A family business, especially in Perth, must have a great relationship with a bank. The ability to get funds quickly and at a cost competitive rate is critical to the ongoing success of any business.
The bank manager has a unique position. They act as both a policeman and as a friend. The concept that a bank is a friend who will help you every step of the way in your business life is not true. If you are going bankrupt the bank will not help you. In fact they can often be the person to close the business down (the landlord and Tax Office are the other culprits).
So what is the answer?
Feed them reports
Sadly the days of the bank manager having a lot of sway at their discretion are by and large no longer here. The manager is given discretion – but it is within a set of clearly defined range points.
So a chat about your vision and hopes and dreams will be engaging – but will it make a difference? Your financier, lender or bank manager will often pass on the reports to “credit”. You will then have a 28 year old graduate with an MBA do analytics on your cashflow and accounting reports that you feed them.
The lovely chat is often missed in the process. Only what you write down is what is seen.
If you do not give the reports that “credit” can read and understand your business you might find it difficult.
The bank is a partner with you
Yes the bank is another service provider. And yes you can probably change them if you want. However the most successful relationships we have seen between a bank and a family business (especially in Perth as a tough market) is when the bank is viewed upon as an investor in the business.
And the bank has invested. They have given you money in exchange for an agreed upon return.
If you invested in somebody else’s business what would you expect? Quarterly accounts? Cashflow forecasts? Director’s minutes?
You should give your bank manager respect and meet your promises.
Gone are the days when you could forecast a growth of 15% and it would magically happen. Banks can and will lend businesses money without real estate but they will do so with reliable forecasts.
That is you must be able to prove that you will actually do what you say you will do.
The best way of achieving this is to have a history of preparing forecasts and achieving the forecast. And if your forecast is out you have evidence of some review, alteration, and updating of the forecast.
This is just good business practice.
If you can show your bank that you have done this consistently over many years the bank will be better able to rely on what you show them.
And a forecast has to include all of the elements of your business. So you should forecast you cash position, your sales, the future debt levels of the business and the future capital expenditure. All of these elements in a business are inter-related and will impact on how your business will succeed.
Sadly it is nearly impossible to do a forecast in excel. The interactions of the business are so dynamic you need to be a software engineer to get it to work. Luckily there are programs like futrli that allow for these forecasts to be prepared quickly and altered real time for how you are tracking.
Understand the bank trigger points
The bank have indicators that they use to see if you are not travelling well. There is nothing wrong with asking the bank what these trigger events are and then using those same trigger points (with a buffer) in making sure you change your business before you breach these trigger points.
If your bank manager is reluctant to answer this question (and most will happily) the alternative is to look at what the lending covenants are. You can then talk to your business accountant, either in Perth or your office, and tailor your business KPI’s to make sure that you do not breach the trigger points.
Get a broker on board
We know that different banks have a different appetites’ for different types of business. And sadly you will rarely encounter a bank that will say “we simply do not like lending to people like you”.
Rather the bank will simply not price the product competitively. Or they will make the loan application process so difficult that most customers will go to a bank that is friendlier to their type of business.
Sadly knowing the market intimately, and operating on a modular level, is a full-time job.
This is where a savvy finance broker can help. If you finance broker teams up with your family business accountant and your lawyer you can have a collaborative approach that gives you the best of both worlds – a tax approach, a lending approach and a security exposure approach.
The application of tax advice with lending advice is critical – especially in the area of property developers. The tax deductibility of the loan funds is affected by the source of the funds, the lending entity and where the funds are paid.
Respond when they call
Every business goes through hard times. And nobody likes to look at their accounts when they tell a bad story. And nobody wants to hear from the bank manager that they have overdrawn the account (again).
However you must, at every stage, confront and talk with your bank manager. Simply hiding will make the position worse.
The bank does not want to close a business down. If you continue to communicate with them you will often find a way to keep their ongoing support continuing.
Your bank manager will not be intimated or swayed. They are dealing with a separate credit department.
Losing your temper or acting unprofessionally will damage the relationship quickly. The bank has an obligation to protect their staff and give them a safe working environment.