Martin Cattach from Finance For Business on where and how owners can access alternative finance to help support their small business

[00:00:00] Hi, it's Michael Kerr here presenting Small Business Banter.

[00:00:12] Welcome to the Small Business Banter podcast. I'm Michael Kerr your host and I'm also the founder

[00:00:17] of Kerr Capital where I work day to day with business owners. The Small Business Banter podcast

[00:00:23] is built just for business owners and will be especially relevant if you're an owner looking

[00:00:28] to sell, if you've been unexpectedly approached by a potential buyer or if you're an aspiring

[00:00:34] owner about to buy a new business. There's a lot on the line personally and financially.

[00:00:40] It's stressful, it's emotional and it's usually new territory. So to help each episode of Small

[00:00:47] Business Banter is a discussion between me and another business owner or an experienced

[00:00:53] Small Business Advisor. We talk about their experiences. So what you'll get is practical

[00:01:01] real life advice, different takes on everyday problems and a renewed confidence to tackle your

[00:01:08] own business challenges. Good morning and welcome into edition 139 of the Small Business Banter podcast.

[00:01:27] Martin Kattick joins me today. Thanks for coming in Martin.

[00:01:32] Oh thank you for inviting me Michael, it's a pleasure.

[00:01:34] Martin for those listening, Martin to your call when the banks say no. I think your tag line is

[00:01:40] call me when the banks say no which prompted me to reach out and chat to you. You're the founder

[00:01:45] of Finance for Business, a working capital strategist for small and medium businesses.

[00:01:52] You've had a pride that a fairly diverse career. Again big thanks for joining today,

[00:02:00] a really relevant discussion for small business owners for reasons that we're going to talk about

[00:02:07] the stranglehold of the big four have had on business lending to small business over the years.

[00:02:14] So we also touch on some of the options available to small business owners today outside of the

[00:02:19] big four. We're going to talk a little bit about how to prepare better for getting any finance

[00:02:25] really. It's often the lifeline of a small business and maybe some of your experiences

[00:02:32] and examples of some of the clients who work with to help them grow their business.

[00:02:38] So Martin do you want to just give us a couple of minutes on your background where you came from

[00:02:43] and what the core business is today? Right, yeah more than happy to. I was sitting down

[00:02:50] preparing for this and I thought I've actually spent 20 years in finance

[00:02:56] and 10 years of that was at the beginning of my career. So from about 22 to 32

[00:03:05] and the last 10 years I have spent in finance and in between I did a couple of interesting things.

[00:03:11] I worked in a number of different industries, communications, IT and social and policy research

[00:03:21] for government. So it's quite diverse but I suppose I'm always been orientated towards the

[00:03:28] sales and marketing end of the business and the diversity of things that I've done in my past

[00:03:33] gives me a great understanding of the issues that small business face and of course I run

[00:03:40] a small business right now myself which is finance for business. So it puts you in touch

[00:03:46] with a lot of things I suppose something that goes back a little bit earlier than that that is

[00:03:50] interesting is that I grew up in hotels which turn family run hotels. Yeah family run hotels which

[00:03:59] is basically gives you a great cross section of society to deal with and I started working

[00:04:08] in a public bar when I was 14 years of age. So you know in colourful old Fitzroy wasn't it?

[00:04:16] Yes it was in colourful old Fitzroy so actually if anyone knows a little bit of the Australian

[00:04:21] gangster history the hotel we were in was actually where the famous Squizzy Taylor who was a

[00:04:27] gangster in Fitzroy some time ago and they actually launched his book in that hotel

[00:04:33] some time ago as well so it was a bit of an attourish. So unfortunately it is now closed and

[00:04:38] has been taken over by St Vincent's and there's now a renal unit but Fitzroy at the time I think

[00:04:45] had more hotels than any other suburb in Melbourne and it's one of the smallest so

[00:04:50] there's a hotel on every corner in Fitzroy. Yeah there are some great old hotels in there

[00:04:54] you know it's heartland stuff isn't it and some of the hotels have actually preserved pretty

[00:05:00] well what they might have been you know 50 years ago it looks and feel so yeah as you say that's a

[00:05:09] great foray into a business in a career advising small business owners you've worked across those

[00:05:16] different sectors. He grew up in a family business and the small business community

[00:05:23] in Australia is you know he's very very diverse and so you know you're going to be talking to all

[00:05:31] sorts of different business owners about different sorts of challenges so you can kind of perhaps

[00:05:36] see it from a few different perspectives or from their perspective even if it's a you know a

[00:05:41] fairly unique business. Can I just set the scene a little bit with how you see the the current

[00:05:49] we are we have been I think we still pretty much are dominated by big four banks when it comes to

[00:05:55] small business lending what's the state of play as you see it. Well there's been a lot of change in

[00:06:01] the last 10 years and what's available to small business in lending the banks are still the

[00:06:06] dominant player and in the majority of cases they're the cheapest and the reason they are the

[00:06:13] cheapest is that the banks do most of their loans or 99.9% of them secured and buy a residential

[00:06:22] property mostly yeah and a lot of people don't realize that the banks use a document called an

