In this special series with brand partners, Findex debt advisory partner Tony Krohn and business advisory managing partner Jim Softsis talk finance.
Dealing with lenders can be confronting at the best of times, but increasingly so when your business is experiencing difficult trading conditions such as what is being experienced during COVID-19.
Lenders are businesses too and, just like the rest of us, they are trying to adapt to COVID-19. Currently, they are being inundated with applications from businesses which can make getting their attention challenging.
In this type of environment, putting your best foot forward to lenders is crucial to secure the funding and security you will need to see your business through hard times.
While many businesses will have a strategy in place to manage operationally, without a detailed cashflow analysis and compelling value proposition to back it up, you risk doing more damage to your business and losing credibility and opportunity with lenders.
Consider adopting the following approach to your business’ financial position:
1. Take a holistic approach to your funding options;
2. Understand the market and navigate accordingly;
3. Be transparent with your actions, plans and expected outcomes;
4. Consider your lender’s requirements and work with them;
5. Understand your negotiating power; and
6. Leverage your network and seek professional advice.
Considering each of these is the key to success for you to be fully prepared for a conversation with your lender. To prepare, we recommend every business undertake these three key steps:
Step 1 – Financial Impact and Strategy Assessment
• How did your business perform pre-COVID-19 disruptions?
• What impacts have you experienced from COVID-19 disruptions?
• What measures have you taken, or plan to take to accommodate these disruptions?
• What are your assumptions for the future of your business post-COVID-19?
Step 2 – Cashflow Assessment
• Provide insight into your current and forecasted financial situation, not just for a few months, but looking well beyond COVID-19;
• Provide scenario analysis with best and worst-case situations;
• Consider the most suitable lenders; and
• Recognise what your future borrowings should look like and assess the cashflow impacts of different financing options with respect to principal and interest repayments into the future.
Step 3 – Detailed Submission to Lenders
• Summary of business (for potential new lenders);
• Outline of the COVID-19 impact and strategy;
• Cashflow model outputs; and
• Borrowing capability and requirement.
Lenders gain confidence in your business when you take a conservative and carefully planned approach with them. Openness and transparency will allow lenders greater certainty in these uncertain times. By approaching lenders in this manner, you will put yourself in the best position to obtain the financing solution that is right for your business both now and into the future.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the thought or position of Findex Group Ltd. The information provided is of a general nature only and does not take into account your objectives, financial situation or needs.
If you require any assistance with your financing requirements or preparing for lender conversations the team at Findex is able to help. Please contact debtadvisory@findex.com.au or you can find further information here.