Banks in general these days have quite a different approach when it comes to dealing with business customers experiencing financial challenges. In the old days, it was not uncommon for a bank’s relationship manager to have an account decline over time and eventually see the client end up in the bank’s asset management area where receivers were quite often appointed. Things have changed.
These days, the banks are reticent to appoint receivers unless there is a really compelling reason to do so. All banks are keen to work with a client to assist in addressing the reasons for the financial hardship. Also, the bank’s relationship managers are taking more responsibility in identifying risks and the deterioration in client’s accounts much earlier. It is more than likely that if a small business is experiencing difficulties, and is up-front about it, the bank will be supportive and will work with you to turn things around and repatriate the businesses.
Now, it is hand-on-heart time. If you think your business might be approaching tough times, there are some important things you can do right now to steer it onto a positive path with your bank.
Put your hand up early. Don’t be fearful of what your bank might do. It takes courage to be transparent with your bank but the benefits of being open and honest about your situation will position you well with the bank’s decision makers. You might be relieved to hear that generally there is an onus on the bank to provide assistance if it’s notified of financial distress.
Make full disclosure to your bank – don’t hold anything back. This means telling them about anything that might affect your financial situation, including outstanding issues with the ATO or other creditors.
Be accessible and responsive to your bank. Many people start avoiding calls from the bank when things get tough; this is a bad strategy. Take the call – you might be surprised how helpful the bank can be.
Remember “a stitch in time saves nine” sort out problems immediately – it may save extra work later on. To give you and your business the best chance, it is imperative you have:
accurate and timely management information
historical financial data that goes back at least two years
three-way (balance sheet, cash flow and profit and loss) forecasts for the next one to two years
systems that help you identify problems early
advice from an external source, like an accountant or business restructuring professional
a good plan as to how you are going to resolve the current issues for you and the bank.
Keeping these points in mind will put you in good stead with your bank if and when your small business is facing tough times. Good luck.
Peter Winterflood, Partner, Business Restructuring, BDO Australia