Where to Start?
Most brokers will have a number of self-employed and small to medium enterprise (SME) clients in their database. Whether or not you have current, or arranged recent loans for these clients, the majority of them will have a need for finance in one form or another at some point in the future and so it is all about getting to know them and working to understand their needs.
This can be a much more effective path than turning to third party professionals you may have been introduced to such as accountants, financial planners or real estate agents where it is mostly a case of asking for, or waiting on, referrals. As you already have a rapport with your own client base, we can show you just how easy it is to generate more business just by becoming a little more involved in their life and world.
So, just how do you go about prospecting?
Approach this process with a long term view and don’t be put off if it doesn’t yield immediate results. What you are seeking is to be your client’s first preference when they do need something in the future.
Here are the “how to” steps to get underway:
1. Short list 5-10 self-employed clients you know well who ideally have a positive approach to keeping on top of their finances and wealth management planning. Start with one or two you are comfortable with and vice-versa.
2. Review your past dealings to get on top of their previous finance requirements and refresh your knowledge about them, their business and their plans.
3. Have a reason to catch up with them. Everyone is busy so offer something of value by sharing some knowledge you know they will be interested in or leave something that will remind them of you.
4. Arrange to go and see them at their place of business. This is important as it can be a great prompt when you look around and see what their needs might include. Bigger premises, replacement equipment, more trucks, forklifts, IT equipment, a refurbishment?
5. Offer to take a look at how you can help them or add value by reviewing their financial position and, if possible, obtain their most recent financial statements.
What you are now looking for.
Once you have put yourself in a position to have a financial discussion with your client, these are the things you are on the lookout for:#pb#
• Review all of their personal and business loans. How do the rates, fees and terms compare to what else might be available with the same or another lender? Are there any obvious areas to save your client cost, time, or both?
• Do they have capacity to borrow more against property or other assets? If they can readily raise more debt, what purposes might they put that capital to so as to help their business and/or improve their personal wealth prospects?
• Are they experiencing any challenges, problems or difficulties with their current arrangements? Will an efficient debt consolidation package help ease cash flow? Are annual reviews and lender compliance taking up too much time that can be relieved by taking out a set and forget term loan?
Financial statements.
It is best if you can get hold of the financial statements (Profit & Loss and Balance Sheet) of the business and, if you can, here are a few tips:
What to look for in a Profit & Loss statement.
Interest expense: What is the breakdown? Is it for existing commercial property loans, an unsecured overdraft, equipment finance, operating leases? Be sure to find out the actual repayments on these finance arrangements which will usually be significantly greater than the interest component alone depending on the loan term.
| Tip No. 1: Interest paid: Is there a refinancing opportunity? |
Rent paid to a third party: How much is it and how does it compare to loan payments on buying their own premises? Many small business owners are now acquiring their business properties within a
SMSF for long term wealth creation.
| Tip No. 2: Buying can make more sense than renting, especially for long term wealth creation. |
Rent paid to an associated entity: Are there other special purpose companies or trusts controlled by your client which have finance facilities in place? What are the terms, when do they expire? Is there a refinance opportunity?
| Tip No. 3: Look for refinance opportunities to reduce costs or improve terms. |
What to look for on a Balance Sheet.
Current loans: These are liabilities maturing in less than 12 months and may include things like overdrafts or short term loans. Are there savings to be gained by refinancing into more efficient and appropriate structures? Is there a hard core debt to be addressed?
| Tip No. 4: Convert expensive or hard core debt into easy longer term loans. |
Loans to Directors: Are there short or long term debts owing to directors or shareholders? Is the business able to repay them from current cash or near future profits? Would your client like to repay or reduce them if funds could be accessed?
| Tip No. 5: A refinance or loan increase can release equity to repay internal loans. |
Borrowing capacity.
When reviewing financial statements at a high level, you are essentially aiming to get a picture of what the client’s current net income looks like in context with their asset versus financial liability position. From here you can determine what their maximum borrowing capacity will be. Have they reached a peak level or is there “headroom” to release capital?#pb#
| Tip No. 6: Is your client aware of how much extra they can borrow if they want, or need to? |
View business finances and personal finances side by side.
