THE TRUTH BEHIND BANK DEBT
How your company can handle debt effectively
Tighter controls from all financial institutions in Ireland are taking their toll on small businesses. From what we see at DCA Accountants and Business Advisors on a day-to-day basis dealing with our clients is that while it may seem that the banks are closed for business, they are simply much more stringent in their loaning policies. Some business owners, who may be running viable companies but at the same time cannot get credit, can often be left wondering what it is they’ve done wrong.
The answer is simple. While it is true that banks do have much tighter financial controls in place, many of them will still engage with businesses as long as the financial information being supplied to them is accurate and can be relied upon. Whilst it is true that credit is much more difficult to acquire and it can be tough to get, banks will listen and evaluate the financial information presented and then make a decision based on same. With the advent of the Credit appeal process there is then an opportunity for business person to get independent party to evaluate banks decision if not happy with it.
During the boom years, banks were literally giving money away and lending decisions to a large extent were perhaps based on the value of property a business person had rather than the fundamentals of the business itself.
Due to the availability of credit, some businesses allowed their credit control procedures and cash flow management to deteriorate and hence when the economy began to contract, businesses found it difficult to manage their cash flow due to both poor historical credit control policies and also banks tightening up on lending/overdraft facilities.
The credit contraction in Ireland over the last 3 years has lead to business owners realising the benefit of proper cash flow management and also strict credit control policies. Also the availability of accurate up to date financial information is now paramount to businesses to allow them know in a timely manner how business is performing. Because of the availability of credit in boom, some of these practices were not adhered to /used.
Another consequence of credit contraction is that the banks staff have had to learn how to interpret financial information which is based on actual business performance rather than the value of a property.
There has been a steep learning curve for both business owners and bank staff with regard to how best to manage cash flow/debt in tight financial situations so that the client can operate their business and the bank can see that client has ability to pay loan by working with client rather than penalising client.
At DCA Accountants and Business Advisors all of our clients know that they need to be armed with the facts of their business when they enter into discussions about accessing credit or restructuring loans for their business from their lender. They know that they need proper profit and loss accounts, a list of signed-off sales orders for the next six months, and prudent/realistic cash flow projections over that period. If that information is presented to a financial institution, more often than not, business owners will find their bank is willing to engage with them.
By working with clients and offering practical sound advice, we find that clients can perhaps have clarity with regard to how best to deal with bank/debt problem. In current climate it’s all about working together to achieve a solution that perhaps is not ideal for everyone but is realistic for all parties.
Top tips for dealing with bank debt:
- Present timely and accurate information so you can have a frank and open discussion with your bank.
- Be certain that what you are promising is reasonably achievable – don’t ever over-promise.
- Keep the bank up-to-date on your company’s financial progress.
- Keep in regular contact with your accountant and return his calls!
- If you are doing your best and your business is fundamentally sound, you’ll find that your bank will work with you.
Eamonn Garvey,
Partner,
DCA Accountants and Business Advisors
