Are the Special Assets Teams the Last to Know?
Too often with SMB’s [Small to Mid-Size Businesses] the financial institutions are not current on the financial and / or operation performance of the company in question. The financial institutions / creditors based their assessment on an annual set of reviewed or even compiled financial statements that are months old. By the time the Special Asset Team are involved the company is literally on death row. It is not unusual to be engaged by a company without the knowledge of the financial institutions / creditors being aware of the true status of the company. Why is this so?
- Entrepreneurs by their very nature are optimistic. A bad month and they wait until the next month, a bad quarter – well there is always next quarter, then a bad year….;
- Companies know that the Special Asset Team can become the "grim reaper” and the companies will try to perform the workout under the radar;
- Prior financial statements have been overly aggressive in the accounting;
- The loss of a single customer or product line is enough in SMB to cripple the entity within weeks;
- The relationship with the financial institutions / creditors was never a true business partnership;
- Loss of a key employee is enough in SMB to cripple the entity within weeks; and
- The company is hoping to sell the company before it implodes – so why put up red-flags
A few possible recommendations to mitigate this risks are:
- At a minimum, have the companies enter their results on a quarterly basis into the financial institutions / creditors database;
- Have the financial institutions / creditors relationship team meet quarterly with the clients not to only sell more products but to become aware of issues. This may require training – but what an asset this could be if properly performed; and
- Maintain vigilance on key trend industries. I.e. oil and gas, mining Etc
The key reasons for this situation are:
- Lack of understanding as to the specifics of the Company. Miss the early signs;
- Adversarial relationship with financial institutions;
- Not requiring the business to have a true budget vs. Actual. Only “after the horse is out of the barn” do financial institutions require a business plan with realistic budgets / projections; and
- Financial institutions are very departmentalized. Commercial loan officer not in sync with the Special Asset Teams.