*“The amount of credit outstanding to Irish private
sector enterprises on the balance sheet of resident credit institutions was
€222.4 billion at the end of December 2011.”
This is the depressing
position of the Irish SME sector currently. For a variety of reasons the sector
is in a state of depression with the challenges of a weak economy, compounded in
many cases with unsustainable bank debt. All too often this results in a
business ‘going under’; primary jobs lost, debts unpaid, secondary businesses
and suppliers also losing out. The trickle down effect can be just as
devastating.
In other instances, while
the business in isolation may be viable, the personal debt burden on its
principals and the servicing of that debt, may also place the business, its suppliers
and jobs at risk.
However one accountant in Waterford
states that, in many cases, these risks and eventualities can be avoided. David
Breen of David M. Breen & Co., Chartered Accountants has found that given
the correct approach, the banks are willing and want to talk. The challenge is
to ensure that both sides are speaking the same language and thus can
communicate productively.
Recent progress made in
dealing with debt resolution at European level is a step in the right direction
for the Government, the Central Bank, the Regulator and the banks and enables them to focus on debt solutions rather than the debt
problem. The solutions agreed in Europe will,
David believes, with a concerted effort by all parties are filtering down to local solutions. There is some light
at the end of the tunnel for the business
owner who currently starts the day by
checking if there is enough money in the bank account to clear the day’s
cheques and finishes the day considering will he ever be able to repay the loans
outstanding.
Developments in personal
insolvency rules and legislation to be concluded and operational in 2013
provide a platform whereby clearly the best scenario for both borrower and
lender is engagement and compromise.
David outlines his strategy,
“We start by helping the business owner get into a more positive frame of mind,
defining their goals, helping them look to the future with their business and
their employees intact. We then progress
to repairing what may be a distressed relationship with the bank. These simple
steps make a big difference and allow them to help themselves rather than be
consumed with the debt mountain facing them.”
“The borrower needs to be realistic when accepting their
situation and not setting their own expectations too high, then look at their
position from the banks point of view. This can often involve acceptance for
the need for lifestyle changes or sacrificing non- core assets in tandem with
addressing the Business finances. When
they are ready and in the right frame of mind, we forensically analyse their
accounts with them to create a strategy or proposal that will work for both the
business and the banks. We say “with them” because nobody knows the business
better than the owner”.
The key is not to focus on
the amount of money owed, but the amount of money that can realistically be repaid
over a sustained period of time, taking cognisance of the value of assets that
act as security for the loan.
What is the end result? A
business that stays in business, pays its suppliers, retains its employees and
a bank that has a performing loan book rather than a large number of distressed
loans. The multiplier effect of businesses remaining in business is essential
for the local economy, with the added benefit that in due course the banks will
actively lend to SME’s, new and existing, at the required level for a growing
economy.
These are not idle claims, David
has agreed restructuring solutions with many of the banks that give the highest
chance of long term sustainability for the business.
David added, “The banks want
to see the situation resolved - they are looking for a positive outcome and we
have been engaged to advise business owners in all sectors on how to present
their cases to the bank. We identify and propose a solution and negotiate
toward a position where the banks and the business owner are satisfied with the
outcome.”
In most cases there will be
pain from both sides but swallowing a bitter pill now with potential prospects
for a positive future is far better than prolonging the agony and burying ones
head in the sand.
“We are of the belief that
those who fail to engage and resolve before the end of 2014 will have missed
the opportunity of compromise for a number of reasons. Firstly, the Banks will likely form the view
that that there is no willingness to engage from the client. Furthermore there
will be an increased ability to dispose of the underlying assets as the
property market recovers and the Banks’ performing loan books will be restored
to an acceptable level, thus there is less incentive for them to compromise.”
The presence of an
experienced negotiator, who has the ability at times to act as intermediary at
all meetings with the bank is essential. This
not only achieves the best result, but it provides impartial objectivity a second pair of eyes
and ears to interpret and absorb all that transpires during those meetings. It
is vital that the advisor is proactive and not reactive.
While
David seems to be ahead of his profession with this particular service, with
twelve years commercial experience and fourteen years practice experience, it
is far from the only offering. David M.
Breen and Co. Chartered Accountants is an Accountancy Practice established 11
years ago in Waterford. The firm’s standard service is to prepare annual accounts,
tax planning and compliance, but it excels in helping clients be successful,
reaching their goals and providing reliable solutions on a timely cost
efficient basis.
* Source: - Forfas: The Irish Enterprise Funding Environment