[00:06:29] all-money mortgage so for example if you have a mortgage with let's use NAB as an example

[00:06:36] and your business banks with NAB and you have an overdraft with NAB that you might have done

[00:06:44] rather quickly might only be a small overdraft but it is in fact secured against your residential

[00:06:49] property and people don't actually realize that those two things are linked so what the banks

[00:06:55] have traditionally done is they have locked a client up so once you're with the bank

[00:07:01] all right they've got your house they're possibly funding your investment property as well

[00:07:07] and the situation is that you've got a single supplier source which is a risk in any business

[00:07:13] because if the bank changes its mind and if I look at the current environment now and I do a lot of

[00:07:18] work in the construction industry but particularly in the residential construction industry is

[00:07:25] considered by most of the banks don't touch you know we've seen a lot of big failures in

[00:07:30] that area and there's a lot of small builders that have fallen over as well what do you do if

[00:07:35] you're a builder and you survived the current problems your bank is going to be of no help to

[00:07:43] you because you've got a single source of supply you don't have a diversified range of borrowing

[00:07:49] in your business you're sort of put all your eggs in one basket to use the investment type

[00:07:56] statement you know no one would invest in just one yeah yeah yeah yeah so yeah I I did understand

[00:08:04] there was almost to classify that lending as either residential or business there was I think a lot

[00:08:12] some of it was or a lot of it was buried in as residential lending at some points but so one

[00:08:18] way or the other it's you know it's it's cheaper it's probably easier because you don't

[00:08:26] need to necessarily dig too deep on the business if you've got plenty of coverage on the

[00:08:31] residential property security on place that was the case once but they tend to look very deeply at

[00:08:38] the moment they're incredibly risk risk averse across all small businesses because we're in a

[00:08:44] an economy that's tightening at the moment and you know I've mentioned builders and construction

[00:08:51] related which is a big part of the Australian economy but also I've seen that they are not

[00:08:56] very helpful to those in the retail industry either yeah at the moment which are under pressure you

[00:09:01] know that so I often use the expression that banks are fair weather friends fair weather friends

[00:09:08] yes yeah yeah and so they are but they are so they are undertaking their analysis of a credit

[00:09:17] in a in a way we might expect anyway which is to look at the business first is that what

[00:09:22] what you're saying even and setting aside for a moment that the there is security they're

[00:09:28] they're going back to like a primary analysis of the business yes they're looking at the business

[00:09:35] and they have a big advantage because a lot of funding and that is is not so much based on

[00:09:44] financials these days you know here's my profit loss and balance sheet if we're a banker all the

[00:09:49] new fintechs everybody wants read only access to your trading account yeah because no source yes no

[00:09:58] matter what the financials say if we look in real time at transactions through the bank then we have

[00:10:05] a good idea and we can run analytics software across those transactions and make some decisions

[00:10:11] about how creditworthy they are what's their trading position and their liquidity

[00:10:16] yeah okay yeah so it's unfettered unadjusted real data isn't what goes through your bank account day

[00:10:26] in day out and there's a lot but you know but you've got to see from the banks where they see

[00:10:32] industries and get early warnings they have enormous data warehouses when you consider that

[00:10:39] the size let's take someone like nav or Commonwealth Bank they would have you know 500,000 small

[00:10:45] business customers possibly a million and they have that real-time data and they see trends and

[00:10:51] trading situations all the time so with armed with that data that's where they tend to be

[00:10:57] a bit awkward at times I think what you're saying is that with that that large bank of data if

[00:11:04] each of the banks have such a significant number of small business customers they're able to

[00:11:12] really dig deeper and look at industry by industry then they can take a view that construction or

[00:11:19] retail isn't a particularly attractive industry for them so there's forces at work there either

[00:11:27] if you're a part of that industry you know it's going to find it really really tough in terms of

[00:11:34] the from the from the from an owner's perspective given this what you've just talked about

[00:11:44] you know still strong control dominance by the big four what should an owner be thinking about

[00:11:50] doing to untangle themselves if they're completely tangled up and and and what are their options

[00:11:57] outside of the big four banks and and what do they do to better prepare themselves well there

[00:12:04] there are now quite a number of options outside the big four banks and let's talk about

[00:12:11] the detangling I apply methodology I call better business banking which is basically

[00:12:19] to diversify and not go a single source which is what happens when you're tying the bank so

[00:12:26] for example let's take generally the owner's residential property has some sort of mortgage on

[00:12:33] it you can replace that mortgage with a non-bank mortgage or from a different bank than where you

[00:12:40] actually do your business banking so we can keep our personal and business assets separated

[00:12:46] and that's one thing you can do and there are also the banks to have in order to manage their risk

[00:12:54] and diversify their own portfolios they are often the funders and the partial owners of most of the

[00:13:02] new fintech companies so but what the fintech does is it takes it away from the bank's

[00:13:09] policies and puts it into a higher risk category which generally means that it also has a higher

[00:13:14] rate but it's easy to get so you know that in finance there's always this rate for risk type

[00:13:22] calculation and then as a business owner you've got to look at what your ROI is going to be you

