This is an interesting question, which has possibly more information than I can simply pass on in a humble blog. Let's make some careful assumptions here, there are 2 basic clients(personal and business) and a hybrid of both.
In the personal space, preparing a financial assessment is quite simple and easy.
But how is that going to build your relationship and potentially get referrals?
One way is to treat the personal client as a micro business and inquire about their personal liabilities. The status of their home and/or investment loan, any personal finance or credit cards; are examples of liabilities that impact the client both financially and personally. The age of these debts with the exception of the investment loan are not easily addressed from an accountancy position.
However, debt is debt and a pro active accountant needs to ask the question of the personal client."When was the last time they had reviewed their personal finances to switch to a better rate or consolidate for ease of repayment"?
It takes less than 30 seconds to ask the question and another 30 seconds to get an answer. This one minute could save your client thousands of dollars a year! How would you feel about a person that helped you achieve that? The key step here in moving forward to quality care for the client is referring them to a competent Mortgage and Finance Broker for credit advice.
It's our job and legal obligation to secure a financial benefit for your client in restructuring their debt. We have to work closely with you to ensure this is a positive outcome.
In the business space, we will also assume the hybrid client who has personal finances also. The pro active accountant needs to consider the client's exposure to risk at both a business and a personal level. The strategy here is to ensure the client stays in business, is safe from liabilities arising from business matters and keeps a roof over his/her head.
Issues that face your business clients are the age of the debtors, the level of ongoing depreciation and the cost of any finance used in conjunction with the business. Again, the competent Mortgage and Finance Broker can be contacted for advice here. It is not commonly known that certain banking groups have specific appetites in various industries. This lack of knowledge creates a bottle neck for the business when seeking funding for equipment acquisition. The Bank your client keeps their funds in, may not provide the finance ( or at a competitive rate) for the ambition of the client. The client is unaware of the choice available out there and unknowingly walks into an aggressive vendor finance agreement which may impact the bottom line.
Cash flow being the lifeblood of any business, you and your client need to keep the heart pumping and every bit of help matters. Ageing debtors and the cost in pursuing them is another problem. It is like bad cholesterol, restricting the cash flow which keeps the business alive.
Establishing recommendations for debtor finance are an example that a good credit adviser can also provide for your client. The business may be passed over by major lenders with debtor finance arms, as the client has specific risk (chequered credit history) or a debtor concentration that falls outside of policy. In most cases the competent Mortgage and Finance Broker may choose to refer this matter to the specialist group who handle clients like yours everyday. Securing a decent and respectable debtor finance company for your client can potentially bring additional benefits to the business, such as the ability to vet future debtors quickly ( these companies keep a list of known risky debtors). The resources and legal muscle to recover from ageing debtors, bad debt insurance options are but some benefits.
Your business client may operate in the business to business space and could benefit from establishing a vendor finance facility to offer to their clients if suitable. This means consistent cash flow as your client only invoices the finance company and can even offer a long term equipment rental agreement which ties their customer to them for future business as and when upgrades are required. The competent Mortgage and Finance Broker is instrumental here also. Establishing this facility and overseeing applications to ensure your client has quality customers to deal with are paramount. If your client seeks out retail clients with a specific dollar spend on products and services, the ability to offer personal finance also can be streamlined as part of the your client's sales process with the assistance of a competent Mortgage and Finance Broker.
Maybe your client has aspirations for a commercial property empire, again the major lenders may not be be available if their policy is not flexible enough for the client. The location or the purpose of the building could have a conflict with the conventional lender. Finding other lenders that can get the deal done could be all that it takes to start your client on their way.
Exposure to risk, a key concern of mine. I only want people aware that providing property as security in business, is only an option, it is not compulsory. Too many people, unaware of the risk, have lost their family home as part of the downward spiral of a failing business. That should never happen, accountants know the statistics of business failure. It doesn't cost anything to ask a credit adviser if there is a safer way to finance a business. Always have an exit plan!
You, as their accountant are at the literal coal face when that decision is being made. For the sake of the perceived savings on interest or expediency ( by securing the property) from one lender a client should not bet the home on a business. If they have the equity, a simple cash out refinance could produce enough deposit to negotiate a viable credit offering.
Regardless, by structuring the finance to protect the personal residential assets, even if the interest rate is higher is considered insurance well spent. If the client still wishes to head the other way, review what insurances are available to provide protection. Due diligence sometimes is not enough, I have enough war stories to share on this.
The Mortgage and Finance Broker has to find a lender to fit the goals of your client as realistically possible. In Australia there over 60 different financial institutions that provide funds to all manner of requirements. There isn't one Bank/Lender that can do it all. Diversity provides competition, choice and better client outcomes, as a credit adviser, it is my professional goal to achieve a positive outcome for you and your client.
I am available to discuss your client needs on 0405 476 765 or email info@ahlsfinance.com