Author
Daniel Gill
Category
Alerts

A frank and open relationship with your banker can go a long way to assist when trading conditions get tough or the business experiences cash flow difficulties.

Your banker is there to help your business grow and thrive. In difficult times, bankers like to work with clients who are organised, forward thinking and proactive. Keeping an open line of communication with the bank when issues arise, could mean the difference between your business’ account being transferred to the bank’s asset management team or being given some breathing space to implement strategies to improve trading and cash flow conditions.

A tool that is often overlooked by business owners which can assist in staying on the front foot with the bank is having a covenant review and reporting mechanism.

Elements of a successful covenant review program include:

  1. Identification of all covenants (financial and nonfinancial) required by the bank under the terms of the finance facility.
  2. Design of the covenant review methodology or process which is:
    • Tailored to a business’ individual circumstances; and
    • Flexible enough to deal with changes as they arise.
  3. Reporting of results in a clear and easy to read format.
  4. Monitoring of results against covenant requirements as well as a comparison against historical performance.
  5. Calculation and monitoring of headroom between current performance and covenant limits.
  6. Review the process on a regular basis to ensure the system continues to meet the business’ requirements.
Pilot's Banking Covenant Reporting Process

Pilot’s Banking Covenant Reporting Process

 

A well designed and executed covenant reporting mechanism will help business owners manage their relationship with the bank. It also has the ability to identify potential operational or cash flow issues that can be dealt with quickly and efficiently.

The Corporate Advisory team at Pilot have successfully designed and implemented numerous covenant reporting packs which have proved to be a valuable resource for our clients.

Next Steps

Should you have any queries or would like to discuss how Pilot may be of assistance, please contact Daniel Gill or Chris King on (07) 3023 1300.