[00:13:27] know I often there are some terribly good unsecured overdraft products in the market at the moment

[00:13:34] that you can apply for and have granted in 24 48 hours except the only problem with these

[00:13:41] products you know it's no problem getting 100,000 or even 200,000 is that the rates are between 19 and

[00:13:47] 22 percent but I suggest to businesses that they look at applying for one of these overdrafts

[00:13:54] and keep that as a cash reserve you only pay when you draw down the funds and as an overdraft

[00:14:01] you can reduce the cost of those funds by paying it back but when opportunities arise

[00:14:07] and let's the simplicity let's use 18 percent as the number what's a percent and a half a month

[00:14:13] so if I can buy perhaps my competitor is is falling over next to me and I could buy all this stock

[00:14:21] and a fire sale value we'll then have paying a percent and a half a month so to grab that stock

[00:14:26] at you know 50 percent or 25 percent of its value yeah simple business decision yeah yeah um

[00:14:34] um yeah and look this is you know it's it's the nature of a lot of small businesses to be

[00:14:40] for one of a better term hustling and and if you can see an opportunity grab it I think one of the

[00:14:45] things you're kind of saying there is that um yeah they are expensive but if you look at the

[00:14:52] you know the return it may well be worth uh maybe I'll be worth it I think it's also

[00:14:59] potentially uh the right thing to this is idea of having credit you had you had said

[00:15:05] having a credit facility there applying when you're in a perhaps a strong position even if you don't need

[00:15:13] a facility there and then is that a is that a part of being ready for you know for opportunities

[00:15:20] yeah I think being ready for opportunities in a dynamically changing market and some

[00:15:25] of the downturn that we are now um I stress to my clients well get one of these um unscured

[00:15:32] overdrafts by holding costs per year if you don't use it as like 495 dollars yeah so you know to have

[00:15:39] a hundred thousand available in your backpuppet because one of the advantages of small business

[00:15:44] has is they can be very nimble yeah and if you're going to be nimble uh you've been

[00:15:49] needed for liquidity or to have some cash available to exercise that because that way

[00:15:53] you can take opportunities and that's what small business is very good at is taking opportunities

[00:15:59] and turning into profit with us. Hi there it's just a quick interruption to the podcast and

[00:16:07] it's a message from Kerr Capital a supporter of the podcast if you're a business owner thinking

[00:16:13] about selling and you're unsure about what you should do well the worst thing you can do

[00:16:18] is jump straight into an unprepared business sale cross your fingers and hope for the best

[00:16:23] if you want to take control get a sense of what your business is really worth

[00:16:28] and a plan to make it more sellable then head over onto the Kerr Capital website

[00:16:33] check out the value and sellability diagnostic if it piques your interest contact me Michael Kerr

[00:16:40] or book one of the free 45 minute diagnostic calls now let's head back to the podcast

[00:16:46] I also just want to just go back a little bit to that detangling thing what one of the barriers

[00:16:55] when you are entangled like that and and not just from a lending and a security perspective but

[00:17:00] from a if your core operating account is with the same institution and you have direct debits

[00:17:07] and you have payments you know coming in and it's a real pain it's it's non trivial to set up another

[00:17:17] operating accounts with all of you know your connection with your software counting software

[00:17:23] and so yeah that is that is that often a barrier just because it can look just too complicated

[00:17:31] too hard look it can be a little complex but the the idea is how I would detangle in the majority

[00:17:38] of situations is we wouldn't change banks where we have our trading accounts tend to leave that

[00:17:44] because you know there's a bank on every corner or there was some time ago now there's not many

[00:17:49] in the brand presence yeah you know whether you bank hands Ed Westback or Commonwealth doesn't

[00:17:56] really make a great deal of difference you know and if you've got that set up a trading

[00:18:00] account and that's all working it's the other things that the bank has that need to be tangled so

[00:18:07] it might be that you put the residential property somewhere else because

[00:18:11] that's a very competitive market there and there are non-bank lenders that are as cheap or cheaper

[00:18:16] than the banks so you can look at putting your so decoupling the residential property from the

[00:18:22] business and you know depending on what your business borrowings are particularly if you're

[00:18:28] planning to sell your business which I know a lot of your listeners are looking at that as a long

[00:18:34] term strategy well you you want to try and make it as clean and as easy to do that and unlock from

[00:18:40] the bank or begin that process as you begin getting the business ready for sale yeah no it's it's

[00:18:47] yeah I think the one of the other things leading into it you know planning a sale is you need to

[00:18:53] keep your foot on the accelerator and you need to keep chasing opportunities and and those if there's

[00:18:59] a an opportunity to acquire stock as you say from a competitor that's failing or you know these

[00:19:04] opportunistic they're not they're not completely opportunistic but you're always on the lookout

[00:19:09] for where can I you know generate another sale or another relationship that's and that's

[00:19:15] that's so important as well that going into a sale your business has momentum and you can point

[00:19:21] to you know where the growth opportunities are and capture some of them so not having one of those

[00:19:28] facilities you know might actually also be a detriment from the point of view of just

