For many SME’s and family businesses, dealing with banks has become a real challenge in 2011. As is common knowledge banks are under massive pressure trying to deal with the fallout from years of excess. Simply put they are short of funds, so have a real difficulty themselves. There are dealing with massive property related loan defaults and now trying to balance their books.
The banks say themselves they are still open for business and our experience is that this is actually correct. However they are far more cautious about the projects they support. They continue to look for good profitable new business! First and foremost they want business that clearly demonstrates the capacity to repay the loan. Regarding new business propositions we at O’KellySutton Accountants have found you must have a very clear plan, solid financials, experienced promoters, and a compelling value proposition. In presenting a new business case scenario you really have to belief in the project yourself, show passion and sell the proposal. The proposal needs to deal with all aspects of the business. We will deal with the necessary building blocks of a new business in a future article.
Restructuring / Destressed Situations
Where businesses have suffered a downturn, they invariably become compromised with their existing banking arrangements. This is where you need real good solid advice on how to manage the banking relationships. The business owners should have an experienced Accountant that they can trust and rely on. We at O’KellySutton Accountants have vast experience in negotiating with banks in financial restructuring situations for clients on a weekly basis. We have received quite a bit of new business in 2011 from business owners looking to be represented at their bank meetings. We are dealing with all the major financial institutions. Our experience has lead us to the following conclusions;
- Information – ensure you are providing timely, accurate and detailed documented information to your bank. This keeps them happy in the knowledge that they know what is going on in the business, good or bad. Even with bad news it’s surprising how supportive you might find your bank once they know what the bottom line it and what’s the recovery plan. Banks don’t like nasty surprises. Don’t assume your bank understands what is going on in your business or that it will be verbally communicated ‘up the line’ by your pointy of contact, too many business owners make this mistake to their cost.
- Communication – treat your bank as your partner and keep them informed at all times. You and the bank are in this together so it’s a collective solution that needed.
- Co-operation – in our opinion you are much more likely to get a better result by co-operating with the bank than by trying to avoid or ignore them. This might sound a little obvious but still you’d be surprised at what goes on out there.
- Negotiation – respect the bank contacts but stand your ground. You will have to use all your powers of persuasion and negotiation. Never go to a bank meeting alone. Ideally you should bring an experienced Advisor with you. In our experience the benefit will always out weight the cost when using the right Advisor. Knowing where to focus your negotiations is critical, do you focus on facility term, margin, security, LTV ratio, guarantees, warranties, fees, repayments etc? Don’t choose battles you can’t win!
- Patience / Don’t Panic – don’t be rushed into decisions. Think long and hard before signing on the dotted line to restructured deals. If things are not working out stick with it, keep negotiating! Even if the bank is taking a very heavy handed approach trying to force an issue, make sure you don’t agree to certain conditions if your not comfortable with them or havn’t had time to think. Support Structure – make sure you don’t get isolated in your position with the bank. If things do not seem to be going right try not to get disillusioned or despondent. It’s important you use the support structures around you such as family, friends, your Accountant or your solicitor. Nothing is ever as bad as it seems and ‘it too will pass’.
For specific advice feel free to contact Pat Sutton of O’KellySutton, Chartered Certified Accountants, Tax
Advisors and Business Consultants at firstname.lastname@example.org