09 Feb Bank Well, Sleep Well

By Ian Robinson

Any futurist could not have forecasted the tumultuous start of 2020, nor any futuristic historian could have been prepared for the backwash and consequence of these events that are yet to unfold.

A black box algorithm could not have predicted the compounding impacts of these layered tail end risks playing out as they have done.  It would have to analyse the cross currents of global economic trade wars amidst an era credit tightening, the GDP squeeze from an enduring drought, a domestic logistical congestion from widespread bushfires followed by drought breaking floods, and now a global pandemic that is on the rise threatening the health and financial well-being of all Australians.

Who has been spared?  There is only two degrees of separation that connects any business owner to any one of these events alone, not alone multiple events.  No one really, we are all in this together united.

Now what will follow in 2020 is various shades of legislative political risk.  Climate change legislation overlaid with business carbon emissions regulation, enforced travel and mobility restrictions to stem the pandemic and potential levies to repatriate the national costs of mopping up Australia’s balance sheet.

Yet the capitalist spirit is to adjust, reinvent, pivot and survive.  This is all done at a business level with various degrees of willingness and success.  Those businesses that don’t adjust naturally make way for the ones that do.  There lies the opportunity in volatility.

To be one of the one that does, this means investing critical financial resources into the forensic operational, managerial and financial health and risk matrix of their business.  This is what a bank does daily.  They seek to understand your risk matrix.

But do most borrowers even understand this critical element of their own business at an elementary financial risk modelling level?  Given that circa 70% of Australia’s employed population is driven by small to medium enterprise, I cannot account for this number of people going to the Harvard School of Business to learn these bespoke skills.  And whilst any nation traverses a linear and predictable growth pattern, then perhaps these skills are not required.   But we are not in predictable times, the future’s trajectory will not be linear, and these skills are now definitely required.

Bank Well Sleep Well is synonymous to those who have or are willing to integrate risk modelling with correlated relationships between income, expense, cashflow and balance sheet drivers within their business.  Business owners need to know it for their own financial survival and wellbeing; and banks need to know to keep credit open and liquidity flowing within the business.  Denying the bank this visibility will deny your business funding optionality.

Prepare your credit analysis, present your findings to your bank, negotiate more flexible terms, pricing and liquidity, reduce funding risk and sleep well at night.