[00:19:33] not not capitalizing on on you know revenue potential yeah that's that's very much the case

[00:19:39] and you know a business if you want to sell my experiences it's got to be growth

[00:19:46] uh and so and you often you have to thumb right see one of the problems and coming back to why I use

[00:19:53] the term working capital strategist is that people are consistently talking about they have cash flow

[00:19:59] problems the term cash flow is is often over usage they don't really have a cash flow problem

[00:20:06] they have a lack of working capital problem and a way to illustrate this is let's and let

[00:20:13] let's use these numbers because it makes it nice and simple to work with let's say the

[00:20:18] business has a 1.2 million dollar term it's 100 000 a month so that's pretty simple to work about

[00:20:25] now any business that's has that sort of turnover is going to have um debtors people uh you know the

[00:20:34] way we fund our customers because unfortunately we one of the things you have to do with

[00:20:38] business is you provide credit terms to your customers just as your customers your suppliers

[00:20:44] provide credit terms to you yeah um and so let's say we've got that 100 000 a month well generally

[00:20:51] any business that um is is trading and rolling well normally has about two months worth of

[00:20:58] debtors on this book so let's say we've got two months worth of sales so that means we've got 200 000

[00:21:02] dollars and just to make it simple my suppliers because i am 50% paying to it i have my suppliers

[00:21:09] i owe them 100k so at any given time um i've got terms where i need 100 000 in the business

[00:21:19] my suppliers are carrying 100 000 but i'm taking 200 000 with the customers so i need 100 000

[00:21:24] working capital uh and people think it's cash flow because they're waiting desperately for someone

[00:21:29] to pay them or try and bring their terms in early which is just that they don't have enough

[00:21:33] liquidity in the business and this becomes acute when the business grows because if if i turn

[00:21:39] around and double the business size so it's gone from 1.2 to 2.4 to a turn over i've got 200 000

[00:21:47] dollars that i can get from my suppliers my customers owe me 400 000 so i now need 200 000

[00:21:53] dollars to run my business if i do anything before i do yeah trade will do anything so that's where

[00:21:59] this working capital on having enough liquidity the business is crucial for growth

[00:22:03] yeah it's a it's um very misund I think just about every small business owner over

[00:22:10] with does understand cashing cash out but you know when you come to um this calculation and

[00:22:18] impact of working capital it's great to have money owed to you but you know you've got it

[00:22:23] you've got to finance it and it's um it's a trap and you know I often kind of try to relate it back

[00:22:31] to if you were starting the business tomorrow um to explain it you had nothing but you sold 100 000

[00:22:39] dollars in month one well you're going to have from day one you're going to have expenses to pay

[00:22:46] and suppliers um so that's that's you know straight up you might you might even be trading

[00:22:52] profitably but you don't have any cash so you need a facility to uh to plug you know pay the bills

[00:23:00] where you become you know more profitable and as you say as you grow it gets higher and higher

[00:23:05] and and it's um that shortfall it's good to have you know it's good in the sense you've got

[00:23:11] you've got money owed but if you can't get it or or can't get it quickly enough that

[00:23:16] you know it cripples it can cripple a business yeah so Martin in in terms of yeah we were chatting

[00:23:22] earlier about the the bank feed the the the raw data that comes out of the bank account which

[00:23:31] in time becomes management accounts and and then tax returns but banks and others fintechs are

[00:23:37] you know looking at that at that raw data so how does an owner and their accountant or their

[00:23:44] their bookkeepers you know often the first port of call um for producing interim management accounts

[00:23:51] interestingly you know when i'm you know advising owners about the um the sale of the business

[00:23:57] evaluation as at today the the raw management accounts are often the most important often you

[00:24:07] mostly year between um financial year so you you might have the last finished return would be

[00:24:14] six months old or 12 months old even so we go to the management accounts and that's where you

[00:24:20] you get a lot more detail about what a business is really all about because it you know by the

[00:24:25] time it gets to a tax return and all the stuff's rolled up into buckets and it doesn't really tell

[00:24:30] you a great story so it's um it's vitally important information so bookkeepers account and zoners what

[00:24:37] can they do with that to to help them better prepare for a for a credit application well i call this

[00:24:45] keeping the account the account clean um often as people come to me because i like you said

[00:24:53] i'm the place to go to when the banks said no the situation is they often are in a bit of a

[00:24:59] liquidity pinch so uh and that's reflected in their bank accounts um but the the one other thing

[00:25:06] that's a black mark which i still see today is um dishonored payments uh if you really want to

[00:25:15] up you know so um some of the fintech say oh we'll accept uh no more than two dishonors in six months

[00:25:23] now those dishonors can be happened for a lot of reasons and it's it's basically showing

[00:25:29] the business doesn't have enough liquidity but um it's about keeping your bank account clean so

[00:25:36] don't let dishonors happen so you know don't make a payment when you don't have the funds

[00:25:42] you know talk to your suppliers negotiate there are there are ways you can get around this but this is

[00:25:47] the first red flag it's a red flag that the banks see from their when they're holding your trading

[00:25:52] information or when someone else has a snapshot of your account they have the same situation they

