When the going gets tough true independent advice is crucial

Businesses feeling the pinch and faced with a jittery bank manager should always seek a second opinion.

Recent news stories concerning the “turnaround” strategies of a couple of our banks are about as dark as Shakespeare’s ‘Scottish Play’ but with a lot more victims.

Back in the days of the quill pen and leather bound ledgers the banker was seen as a pillar of the community and a chap of integrity. To be honest these characteristics probably survived into the era of the rollerball, however, the last few years of mis-selling and rate rigging have now been joined by the blatant destruction and asset stripping of businesses that would or might have survived with the right kind of support.

Double, double toil and trouble

It should be said that there is a clear distinction between the two banks concerned and their modus operandi.

One of them (courtesy of a crooked rogue manager) is at the centre of an enormous fraud that included collusion with other so called professional advisers resulting in the recent lengthy imprisonment of those involved.

The other, whilst so far free from the murky stain of illegal dealings, is having to defend itself against accusations that its turnaround operation was a deliberate and distinct profit centre towards which potentially vulnerable businesses (along with some healthy ones) were shoved with unjustified regularity.

Whether it’s a crime or just criminal the strategies of both situations saw loan rates hiked, equity snapped up or in some cases businesses completely taken over. In a lot of cases businesses were just driven into the ground leaving the owners often financially ruined.

Fair is foul, and foul is fair

The fraud case should be looked at in isolation as it concerned unsavoury characters involved in unsavoury activities. This was an organised crime straight from the Police Review and included a far from independent turnaround specialist offering bribes to a bank manager who certainly had anything other than his customers best interests at heart.

Customers found themselves in a vicious circle; threatened with the withdrawal of bank finance if they didn’t appoint this highly expensive “specialist” whose subsequent fees meant they had to borrow even more. Finally driven into the ground these customers provided rich pickings as their assets were stripped or the businesses simply taken over by the fraudsters.

Nought's had, all's spent

Lessons can of course be learnt from both of these recent stories and business owners feeling the pinch and seeing a lot more of their bank manager than normal would do well to take heed.

Let’s face it, if your finance provider is concerned that your business is running out of cash but demands the appointment of very costly consultants, at your expense, there are two obvious points of concern.

Firstly, how independent are these consultants? Secondly, if you’re struggling to make the payroll on a regular basis then how on earth are you expected to pay for flow charts, Gap analysis and phrases about stretching the envelope and low hanging fruit?

There is also a marked difference between a genuine breach of lending covenants and being caught out when the goalposts are moved. In this respect alarm bells should ring very loudly if your finance provider in one breath says “we are extremely worried about your ability to repay our loan” whilst in another breath states “but we are prepared to continue supporting you if you pay a lot more for the cash.”

Get a second opinion; and a third if it helps!

Business owners should know when things are getting tough and hopefully many will seek out independent advice before the bank manager starts to get twitchy. It is always a sensible option to review a business on a regular basis anyway and even more so when cash out is galloping away from cash in.

There are many ways of getting a business back on track without recourse to expensive consultants. A decent advisor will have knowledge of all of them along with a handy list of contacts.

It may well be that the business just needs a more flexible finance provider willing to release cash from a wider selection of assets. If this is the case then an advisor can not only point the way to a number of good fits but also help prepare the business for the inevitable due diligence.

In more serious cases where an insolvency route is likely there are a number of procedures specifically designed to protect a business from immediate pressures whilst plotting the best way forward with the comfort of some breathing space.

The epilogue

It is a shame that a couple of incidents should muddy the waters of what was always a well respected British institution epitomising trust and goodwill.

The lesson to take from the tragic circumstances experienced by a number of businesses is that you can only be sure the advice you’re getting is independent if you have independently obtained it.

In a final nod in the direction of the original Scottish tragedy our great bard provided some prescient words including; “Not everyone’s nature is full of the milk of human kindness” and that they “may look like the innocent flower but be the serpent under it”. Or as the dodgy bank manager in the recent headlines may have uttered as he trousered another brown envelope, “Let not light see my black and deep desires

Unfortunately for him it eventually did as the next eleven years at Her Majesty’s pleasure will uncomfortably confirm.