Management psychologist Abraham Maslow once said that “when the only tool you have is a hammer, every problem begins to resemble a nail”. Which is why business owners panic when their bankers appoint Investigating Accountants to their businesses. Investigating Accountants (IAs) are receivers and liquidators by trade, and aside from conducting investigations, they earn much of their income liquidating and receiving.
The “IA” review of a business is undertaken at the instigation of the bank. Ostensibly its purpose is to assess the bank's security position, and the ability of the business to meet its commitments in the near and medium term. Often its real purpose is pre-work out reconnaissance – at an expense to the larger SME that can extend upwards of $20,000.
The IA review begins with a first-hand onsite inspection of the business. It includes an extensive examination of assets and financial data. It culminates in a detailed written report – complete of course with the IA’s recommendation for moving forward.
Alarmingly, the trigger event for an IA can be a request for help from the business owner to their bank for additional liquidity.
Anecdotally, IAs are on the rise – a manifestation of the bank credit paranoia that now abounds.
In many cases, the IA will recommend an exit of the banking relationship.
But how to exit in the current credit environment?
“Finding a victim” (which is how bankers describe finding another financier to refinance their position) is become increasingly difficult. Non-banks have become scarce, and banks have become fearful of refinancing other banks and inadvertently acquiring trouble.
When exit options are limited, the formal appointment of external controllers becomes a real possibility.
The business owner can hope that the IA brings a genuinely open mind to the investigation, with a brief to find a solution that works for all concerned. To be fair, this is often the case.
The business owner's darkest fear is that the banker concerned is really seeking a written professional endorsement of a predetermined course of action that will have grim consequences for the business and its stakeholders.
Early days yet, but the increasing IA activity may be yet another form of credit crunch fall-out, and a sign that the credit crunch’s fat lady is yet to take the stage.
* This article first appeared in the Business Spectator.
The Cash Flow Ninjas