[00:25:58] see that these there's a problem or just measuring sales you know the three months ago the sales

[00:26:05] were a hundred thousand this month they're only 50 you know what is going on here the usually

[00:26:10] it's not really rocket science to understand that so that's why it's very important to look at

[00:26:15] putting in place credit limits and and arrangements like the unsecured overdrafts before things get

[00:26:21] tight yeah yeah when they're going when the going's good and you don't need it necessarily yeah

[00:26:27] there's a saying the banks only lend money to people who don't really need it yeah so when

[00:26:31] you're in need money uh it's not the time to make an application so that's a bit of the

[00:26:35] business planning cycle I think people have got to look further down the track and open their

[00:26:40] planning cycles to see what their liquidity requirements are going to be yeah I think one of

[00:26:45] the other um traps or failures is not really knowing what goes through your bank account

[00:26:56] necessarily there's a lot of things that can go through and over time you know direct debits

[00:27:03] subscriptions but also you know I've I have been aware of you know innocently or otherwise

[00:27:12] not disclosing a lease for you know a regular payment for something and and that's

[00:27:20] you know that can catch you out in terms of an application because what about this and

[00:27:27] you know you said oh I fucking I forgot about it I didn't yeah I see that happening quite often

[00:27:33] because people often forget about leases and you know the photocopier and can be all sorts of things

[00:27:40] um and of course they are all revealed when the analytics go across your trading account

[00:27:46] because we're seeing this payment and it might be to uh the photocopy company but it's still

[00:27:52] that it's a rental contract it's a commitment yeah and and you know I think this is the the

[00:27:58] failing and also the great opportunity with um deriving a better financial return from your

[00:28:06] business is really understanding those numbers and um and then and using that data yourself

[00:28:14] forget about the banks just for a minute to to change where you focus and and and how

[00:28:21] your business performs if you really do go through and understand where it where it's spent

[00:28:26] where it's coming in and how you can how it compares to last year same period um it's a

[00:28:33] you know very telling sign so we are talking about financing here to replace existing facilities or

[00:28:38] for growth but you know 101 for any any business owner is using those management accounts

[00:28:45] if set up correctly and you know with the right chart of account so it's good information

[00:28:51] there's really um you know if you're going to grow your business or change the way you run

[00:28:55] your business you've got to understand what that what the numbers tell you it's very very important

[00:29:01] so and a well-informed uh business owner is a great client because they know what's

[00:29:08] going on in their business and you're not uh telling them the look i'm noticing these issues

[00:29:15] that are going to become a problem in as far as credit goes and at this point just there are some

[00:29:21] interesting things that one can do with the new accounting systems and let me use myob and zero

[00:29:28] both have facilities to do this but um one of the things I do a lot of work in is in

[00:29:33] debtor and trade finance and debtor finance is something that people will lend to you

[00:29:41] against the invoices that you have outstanding in other words that 200 000 are by your customers

[00:29:48] and trade finance works in the other direction and that will provide the ability to pay

[00:29:54] your creditors so that's lending you money to pay your bills in simple terms but with

[00:30:00] the new accounting systems now debtor finance used to be a bit of a complex manual system you

[00:30:06] have to run shadow ledgers and have banking details change today there are lenders that will

[00:30:14] simply look at your myob they'll take a live feed from your myob and say oh look

[00:30:19] you at any time have 200 000 worth of debtors all right we'll give you a overdraft type facility

[00:30:26] for 150 secured by those debtors so you can and that's a very simple system now and using

[00:30:36] you know the modern accounting processes and the live feeds from the bank account into myob

[00:30:41] or to zero means that that asset can be assessed and lent against my lender right so yeah look it

[00:30:49] makes it makes an awful lot of sense again like game awareness what you know what what assets

[00:30:54] do you have that you could finance or where do you need facilities did is that often bump up against

[00:31:01] their their incumbent bank with their floating uh floating charge or against all business assets

[00:31:10] or or is that just a bit of pre-planning needed to kind of start to unwind and untangle that

[00:31:17] the banks you know like to have the residential property and they like to have a charge over

[00:31:21] the business as well yeah and and you know like if we look uh let's say mortgage rates at the moment

[00:31:27] are at six and a half six percent you know just depends where you are if that mortgage is all of

[00:31:33] sudden termed a business loan then the banks add an extra two or two and a half points on top of it

[00:31:38] so business loans eight point five percent but it's secured by the exactly the same thing

[00:31:44] as your mortgage so uh you know i have better problems understanding why that it's more expensive

[00:31:50] but uh yes it can be an issue with floating charges over the business that's part of that

[00:31:54] de entangling or i've had situations depending on what the assets of the business like that

[00:31:59] the banks will allow a debtor funder to take a charge over the debtor book

[00:32:04] but they'll keep their charge on the rest of the business okay all right so a lot of planning

[00:32:09] here and and getting some assessment some advice about how you're structured what probably

[00:32:15] most importantly what you might need going forward do you really need to tie up um you know i think it

[00:32:22] should be a um an objective for many for many hours to untangle that um yes exactly you know it's

