Four timely steps to strengthen your business banking relationship

In this article, we outline four actions that business owners should take now to financially prepare their business for the fourth quarter of the year.

Engage your business banking partner early

While it may feel like we’ve just rolled into the new financial year, and we’re still living in a false economy thanks to Government stimulus, time is moving quickly. While the banks have done a good job in providing hardship support, primarily by allowing business owners to defer principal payments on loans, it’s not permanent. Bank loan deferrals are due to conclude by October, just nine weeks away. So what does that mean for your business? Will you need additional bank funding to support your business post-September?

Four things to do now to prepare your business banking case

Now is the time to engage your business advisor and accountant to start planning your financial needs with your bank. Start by reviewing the impacts that theses last tough years have had on your business, both financially and operationally, and look at how your business will function from October onwards. Use these findings to prepare your forecasts and update your business plan before approaching your bank. There are four things you need to know before you start.

Understand and communicate your business banking requirements

Contact your business banker to make them aware of your position and your possible future banking needs. It’s always better to start the conversation early so you have time to consider your options, get expert opinions, review your risk, and prepare what’s required. Be conservative and clear about your potential capital and funding requirements over the three, six and 12 month periods.

Be prepared

Understand what the bank will look for and proactively collect that information now. This will likely include your forecasts, historical financial information, your capital, and your funding requirements. Ask:

What other supporting financial information will they need?
What are the deadlines?
What are the associated fees or costs involved?
Do I need further support from other specialists?

Be rigorous with your business assessment

It’s not enough to guess your way through financial trajectories; banks will comb through every line item on every statement. You need to ensure your figures are supported by hard data. We suggest engaging your business advisor and accountant to provide you with an unbiased and informed view of your forecast and planning, including the assumptions that underpin your figures.

Create a strong business case for bank funding

While we often think that it’s the bank that’s knocking down the door for our business, thanks to COVID-19 and the Banking Royal Commission, banks are a lot more cautious about lending now. As such, it’s important to distinguish yourself and make your business proposal better than the guy down the road who may also be seeking to deal with your bank and banker.

To stay competitive, we suggest creating a scenario analysis to prove that you have thought carefully about the future of your business.

What does your business look like on the base set of assumptions?
What happens if those assumptions are to move by 20 or 30 per cent on the downside?
What if they move upwards by 10 or 20 per cent?

Really stress test those forecasts to demonstrate to your bank that you know your business and your numbers. Through doing this, you’ll also get a priority service, or at least a better hearing from the relationship bankers and the risk team.

If you’d like to discuss your financial business plan or need help with your scenario analysis, please call us. We’d love to support you.