Accountant Rami Brass received a shock last week while helping a newsagency client raise some money to buy the neighbouring business.
Accountant Rami Brass received a shock last week while helping a newsagency client raise some money to buy the neighbouring business.
What should have been a simple transaction became bogged down in paperwork as the client's bank demanded unusual amounts of information and security before proceeding with the loan.
Mr Brass, a partner with RSM Bird Cameron, said he was staggered with how complicated the deal had become in the wake of the credit crunch, which has put many in the financial sector into a panic.
Perhaps most surprising of all was that the newsagency, which had a long-term relationship with its bank, was required to produce a budget forecast for the next financial year.
"A 12-month cash flow? This is a newsagent," Mr Brass said.
"All of a sudden the level of due diligence I have found has increased."
Mr Brass said there was a probability that part of this demand for more information had to do with the bank being seen to be doing its due diligence in what are uncertain times.
There is a hint of irony about this.
The credit crunch stems directly from poor banking practices, predominantly in the US, where new loan-based securities allowed lenders to remove loans from their books, divorcing themselves from the responsibility of dealing with that arrangement if everything went bad.
No matter whose fault it is, it appears we all have to live with it, even the newsagent who wants to buy the building next door to his thriving business.
The so-called sub-prime crisis is affecting businesses across the board.
A quick review of data from the past week or two makes gloomy reading.
Perth house prices are tipped to fall by up to 15 per cent over the coming year, Australian banks have raised interest rates and made huge write-offs linked to their sub-prime exposure, surveys show small-to-medium enterprise business conditions have weakened, and retail trade has slumped for the second quarter in a row.
All this at a time when many in Western Australian business are struggling due to an energy crisis following the explosion on Varanus Island, not to mention being forced to consider significant cost imposts from an emissions trading scheme planned for the near future.
While the Real Estate Institute of WA was dismissive of some pricing forecasts, policy director Stewart Darby acknowledges there is significant housing stock in the three key markets of Perth, Mandurah and Bunbury overhanging the market.
He said much of this had been driven by speculators who had been caught by the market downturn.
"People are giving ridiculous bids for the sake of someone having to get out, and people are accepting them," Mr Darby said.
HBOS Australia chief economist Alan Langford said that, while WA had not been affected as badly as NSW and Victoria, the market was soft.
"Clearly the impact of the tightening of financial conditions is now significantly affecting households' capacity to spend," Mr Langford told WA Business News.
Of course, many WA businesses have remained insulated from its impact because of high commodity prices and massive resources investment - so much so that it's business as usual despite the global meltdown.
As Ian Ross of Willetton stated on the WA Business News website as a comment on a story about business confidence dropping to a 17-year low: "I would be interested to know what ratio of the 1,500 firms in the survey were from Western Australia.
"Everybody I deal with in Western Australia is having a bumper time and just can't get enough staff to handle the work that is available.
"It would be interesting to see a similar survey done on just Western Australian businesses."
But while the anecdotal evidence may indicate that not all business has been hit by the sub-prime crisis, many unrelated to the better performing mining and energy sectors, such as iron and gas, have been affected.
Those offering advice to the market are encountering the problems first hand.
WA Retail Traders Association executive director Wayne Spencer said the current environment was hurting a significant number of businesses.
"It is a battle," Mr Spencer said. "It is a case of a lot of well-run companies have found their strategies are not particularly working in this climate."
He said retailers were struggling to come to grips with new global events after years of good times.
"If you think that (comprehension) is bad for the retailer, imagine what it is like for the consumer," Mr Spencer said. "The discretionary spend has hit the skids."
He said retailers who had experienced several years of outstanding sales now had to adjust to a new climate and relearn the art of enticing customers to spend.
"They have forgotten how to create an environment where people buy," Mr Spencer said.
Former Small Business Development Corporation chairman Tim Atterton, who now runs an advisory service called Business Dynamics, said he had seen signs of small business suffering but believed the worst was yet to come.
Mr Atterton believes WA small business has enjoyed the good times but failed to build lasting businesses during this period.
He said many had weak balance sheets and were unprepared for the winds of change.
"They should be reducing their working capital needs by running their business a bit more efficiently instead, and building equity in their business, rather than taking excessive personal drawings," he said.
Another who works in the business consulting space, Mel Ashton, believes businesses need to take stock at moments like these.
"One of the big things that a lot of businesses will have to come to grips with is their mindset," said Mr Ashton, a former insolvency practitioner who now sits on several company boards.
"Where they have enjoyed particularly good times the landscape has changed.
"How is that specifically going to affect my business and open up weaknesses I have or strengths I can take advantage of?
"There are companies that have structured themselves by thinking this will continue for some time longer. They may need to restructure and not be as ambitious as they were.
"They need to be able to move quickly if things don't go as expected."
Mr Ashton said business leaders needed to keep their fingers on the pulse of their companies and closely watch performance against budget.
Being able to react quickly to deterioration in performance was important to arrest problems and maintain credibility with key stakeholders such as financiers and investors, as well as grab opportunities when they arise.
He had a warning for the large body of business owners and managers who might not have previously encountered a downturn.
"If there are things that worry you, get outside help quickly," he said, adding that external advisers can often simply offer reassurance.
From his days in insolvency, Mr Ashton highlighted the need to maintain relationships, especially with financiers who needed to be kept well informed.
"Where you go off the rails is when you stick your head in the sand and relationships start to break down," he said.
"Relationships are great to have in the good times and also in the bad times."