[00:32:30] it's how practical and how quickly but it happens i'm not sure but it's um you know when

[00:32:36] businesses get to you know this is a challenge in in the sme market um there are there are

[00:32:43] significant risks that can come from left field and you know so you know it's you understand why

[00:32:48] a bank would want to have that cover but um where at what point do you cross over to the the bank

[00:32:56] uh the business has a track record it's got some other financeable assets so you strip away the

[00:33:04] the cover everything kind of approach of having the house and the flooding charge to

[00:33:08] you know identifying specific assets or specific needs and and and using this suite of fintechs

[00:33:15] around to that specializing all sorts of different lending martin a couple of just quick examples

[00:33:21] of clients you've worked with recently you know how it started where they ended up and what was

[00:33:29] the the the positive impact on them all right look i suppose um the first one that's got a

[00:33:36] couple of interesting lessons i had a a line hole boring company in w a and and what they basically

[00:33:44] did they had a couple of big trucks that would go out to the mining areas with metal laves and all

[00:33:50] the stuff all the machinery stuff you need to support uh operation so they could do on-site

[00:33:57] maintenance to a dozer for example and here's an actual example they their clients were bhp

[00:34:04] western mining all absolute blue chip clients um one of the problems they had is that they would go on

[00:34:11] site and the site foreman say oh look we've done the pin on the blade of this dozer and that's our

[00:34:17] little machine another pin now but then their technicians would have a look and say look

[00:34:21] the pin on the other side of the dozer is going to go in 50 hours we think and of course the

[00:34:26] onsite form it says do both however what happens in is when you're dealing with blue chips uh

[00:34:33] they have very rigid processes and you only have a purchase purchase order to do one item not two

[00:34:39] now you were authorized in the field to do the second item but that means you know what do you do

[00:34:45] then so one of the mistakes they initially made is they would put they had a purchase order number

[00:34:50] one one zero elit score and would put both items on it and that would mean they didn't get paid

[00:34:55] for the first one or the second one while everybody in the councilman worked out well now yeah okay

[00:35:00] a rule for business is when you've got a purchase order and you have variations send your first

[00:35:06] disvoice that matches the purchase order yeah and then argue about the variations later so you don't

[00:35:12] hold up that cash flow in those payments now what what also happened is that this was just before

[00:35:18] covid but they are an interesting example um but BHP which was their main client outsourced

[00:35:24] his payments to India so not only we have time difference and and all that complicated procedure

[00:35:31] but they were waiting 90 days to get their funds so um generally anything over 90 is considered

[00:35:39] outside trading terms and in default but because of who the clients were we managed to put in a

[00:35:44] facility that would let them go to 90 days and gave them the liquidity they needed to grow

[00:35:49] the business uh recently they have sold that business uh at a substantial profit um and have

[00:35:57] actually retired and they're both about 40 so it was a it was a good story but just somewhat

[00:36:03] sometimes the mechanics of business can be a problem yeah perhaps another example um is

[00:36:08] that sort of illustrates the cash gap that we were talking about earlier is I have a couple

[00:36:13] of clients that are in traffic management so in traffic management that means we're they're

[00:36:18] the guys that have got casual workers out there with a stop go sign and a truck with all the the

[00:36:23] signs that laid out on all the roadworks the problem they face is that they have to pay

[00:36:30] their casual workers every seven days okay so pay runs on Thursday and that's when it happens

[00:36:37] however their income from the builders or construction companies they're working with

[00:36:42] and so forth they don't get paid till maybe 45 days so they're a classic case and this in their

[00:36:50] their business it's labor uh and you can't have terms on your labor so they require things like

[00:36:56] debt or funding to give them the money to pay their staff when it's due while they're waiting

[00:37:02] while they're waiting to get paid by their clients and the other thing that has been very

[00:37:06] useful to one of those particular clients is that the receivable in other words the the invoice is

[00:37:13] insured by the lender so the lender has taken out insurance in case one of the companies you work for

[00:37:20] becomes insolvent and in the construction industry in the last couple of years that's been very

[00:37:25] handy my clients had over a hundred thousand dollars in insurance claims three different claims

[00:37:31] and if he had if they hadn't been insured they're insured to 80 of the value

[00:37:38] he would have possibly been in a lot of trouble when a major customer defaults on their payment

[00:37:42] and goes into administration yeah so yeah there's you know some ways and that's something that you

[00:37:48] don't necessarily have to use debt or finance but judging the risk of your receivables particularly

[00:37:53] when you have large customers is a very important business strategy and something

[00:37:57] that you need to look very carefully at yeah so a lot of what you're saying and it makes an

[00:38:02] awful lot of sense to me is have some way of assessing where you're at how entangled are you

[00:38:09] how much of a just you know a negative is that for the business and and thinking you know forward

[00:38:15] to what you might need so on on that note we've both used and are familiar with the term

[00:38:22] fintech i'm not sure necessarily that all small business owners would understand what fintech

[00:38:29] is however my my understanding is it you know it's it's really technology and data driven

[00:38:37] lenders who who can break down a business into component pieces and so we can we can lend against

[00:38:44] this we can lend against that and debtors stock you know would be examples plant and