Be sure to get an up to date understanding of your clients combined financial position between their business, as shown in the financial statements, and their personal asset and liability statement. This is necessary so you can see what range of options are available to positively structure their financial situation.
| Tip No. 7: Get a full financial picture by also obtaining an up to date personal statement of assets and liabilities. |
How to sell.
Having developed an understanding of the wider financial position, the next step is to get a good feel for their key financial objectives (eg. improve cash flow), desires (buy their own commercial property), worries (loss of income through ill health) and concerns (maybe a downturn in business conditions). The answers to these questions can introduce other considerations such as life insurance or income protection policies, looking into a debtor finance facility, or talking to an accountant or financial planner about an SMSF.
| Tip No. 8: Think broadly. What will help improve your client’s situation, give peace of mind or create wealth? |
Ask open ended questions to extract this information and to guide the conversation like a residential loan Fact Find:
“If interest rates were to rise how would you manage the impact on your cash flow?”
“What would you do in the event of serious ill health affecting you or your business partner?”
This is not supposed to be a hard conversation though, the intention is to raise your client’s awareness around possible solutions to issues they’ve identified while also prompting thoughts on other things they may not have known about or considered until now.
Questions you might also think of putting to your client could include:#pb#
“Your current repayments are $5,000pm, if we can reduce these repayments to $3,500 would that be of interest to you?”
“If I could show you away to purchase a commercial property through an SMSF and keep repayments around the current rent, would that be of interest?”
Ask for your client’s consent to do some preliminary work to present some solutions that can improve their present position, financial outlook, cash flow and peace of mind.
| Tip No. 9: Ask questions that will get your client thinking about what they want now and in the future? |
What sort of product options have you got available to you?
Depending on your client’s preferences and circumstances, there are a number of alternatives to consider.
In commercial property, lenders with longer loan terms can help improve cash flow by reducing monthly loan commitments. For other finance requirements, there are excellent specialist options in the areas of debtor and inventory finance, cash flow (unsecured) finance and equipment finance. A specialist lender is often best placed to produce an efficient, high quality solution by possessing the expertise and taking the time to fit the product outcome to the client.
| Tip No. 10: Identify the products and providers which provide the best solution. |
Who can you turn to?
Talk to lenders with Relationship Managers experienced across the range of financing options and able to workshop situations with brokers alongside their clients without the risk of them taking over the relationship. They should also have the necessary skills and experience to work in with other professionals including accountants, tax specialists, financial planners and legal advisers.
Your aggregator is also likely to offer specialist support and expertise for most commercial lending needs and these skills and services can prove very beneficial in developing your own knowledge and ability to deliver.
| Tip No. 11: The key is to find a commercial relationship manager who will invest the time and protect your client relationship. |
Present a well laid out proposal.
When you go back to your client, be sure to have put together a solid and appropriate summary of recommendations that is easy to follow and which clearly demonstrates the various benefits available. Describe how they can be achieved, what is involved and your role in overseeing it.
| Tip No. 12: Provide a comprehensive solution and say how you can make it happen. |
You become your client’s financial Relationship Manager.
At the end of the process, whether your client proceeds at this time or not, you should have positioned yourself as their Financial Relationship Manager. Maintaining this position does mean being proactive, but such an approach to commercial prospecting will at the very least, help to strengthen and secure your long term client relationships.
| Tip No. 13: Ask your client if you can work with their professional advisers. You never know where that can lead… |
Summary
With the Christmas/New Year period approaching when many businesses slow down, it can be an ideal time to start planning and getting into a prospecting program. As you try this approach once and then again for a second and third time, it will become an increasingly comfortable exercise and you will fine tune it for your different clients. Before long, it will become second nature.
How good will it feel to have prospected for an opportunity, helped a client out, produced some new business for yourself and then be referred to the client’s professional advisors who in turn have numerous clients with similar needs? In turn, it will help to expand your network and introduce further business opportunities.
