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Variety the spice of life

Getting the right advice and using it well are essential when dealing with financial institutions, as Mark Beyer reports.

SPEAK to your adviser before going to the bank. And don’t put all of your loans with one bank.

These are two of the favourite pieces of advice from business advisers and finance brokers.

However, before you think all advisers are anti-bank, they quickly add a third piece of advice … make sure you maintain a close and open relationship with your bank.

There is no shortage of professional advisers seeking to help business people with their banking and financial management.

Most accounting firms are now pitching themselves as business advisers, while many finance brokers can provide broad advice.

Lyall Bear, Business Services & Taxation Partner at BDO Chartered Accountants and Advisers, sees his role as helping clients to be fully prepared before they go to their bank.

“We want the client to be fully armed, knowing their position,” said Mr Bear, who has experienced many instances where clients go straight to their bank, then have to call their accountant to obtain additional information.

Mr Bear strongly recommends that clients prepare a business plan with budgets and projections.

As well as being a useful planning tool for the business, it helps the bank to understand the business and its needs.

For instance, the business plan may envisage increased borrowings in three or four years to support expansion.

It would be preferable for the bank to know this up-front, rather than finding out later.

Mr Bear said many business people failed to assess the linkages between the tax system, their accounting policies and their financial management.

For instance, accounting on a cash basis rather than an accruals basis could affect the cost of different financing options such as leases and hire purchase.

Loanscorp manager David Stannard-Brown encourages business clients to obtain quotes from alternative banks every two or three years to ensure their current bank’s fees and interest rates are competitive.

While some clients will switch banks as a result, others will be able to negotiate a better deal with their existing bank.

Mr Stannard-Brown believes finance brokers such as Loans-corp can also help business clients by framing their loan applications properly.

He said using a finance broker should not detract from a business client’s relationship with their bank.

“To be a success, a business needs a good relationship with their bank,” Mr Stannard-Brown said.

He characterised the broker’s role as “haggling” with the bank on behalf of the client in order to ensure they obtain the best deal.

CGA Finance director John Richards said he normally recommended that equipment finance be sourced from a lender other than the borrower’s main bank.

“I tend not to give one bank everything,” Mr Richards said.

“When everything is going well it doesn’t matter. It gives you a lot more flexibility when there is a downturn.”

Ledge Finance director Phil Botsis is more blunt in his advice.

“A lot of people go to their bank for everything. That is the worst mistake they can make,” Mr Botsis said.

Mr Richards said one of the risks facing businesses was that banks sometimes altered their view on an entire industry, and consequently good operators could be adversely affected.

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