[00:38:51] equipment would be another so is that a like an okay definition of what a fintech is because

[00:38:58] there's an all point is there's an awful lot of these kind of lenders out there and it seems to

[00:39:03] be mushrooming and so i'd say that for many small business owners there's a whole much

[00:39:09] bigger range of options to finance their business and they might be aware of yes and look that

[00:39:15] is a fair definition there i suppose as organizations they're they're using data and

[00:39:23] they use data but they they use their experience you know they they are very quick like you can get a

[00:39:28] 200 000 dollar overdraft in 48 hours however you've got a score right so we take they take a bank

[00:39:36] account fee and run their analytics over that and then they look okay this business going well how

[00:39:43] long you know they use simple criteria because they're mass transaction type people so they say business

[00:39:48] been going five years liquidity is good in the company directors are asset backed let's do a deal

[00:39:56] you know right so they might validate that the directors have financial capacity but aren't

[00:40:02] necessarily looking to take a mortgage or you know over the but it gives them comfort that there's

[00:40:10] a business track record and a capability financial capability of the owners and directors

[00:40:16] yeah one of the things is that you know there's the the seas of credit are capacity collateral

[00:40:24] character and when you start looking at some of those the character of the people because

[00:40:32] they're doing unsecured lending is important and in a way they don't necessarily collateral

[00:40:37] but they can see that you have the capacity because i've got a successful business person here

[00:40:42] who's bought a house and half paid it off you know those are other sorts of things that mean that you

[00:40:47] all the boxes are ticked in the season to get access to that that sort of credit yeah we

[00:40:52] discussed the three seas of credit with Ben Tushinsky from Judo Bank before Christmas and you

[00:40:59] know as a as a relationship driven traditional lender to small business they're doing an

[00:41:07] outstanding job you know a lot of ex big four bankers in there but they you know i've had a

[00:41:15] a lot of interaction with them and they are very much on those three seas and maybe yeah

[00:41:22] and it's four seas depending on which one you're talking about four seas i was just yeah yeah

[00:41:26] but i i work with judo and i found them very good but they still are

[00:41:32] they're not quite a fintech fintech they're a bit like a banker because they will lock everything up

[00:41:39] so you know that they are but they are better and i find them more flexible than the traditional

[00:41:44] banks yeah as an alt as a as a pound for pound pound comparison to a big four timing wise

[00:41:52] understanding going out you know stepping through the business i think they're you know

[00:41:57] i'm not here to promote judo but i i know from a fairly a fairly significant number of interactions

[00:42:04] over the last few years that you know their business owners have been really happy with

[00:42:10] the options they've presented timely and cost effective but yeah back to fintech so

[00:42:16] can you are you able to just break down that like reasonably quickly the the range of different

[00:42:22] lending you might tap into and then what we might do after that is just finish out with your contact

[00:42:28] details and a pit yeah okay well look i suppose that the fintechs often move into particular

[00:42:37] niche niches like there's a company called lucamoney and they're a relatively small fintech

[00:42:45] but what they do is they provide trade finance so they will give you an unsecured loan because

[00:42:51] they look at your my other counting system and they see once again where you are but they only lend

[00:42:56] you cash to pay your supplies so but they'll say oh look you've got a reasonable business

[00:43:04] their cost is is really good value and they'll say oh look you qualify you know you've got a

[00:43:09] 50 000 line of credit now with us you know it's yeah that's quite simple so there's someone who

[00:43:15] will only do that on trade finance and then we have as i mentioned earlier some people that only

[00:43:19] do that on debt of finance yeah some of those are fintechs some are more traditional debt lenders

[00:43:25] and then we have a lot of nimble type fintechs that will do a mixture of things so they

[00:43:34] i particularly like a company called shift shift does a lot of the unsecured loan

[00:43:39] overdrafts that i'm talking about but shift also have things like they'll take over your debtors for you

[00:43:47] so say for example i've seen this happen a couple of times in construction they say well instead of

[00:43:53] you lending your money which is what you do with your debtors will manage your entire debtor book

[00:43:59] so anyone buys anything from you they want terms that's fine we'll give them terms but they sign

[00:44:04] our paperwork so they make an assessment so they're they're actually lenders that know what they're doing

[00:44:10] and can score a business and decide the risk because often small business people don't quite

[00:44:15] understand the risk that they face in their debtor book and yeah yeah and i imagine in that case also

[00:44:21] it's in a lot of small businesses you're chasing people or businesses that you're kind of friendly

[00:44:29] with and you know so here you've got a next you know third party is not a debt not a debt collector but

[00:44:35] a debt manager um take the emotion out of it yeah because one of the problems is that generally the

[00:44:42] manager director of the business has been the guy who's led the sales of the business yeah yeah

[00:44:47] secured all the big accounts and he has lunch with these and what happens is that um there's

[00:44:53] a conflict of interest in a bigger organization um sales will go and sell something and then

[00:44:58] the credit department decides whether they'll take it on and they're two separate entities but in the

[00:45:03] small business we get a bit of a conflict of interest oh jack will be right he'll pay us he spoke to me

