5 Tips to tackle a challenging annual bank review
There are many reasons for a borrower to feel a level of dread as the annual bank review and/or banking facility renewal date looms. Some of the more common concerns include the business having had a tough 12 months of trading, the Bank’s equity position may have eroded due to asset values coming under pressure, tax debt has materialised due to cashflow pressures or capital isn’t available to meet impending principal obligations. The natural reaction is to avoid having the difficult discussion with your Banker, or at best to turn up, smile painted on and tell them as little as possible; these are rarely the best approach!
As former business bankers, our business finance team, have a 360 degree perspective and speak from experience to offer 5 tips to clients tackling a challenging annual bank review.
- Provide context to your situation - your story of the last 12 months. This garners empathy for your situation and may also illustrate the one-off or short term nature of the impact that contributed to your situation.
- Focus on the forward 12 months in a budget with realistic assumptions you can explain and can support with historical trading drivers. If there are major changes to variances in your budget projections from historical results, have evidence to support how these changes are going to come about. Be prepared to invest in a 3-way cashflow if your situation justifies this. This demonstrates you have a plan and a handle on your numbers.
- Propose how the Bank can support trading on, be specific: defer principal reductions, moderate limit increase, facility renewal for a shorter term to give you time to deliver into budget, as examples.
- Articulate a Plan B if you can’t hit budget assumptions. Your banker wants solutions to problems.
- Prepare for the meeting together with your accountant so that you can both add weight to your credibility to do what you say you’ll do during the meeting with your Bank.
Where possible, be assertive, many borrowers make the mistake of under communicating when the going gets tough, that is precisely when you need to be communicating with your Bank. It demonstrates that you are aware of your obligations and actively working towards meeting them in the face of hurdles. Bankers have a delegation of authority to work within, understanding what that is and who the decision maker will be to sign off your preferred outcome, will help in the positioning.
Finally, don’t underestimate the power of having your Accountant and/or a finance consultant representing you in these meetings. Negotiations that are intermediated by experienced professionals will, more likely than not, garner far more favourable outcomes, it can also remove you from the pressure of making on-the-spot decisions without fully considering the financial impacts. Should you be faced with a challenging annual bank review, please contact your usual Mazars’ adviser or one of our Finance Team experts Owen Dingle and Angela Winton on +61 7 3218 3900 for guidance and advice through this important process.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.