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The holistic balance sheet: make your assets sweat!


News - 28 June 2018

Bringing 25 years of experience to his role as sales director at ABN’s Manchester office, Austin Thorp sources and structures new financing opportunities for clients. Taking a holistic view of a balance sheet, he says, can reveal new methods of raising capital for many businesses.

Whether it’s funding for a time-sensitive project or a new opportunity, businesses often find that their conventional sources of finance – even traditional asset-based lines – cannot always help them achieve their goals. But if they engage with a lender that takes a more rounded view of assets – that looks across the whole balance sheet for security – they can find additional ways to free up cash over and above what they might expect to achieve from only financing the main balance sheet assets of receivables and property.

Just like a “whole body” approach to health, this holistic view of a business and its balance sheet can massively improve company fitness. And just like personal health, the secret is simply listening to clients and finding out what they want to achieve.

For example, I’ve recently been working with a manufacturer of frozen food products - a great business with a strong management team. In the run up to Christmas they’d always needed to take on agency staff to cover the added workload and meet tight customer delivery deadlines. That’s always a drain on cash.

When we looked at the full range of assets, we realised that not only could they borrow against receivables – they also had stock consuming working capital. The lightbulb moment was when the Finance Director realised that by changing their manufacturing process, they could build up stock earlier in the year. Knowing that it’s a frozen product where there is no issue with shelf life – and using our services - there was no impact on the day to day cash position of the business.

A stock-finance facility made additional cash available; and the finance costs were much cheaper than having to employ expensive agency labour – meaning their margins were improved.

The financial benefits are great – but operationally it’s been transformative, too. They have much clearer visibility in what they’re producing; they don’t have a rush in that peak period; and they have scope to scale up if need be.

In simple terms, this broader, holistic, view of their assets has changed the way the business operates.

Deal activity
Taking this holistic view of assets works for other business transactions too. Management buyouts and buy-ins can be more challenging when the leverage that goes into making them work impacts hugely on the value of the balance sheet at acquisition. Suddenly conventional debt lines are difficult to obtain and the business often struggles for transformative working capital.

These deals often don’t fit within standard bank risk profiles, however for an asset-based funder which can see a business aiming to grow post-deal, extra sales, new plant, additional stock and raw materials, are in reality all positive indicators which provide the right funder with the opportunity to support.

There’s often a lag between the new sales and profitability/cash generation. We can use the assets to generate the capital to assist with these transactions, assess the ability to service the debt and by using the full range of asset based lending products including cash flow loans where required to help our clients achieve their goals.

A new model
So “holistic” doesn’t just mean looking at all the assets and the activities in a business. It’s also about having every kind of financial tool at your disposal to support clients.

When I joined ABN AMRO Commercial Finance two years ago, I was particularly impressed by their use of the Enterprise Finance Guarantee (EFG) scheme. This government-backed programme supports lending to viable businesses that are ineligible for conventional finance due to inadequate security. Our close partnership with the British Business Bank allows us to step into that breach.

When there’s a good business without sufficient assets on the balance sheet to generate the cash it needs, we use the EFG scheme to bridge the gap. We can use it to generate anything from start-up funding to £1.2 million in loans.

That puts us in a unique position and it means we can help clients free up more cash. Along with all the other products in the suite, it means we can take a properly rounded view – and support great management teams.

Helping advisers help their client
That’s a big plus, too, for professional advisers such as accountants, consultants and corporate financiers. They spend time asking clients about their short, medium and long-term strategies, tailoring their advice to these objectives. It might be a change in strategy to increase sales through growth or acquisition or building a balance sheet in anticipation of a future sale.

When they approach the traditional funders, they often get limited options, excessive administrative burden and onerous financial restrictions. What they need is options – enabling them to support the strategic decisions of the owners and managers.

Listening is the key. It’s not about imposing what we think. An ideal scenario is finding out what the client’s ultimate objective is, and working back from that. It’s that flexibility, borne out of this more holistic approach that gives the market confidence.

Made in Manchester
On a national basis we often operate in that niche area that sits in-between the High Street Banks and the smaller independent lenders. There is plenty of evidence of this not only in our Manchester office, but across other regions we operate in too – where both the relationship and asset managers, as well as the senior management team have an intimate knowledge of the local market. Our flat structure allows us to operate efficiently and to apply that experience for the benefit of our clients. Drawing on those resources enables us to develop creative and flexible solutions.

We also understand that every business needs to be able to adapt and change with the environment around them. We believe in fairness and transparency, that’s why there are no minimum terms to our agreements. If they no longer need our support, a client only has to give us one month notice to leave us, that’s how confident we are in our ability to structure deals properly and look after them for their whole business life.

When you take a rounded view of a business and you seek to understand the market it operates in, it gives give you the confidence as a lender to go above and beyond to provide financial support for the right business. For our clients and their advisers, that translates into creative, bespoke solutions to finance.