[00:45:07] next week should be fine you know and yeah yeah it's i think i really noticed that in in the

[00:45:16] accounting profession you know there's a lot of great accountants out there have debtor books that

[00:45:23] stretch into the i mean i'm sure there are other but it was quite notable for me and

[00:45:29] in its personal relationships and um and you know they're very forgiving for as accountants

[00:45:34] yes exactly and and they have the worst books the only one that's the only one that's seen

[00:45:39] that's worse is perhaps lawyers right do let me mention you know they they often and particularly

[00:45:45] those who work in family law because they're waiting for all the settlements and sales and

[00:45:49] money they're fees outstanding for a year yeah it's it is event that it's yeah in some part

[00:45:56] they're event driven but yeah because you've got to wait for you know a ruling or in closing

[00:46:02] you are who you call when the banks say no um so just a quick recap on what you do and

[00:46:11] how people get a hold of you if they want to chat about an alternative financing arrangement

[00:46:16] right well um what i do is as i said i'm a working capital strategist so i help people

[00:46:24] with their debtor and creditors and their processes a little bit you know not just the lending because

[00:46:30] um in order to achieve the right outcome sometimes you have to look at how you manage your debtors

[00:46:35] and how you manage your creditors and look at some some changes what i do is use different

[00:46:41] sources different uh lenders to give businesses more liquidity so they can grow so it's really

[00:46:48] about getting money into the business and look it may not always be the cheapest money

[00:46:54] but it's the money that's available at the time and then you make commercial decisions

[00:46:59] knowing what your cost of funds are to what i do with those funds and that's that's where

[00:47:03] i talk with business owners look i suppose i'm a bit like an old-fashioned bank manager

[00:47:09] and uh you've got a big desk no no i haven't got a big desk i go and see my clients yeah right

[00:47:16] walk around yeah walk around now the banks send out graduates that have went behind the years

[00:47:22] you know and they're 22 years of age um it's not someone that you know i can sit down and talk

[00:47:28] to a business oh what are you doing marketing wise how sales at the moment it's not just about

[00:47:32] a balance sheet thing because then you get to assess and see what a business wants to do

[00:47:36] and get some understanding of where they want to go yeah that way you can use your ip and experience

[00:47:43] to say well we can use this funding to achieve that outcome for you yeah yeah and i think you know

[00:47:48] underpinning that is getting to know the owner and what they're aspiring to do in their business

[00:47:55] and if it's in a phasing down that's fine you know you might you know just want to pay down

[00:48:01] that and and be done with it but you know for growth orientated businesses and you know not not

[00:48:07] only younger businesses but those you know with a real opportunity to grow um you gotta you gotta

[00:48:14] look it's like a lot of things that owners need to do it's very easy for us to sit here and say

[00:48:20] you should exit plan you should you know restructure your finances you should get better

[00:48:24] systems but um we'll keep saying it because it's all true and you gotta just got to find time

[00:48:31] and also um i think just take a bit of a break so every now and again and think about what you

[00:48:37] want to do with your business but funding is um is a lifeblood of a lot of them so how do they get

[00:48:42] a hold of you martin if they want to uh check i have a website called finnfabiz

[00:48:47] f-i-n-f-o-r-b-i-z dot com dot au um all the other thing is uh i'm a bit old fashioned myself

[00:48:55] i don't mind a phone call all right you know we'll put that your conversation yeah yeah yeah uh i

[00:49:02] well understand and and agree with you um what i'll do is i'll put the number in in the show notes

[00:49:08] and um people can follow you from there um thanks so much for your time today martin

[00:49:15] practical uh as i expected and and you know from from a base of a lot of experience so

[00:49:21] i'm sure that'll be really well received and helpful for um those listening

[00:49:26] yeah look thank you very much michael for the opportunity because um you know the job is to

[00:49:31] educate businesses about what's available for them so discussions like this and and giving

[00:49:36] them some information is at least some food for thought because quite often they they're

[00:49:41] they're so busy working away it's something like a podcast that's a great way to digest some

[00:49:45] information while you're still typing out the accounts or banging your hammers or whatever you're

[00:49:50] doing yeah yeah no there's no end to things for others to do and and we we both and all of you

[00:49:56] know lots of people understand that but we're going to keep having a wake in lending as one

[00:50:01] example there's a lot more opportunity to diversify and uh your lending than there has been

[00:50:06] for a long time and so you got to put your head up and and and as you say prepare a bit

[00:50:12] you know it's not as simple as just getting the finance you can have the workflows and systems

[00:50:16] and that takes a bit of effort but you know like everything if you do it well there's a return

[00:50:20] all right martin thanks so much for your time today you take care well i hope you enjoyed that

[00:50:37] episode of small business banter and i i hope it was helpful in you getting the most out of your

[00:50:42] small business ownership to subscribe or listen back or to check out any of the resources or

[00:50:48] information we talked about today head over to the website smallbusinessbanter.com.au

[00:50:53] or if you want search up small business banter on your favorite podcast player don't forget to

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[00:51:16] there's a new episode out every couple of weeks we'll catch up then