In the wake of the banking royal commission, some SME owners are losing confidence. Obtaining funding is harder than it was just six months ago, and increasing compliance needs and regulatory changes are putting pressure on SME owners beyond their daily operational challenges.
It’s understandable that these challenges would contribute to a decline in confidence for SME owners. For example, getting access to business funding is much more complex than it was less than a year ago. Funding applications that may have taken a month to settle in the past are now taking three or four months to resolve and the results aren’t always positive.
This is because more information is required by banks and other financiers. Whereas, in the past, basic financial information and projections were considered sufficient for finance applications, now the requirements are far more onerous. Banks want more information and they’re reviewing it with a more critical eye.
For example, SME owners that provide cashflow projections must be able to substantiate their calculations to the bank’s satisfaction or risk having their application denied.
Therefore, SME owners looking to secure finance in the wake of the royal commission should plan as far ahead as possible, gather as much detailed information as possible, and put together a comprehensive submission to increase their chances of success.
This should, ideally, include a strategic plan, which should be a living document that includes big-picture goals alongside tactical activities to achieve those goals. Financiers increasingly want to see these types of documents and they are most useful when they’re continually referred to and updated.
Pre-planning should include engaging financiers as early as possible in the process to get a clear idea of what information they require. It should also include keeping financial records up to date. This is especially important given the drawn-out approval processes banks are conducting. One client made a finance application in October 2018. Because it hadn’t yet been approved when the calendar year ticked into 2019, the bank then required that business provide updated numbers. By keeping financial records up to date, providing the latest financial figures won’t be a problem. However, businesses that don’t have up-to-date records could struggle.
This extends to management data. With the plethora of cloud-based accounting software available to businesses, it should be simple to keep business records completely up to date. As well as making it easier to get information to the banks, this also makes it easier for businesses to make smarter decisions around budgeting and projections.
As well as cloud-based accounting software, some businesses can benefit from add-ons that provide functionality such as managing accounts payable more quickly and efficiently. The more automated and up-to-date a business’s systems are, the easier it is for them to provide information to financiers.
An added bonus is that business advisors and accountants can provide a more valuable service to SMEs with up-to-date records. Rather than spend their time trying to figure out the numbers, advisors can focus on what the numbers mean and how the business can grow. This lets SME owners derive greater value from their outsourced advisors.
While some SME owners may see these increased requirements as a significant burden, there is another way to view them. SMEs can only benefit from increasingly rigorous management and governance, which is required to maintain a strong business in the current environment.
Brad Eppingstall, Director – Business Advisory Division, RSM Australia