As part of our raising cash series, this month's newsletter focuses on raising cash from your bank. We have often been told that borrowing money from the bank is difficult and is getting much harder since the GFC - even for profitable businesses.
This month we take a closer look at this topic and see if there is any truth to the rumour that bank lending is getting harder. We also talk to a CFO Network member, Stephen Ross, about the importance of having written finance procedures in a business and how this often daunting task can be made much easier. Finally we report on a new financial reporting product being offered by CCH and FRS that may make year-end reporting much less stressful for your business.
Of course, a very simple solution to your end of financial year reporting requirements is to engage a qualified and experienced accountant from Part Time Professionals. Just a phone call away, we can introduce you to over 280 CFO Network™ Members who can assist you with all your end of financial year reporting needs. If you could benefit from a CPA or Chartered Accountant in your business today, without any expensive employment overheads, our friendly team can help.
Just give us a call on 1300 79 1946 today! Best wishes, Andrew
On 23 June I attended the inaugural Business Banking Seminar in Sydney. Attended by representatives from the banks, building societies and credit unions, this seminar was designed to discuss ways of driving revenue growth in the micro, small and medium banking market.
You may wonder what an SME business owner was doing attending a seminar for bankers, buildingsocieties and credit unions? The answer may surprise you. I was invited as a guest panellist on the topic of "Improving Banks' Reputation in the Eyes of SMEs".
This tells us two things (1) banks are acknowledging they have an image problem with the SMEs and (2) they are looking for ways to fix the problem.
Since the GFC, there has been a lot of press and media commentary arguing that banks are making it much tougher for business customers; they are not lending as much; their loan criteria are much tougher; and the fees for business customers are too high. And, of course, the interest rates that banks apply to business loans are much higher than for home loan customers.
So, is there really a concerted move away from business lending in favour of home borrowing? And if so, how can business owners counter this trend and give themselves a better chance of ever getting a business loan.
Well...yes, there is a definite bias towards home lending and away from business lending.
This was confirmed in a paper issued by Joseph Healy, Group Executive Business Banking NAB on 15 July 2010 when he said: "I believe Robert Gottliebsen was right when he argued that...'the Australian banking industry, as it is presently structured, is unable to fund the needs of SMEs'". Since the introduction of the Basel II banking regulations and the GFC, bank capital has been aggressively redirected into the retail (home loan) banking market and away from business lending.
In fact, in 2000, every $1,000 of home lending was matched by about the same level of business lending. In 2010, for every $1,000 of home lending, only $600 is being lent to business. In other words, in 2000, home lending was 43% of all lending; today it is 57%. Business lending, however, has fallen from 46% to 35% over the same period.
One of the reasons for this has been the introduction of the Basel II capital adequacy rules which took effect in Australia in 2007-08. These rules encourage home lending as they mean that a bank can do approximately four times more mortgage lending relative to business lending in terms of capital management. This implies that a loan for a home mortgage is up to four times less risky than a business loan.
It is obvious that the good burghers of Basel didn't hear about sub-prime mortgages, housing price falls and asset price bubbles! As Basel's well-known son, the philosopher Frederick Nietzsche, said "that which doesn't kill us makes us stronger".
The result then, is that the lion's share of bank funding will continue to be funnelled into mortgage lending rather than business lending and infrastructure development. In simple terms, as Healy explains: "We have a system that makes it more attractive for banks to lend...on a weekend holiday home than to a small business! One could reasonably regard this outcome as perverse".
In this challenging market for small businesses, what does improve your chances of getting a loan? Particularly if you do not want to secure your business loan with a home mortgage (and I was advised at the Business Banking Seminar that most business loans are secured this way!)
1. Have a solid business plan in place;
2. Maintain well prepared financial records (preferably audited) and budgets;
3. Have an experienced and well-qualified management team in place;
4. Build up a relationship with your local bank manager or regional manager and maintain regular communication;
5. If possible, demonstrate a track record of positive cashflows and profitability from your business.
We need to recognise that banks are structurally biased away from business lending. Even the banks themselves recognise this. But in this challenging market for business lending you must take steps to improve your chances of obtaining a loan. This is another reality of the new post GFC environment.
