Re-evaluating your banking arrangements

Ask any business person, what do they think of their bank and invariably you will get some level of dissatisfaction with their current relationship. Why is this so?

Generally SME business people are focussed on what they do best which is running their business, looking after their people and planning for the future. Looking after your banking relationship does not necessarily fall into these daily activities. However, if you get the foundation right, manage them correctly and have the right banking and finance services, you won’t need to look after them every day because they look after you.

Unfortunately most business people do not necessarily know what debt facilities they have, for what term and even what they cost. More often than not when we sit down to talk to clients about their finance and banking needs our clients need to go looking for the most recent letter of offer from their current bank or financier. And generally, existing arrangements reflect the past financing and banking needs and not necessarily current or even future needs. So the start of having a better banking relationship and deal is to know exactly what you need now and in the future and to plan for that accordingly.

As part of our strategic planning with our clients we focus on the business and the business owner’s future financing needs, to achieve their short and long term goals. So have a think about what you want to do with your business and personal affairs over the next 12-months, 3 and 5-years. Now if you look at your current debt facilities – do you have enough to achieve these goals?

Unlike other banking products such as mortgages, most business lending facilities endeavour to price for risk. There are a number of risks, but the key risk even during these volatile times in the financial markets is Credit Risk. Broadly speaking, credit risk is a reflection of the likelihood that you as a borrower will not be able to repay the principal and interest on your debt. This is a cocktail of past financial performance, the asset position of the borrower and the value of security provided. As an example, large public listed companies are able to borrow without providing any direct security ie. property or fixed and floating charges primarily due to the strength of their cash flow and balance sheet.

The good news is that like Formula 1 racing technology cascading down into your Toyota Camry, big business borrowings techniques are increasingly filtering down into the SME market. Because of this, well managed and capitalised businesses are now able to borrow on terms better than they have ever been able to achieve before. You just need to know the buttons to push in order to improve your credit profile and get the best deal from your financier.

The day to day transactional services offered by your bank may appear to be mundane and can cost a substantial amount of money however technology has changed the cost of the even the most minor transaction if done electronically. If you are a retailer substantial cost savings can be achieved by reviewing how you process your sales and by renegotiating your credit card/merchant facilities with your banker.

We work with clients every day to ensure they get the best deal from their existing financier and that they know what the market is offering in terms of new technology, pricing and products.

You service your car regularly and you update your insurance every year, but when was the last time you had a serious and professional review of your current bank facilities?

Author: Adam Field, March 2008

Adam is a director in Grant Thornton’s Sydney Privately Held Business practice. He has experience working within the banking sector and as a business owner himself. Adam specialises in finance and banking reviews to find practical solutions that give the financier and his clients a ‘win-win’ outcome.

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