The ReGroup Solutions Gold Coast team will deliver you the very best result.
Overcoming critical cash flow issues requires a culmination of strategies all
working together at once. In all business crisis situations, particularly debt negotiation, there are likely to be one or more critical stakeholders that must be communicated with and arrangements put in place. Commonly these are banks, trade creditors, landlords, the ATO and business partners.
Being successful in dealing with these stakeholders will impact almost every facet of your business and will be critical to your turnaround strategy.
It is a well-known fact that the likelihood of successful negotiations with critical stakeholders is greatly improved when they are being conducted by a third-party professional who has a transparent agenda and plan in place. The ReGroup Solutions Renegotiation System has an emphasis on practical, real-world outcomes delivered on time. Of key importance is our intimate understanding of each of these critical stakeholders, their policies and procedures, preferred communication methods, their options and motivations.
Bank Workouts
We mentioned banks first in line as critical stake holders. Bank workouts can be critical to a successful outcome. Banks lend money when times are good and security calculations stack up. However, there is only so much they can do when times are tough and unfortunately so much is really not much at all when you get to the pointy end. It’s important to understand the bank’s process and where you currently sit with your bank.
When you got your initial loan, your bank manager was likely attentive and a problem solver. There would have been a lot of fine print to sign before the bank handed any money over to you and you were likely assured that it’s all standard procedure. It might be time to reassess those documents. The four areas of importance are lending covenants, security, borrowers and guarantors.
Lending covenants are basically key performance measures that you must meet in order for the bank to be comfortable to leave the loan in place. These might be hinged on security valuations, profit results or other financials ratios such as debt to equity. It is customary for business lenders to request a copy of your financials yearly and assess these covenants. In our experience we commonly find that these covenants are on the hard end to satisfy and there is not much margin for negative movement.
Other than financial default e.g. not making your payments, these lending covenants are likely to be the reason why a bank may consider you to be in technical default.
At this time your bank manager, whilst maybe a good guy, has his own bacon to cover and protocols to follow. The usual outcome is that your bank manager is required to transfer your file to the ‘Strategic Management’ department.
Strategic Management’s role is to quickly assess if there is an option to remedy the breach and return you to your bank manager or alternatively exit you as their customer. For many reasons that often appear to defy commercial sense the majority of files that end up in strategic management are exited from the bank.
How you deal with and communicate to your bank is so important when you’re in financial crisis. Being proactive and not stalling or withholding bad news is ultimately the superior tactic.
At this stage you really need some independent advice and to be clear on what your position and the bank’s position actually is.
- What are the realistic security values?
- What are the likely actions the bank will take?
- What are the chances of the bank being repaid if they enforced their rights?
- Who will be affected e.g. other individual guarantors or other corporate guarantors and how would they be affected if the bank moved adversely?
- Can a realistic plan that has a high likelihood of support from the bank be put in place?
We find that when it comes to dealing with strategic management, the outcomes are greatly improved by having third party representation that understands their policies, procedures and practices. Strategic Management is likely to work towards a mutually improved outcome where there is a written plausible plan in place. Most importantly they will need to have confidence that the agreed action items are going to be completed as proposed. Regular communication is very important.
Depending on the size of your business it is not uncommon for Strategic Management to engage an independent accountant to do a review and make recommendations to the bank. This is very much the Danger Zone as these firms are usually also insolvency practices and are very much looking at how things would wash out if the bank enforced their rights now. ReGroup Solutions has a good working relationship with Strategic Management and the independent accountants that the banks employ. This is critical to keeping other more palatable options alive.
Once a workout strategy has been documented and the course of action has been agreed with Strategic Management, then the next step is to do what we say we are going to do and perform above expectation where possible.
Throughout this process we report good news and bad news and continue to build goodwill. Once all is said and done which could be many months down the track it is then time to talk to Strategic Management about how we propose to deal with the wash up.
If the bank has been repaid in full that’s great news. Most of the time there will be a shortfall owing to the bank and these loose ends need to be correctly dealt with. An agreement to settle or bring finality to any claim the bank has is important for your future. Many business owners also use their family homes as security so it is common for our final conclusion to address how our clients may retain the family home and the attached facility.
Bank workouts are highly fluid situations and can be greatly assisted by the skills and experience ReGroup Solutions brings.