If you would like help preparing a business plan, a bank loan application, or would simply like to improve your financial reporting and in-house accounting team, give Part Time Professionals a call on 1300 79 1946.
With over 280 CFO Network™ members available today, we have the qualified accountant that is just right for your business.
Most business owners have heard the benefits of having written procedures. Richard Gerber, author of the entrepreneurs 'bible', "E-Myth", highlighted the importance of systemized workflows, and documenting these workflows, in your business. If your business is "on the market" and a potential purchaser wants to review your systems; if you lose a key staffmember and you need to train the new person; if you are being audited; if you are seeking quality accreditation...There are many reasons why having well documented systems and procedures can add real value to your business.
One of our CFO Network members, Stephen Ross, has been drafting Finance Policy and Procedures Manuals for companies for many years. In fact, this has now become his speciality.
"One of the challenges companies face when drafting a Finance Manual", says Stephen, "is that it requires the incumbent accountant and senior staff to dedicate themselves to this task. This is often not a possible with their current workload. In addition, many of these people have never drafted a Finance Manual before - so it takes them at least twice as long and they often miss key topics".
Stephen has developed a Finance Manual template which had been designed for Australian businesses. Covering diverse topics ranging from annual financial planning, salary packaging policies through to purchasing policies and board reporting there is no need to re-invent this particular wheel again!
"Not only does the Finance Manual assist companies to summarise their existing policies" says Stephen, "but many clients find that there are key areas of their business where certain policies have never been formalised before. Their procedures are therefore not only being documented, but they are being improved as well".
"The majority of the work can be done in my office, with perhaps a week or two on the client site - a week initially to gather all the appropriate background, and the other time to refine the content and assemble the appendices etc. In that way, the whole process is streamlined and less interruptive to the day-to-day activities of the finance team".
If you would like to know more about drafting a Finance Procedures Manual or would like to talk to Stephen about this service, give us a call on 1300 79 1946. We would be delighted to introduce you to him.
There is nothing as constant as change. And Financial Statement formats seem to change every year.
Do you remember when you last received an Annual Report that had not changed format from the previous year? (Ed. I think it was in 1984!)
To assist companies, and their accountants and CFOs, to work their way through the latest Financial Statement changes, one of our colleagues ‘Financial Reporting Specialists’ has teamed up with CCH, to bring you a new ‘Master Financial Statements’ guide. This 800 page plus publication will assist accounting professionals, and businesses, to prepare their 2010 financial statements and will become an invaluable resource every financial reporting period. It is expected to save accountants both time and money.
If you would like more information about this publication, give Vik Bhandari a call at FRS on phone 02 9943 0201.
And for any assistance sourcing experienced in-house accountants, financial controllers and CFO services during the financial reporting period, phone Part Time Professionals on 1300 79 1946. Remember, our 280 CFO Network™ members are self-employed contractors who can provide your business with the most flexible and efficient year-end accounting support.
And on the topic of business banking, here is another "oldie but a goodie" from the archives...
Two women were walking through the woods when they hear a voice from under a log. Investigating, the women found the voice was coming from a frog.
The second woman replied, "Sure, but these days a talking frog is worth more than a Lehman investment banker!" (Croooooak...Ed.)
About Part Time Professionals
Part Time Professionals™ is wholly owned and operated in Australia. Our principals together have over 40 years experience in public accounting and as CFO's and Directors in multiple companies - both listed and unlisted. They are members of the Institute of Chartered Accountants in Australia, CPA Australia, the National Tax Agents Association, the Australian Institute of Company Directors, the Financial Executives Institute and the National Institute of Accountants.
Our aim is to help companies source the most experienced CFO, executive and corporate accounting talent, in the most cost-effective way!
We are constantly updating our website, so take a look at www.ptprofessionals.com.au for more information or call us on 1300 79 1946 to discuss your needs.
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