increasing bank margins, don’t be afraid to stand your ground and negotiate.

There is no doubt the bar has been raised higher than before when trying to secure funding but is this a bad thing? Banks now have properly working credit committees which makes it difficult for poor quality applications to succeed. Patrick Sutton, O’KellySutton Chartered Accountants and Business Advisors, Kildare, Sutton@okellysutton .com,