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Now more than ever, professional accountants in public practice are well positioned to leverage their relationships with funders to deliver the best results for their clients.
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By Gary Anders
Many small and medium-sized enterprises (SMEs) find themselves under unprecedented pressure, with many forced to defer loan repayments and seek financial support as they grapple with severely diminished cash flow.
Australia’s accounting industry has been squarely caught in the midst of this crisis, as hundreds of thousands of businesses across the country have asked for help understanding the various government and financial support measures available and preparing new ones. loan requests.
CPA Australia has also played a pivotal role in assisting members and, where possible, working to resolve obstacles on behalf of members, including issues related to companies having access to the necessary funding for employee JobKeeper payments .
“Australian banks have done a very good job communicating with SMEs, loan deferrals are available and there is access to finance,” says Gavan Ord, head of trade and investment policy at CPA Australia.
“But this is obviously not the case in all situations, and we hear stories from members about the problems faced by some of their customers.”
CPA Australia has directed many of these questions to Australian Banking Association (ABA), as the two organizations work together to identify and resolve the financing issues facing SMEs.
“We are working with the ABA to identify issues in the system and try to resolve them, especially when members are directly affected, but more broadly as well,” Ord said.
Ana Marinkovic, Relationship Manager, Direct Business and Small Business at National Bank of Australia (NAB), says she has spoken to many clients throughout the COVID-19 pandemic and has seen common themes evolve in the challenges they face.
“It has been an unprecedented time for business owners and many have had to actively focus on ways to both minimize expenses and carefully manage their cash flow, including changing the way they work and moving to online operating models, ”she said.
“Another area of major concern for small business owners is the uncertainty of future consumer behavior as a result of the easing of restrictions and the speed and confidence with which consumers begin to return to their shopping habits. previous expenses. “
How accountants can smooth the road
Joe Formichella, Small Business Leader for Bendigo Bank, Australia’s fifth-largest retail bank, says the role of accountants in helping SMEs access finance should not be underestimated.
“Ideally, we want business clients to contact their accountant early on to let them know they’re looking to borrow money,” Formichella explains.
“We hope that the business client and the accountant will sit down and do a bit of due diligence regarding the purpose of the loan, the ability of the business to repay this loan, and the extra time they will need to be able to repay the amount. additional. debt.”
In today’s environment, most applications are to keep a business funded and supplied until economic conditions improve.
Formichella says the most suitable loan products for a business client, whether it’s bridge financing, a line of credit, or other borrowing needs, are discussed at the time the client meets with his bank relations manager.
“Ideally, we want business clients to contact their accountant early on to let them know that they are looking to borrow money.” Joe Formichella, Bendigo Bank
“It really depends on the needs of the customer. Every customer and every business is different, so it depends on the life cycle and maturity of the business when it comes to a bank.
“It’s important to prepare with a business case and a plan detailing the goal. This must make sense for the business and for any additional funding to provide a net benefit to the business as well. “
Marinkovic says many small businesses will need continued support to bounce back from the impacts of the pandemic.
“With many companies innovating and changing their operating models in the wake of the pandemic, NAB recently launched the Small Business Center to help SMEs restart, digitize and sustain their online activities.
“This is a great way to help our customers adopt the new consumer buying behaviors that we are seeing in the wake of the pandemic.”
Preparation of main financial statements
Formichella says a lender needs to make sure there is a viable business, which requires an understanding of historical financial performance so that the business can identify a trend.
Typically, this requires two to three years of historical financial performance, including the company’s balance sheet, earnings, and cash flow. New applications also require more up-to-date financial data to ensure the performance trend continues.
“It gives us a good idea of the client’s ability to continue to generate a level of financial performance to support existing debt or additional debt. It also gives us an idea of the quality of the management and their performance – what decisions they have made to continue to improve their business and their returns, ”he says.
“Then we are looking for at least 12 months of projections on the future state of the business to make sure that the additional debt can also be repaid, beyond any of their existing liabilities.
“We need clients to demonstrate that the loan will be for business purposes and that it will be used to meet current and future working capital needs. »Andy Kerr, National Bank of Australia
“We take all of these factors into consideration, and there must also be a level of compassion and a genuine need to support our clients throughout this cycle.”
Andy Kerr, Executive Managing Director – Corporate Client Solutions at NAB, adds, “We need clients to demonstrate that the loan will be for business purposes and will be used to meet current and future working capital needs.
“For example, will it be used for short-term operating expenses such as rent, wages, and inventory? It is important to discuss and understand the cash flow needs of your client’s business before making a decision on which loan to extend, ”says Kerr.
Looming cash flow crisis?
Formichella says Bendigo Bank ran an intensive program of calling business customers throughout March to try to understand the impact of the pandemic on their operations.
About 30 percent of the selected SME clients chose to defer loan repayments for up to six months.
“There is a lot of frustration and stress right now. It’s quite stressful for small businesses that the impact on their business is not their own doing.
Ord says the surge in deferral of loan and tax payments by companies, as well as the increase in funding requests to fund JobKeeper’s payments, present a looming problem.
Most of the support measures are only in place until the end of September.
“Are we preparing for a potential tightening of cash flows at the end of September? And how will banks and governments think about it and possibly mitigate the risks of this cash flow crisis for businesses? “
Ord says businesses will need to determine whether they will be able to meet all of their cash flow needs, including deferred loan payments, by the end of September.
Read more :
How businesses can pivot to embrace the new normal
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