Waterford accountant sheds some light on SME bank debt and potential solutions

*“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. 
David M. Breen and Co. can be contacted on 051 875222 or via www.davidmbreen.ie

* Source: –        Forfas: The Irish Enterprise Funding Environment