UK PROPERTY PARTNERSHIPS SET TO BE ‘HIGH AND DRY’ BY LEAVING
BANK TALKS TOO LATE
 Many property consultants across the UK could be left ‘high and dry’
without new or increased bank facilities to pay January bills, if
they leave talks with their banks until the New Year, warns Colin
Ives, a Partner in BDO Stoy Hayward’s Professional Services Group.
January 2009 is looking to be a critical time for the cash flow of
many firms with tax payments due for partners, VAT liabilities and
property costs. Funding for firms will be stretched as never before.
Colin Ives, Partner, BDO Stoy Hayward, commented: “Having recently
spoken to a number of bankers of property practices, it is alarming
just how many firms leave it to the last minute to talk to their
bankers about the facilities they require to cover. Firms cannot
afford to do this; they need to start discussions immediately.
“Property practices may have had an “upper hand” in their financial
dealings with the banks in the past, but the criteria for lending
has changed dramatically in the credit crunch. Firms should not
assume that the last minute increase in overdraft and other
facilities will be readily accessible as they have been in previous
years.”
The new pressures facing bankers and the increased requirement of
credit committees will mean that new or increased facilities will
not be so immediately available in the New Year. It is likely that
such additional funds will only be granted to those providing the
best financial support for any request for funds.
Colin Ives advises firms to be aware that bankers who have been kept
fully appraised of a firm’s financial position and requirements well
in advance, are more likely to be able to convince their banks, and
the appropriate credit committee, that a particular firm is a good
financial covenant for the additional borrowings that are being
requested.
Colin Ives continued: “It is very likely that firms who have not got
such a good rapport with their bankers will find January to be a
very difficult month.”
Critical areas include:
Partners tax liability for 2007/08/ First instalment for the tax
year 2008/09
Most firms will be expected to pay their partners’ balancing tax
liability for 2007/8 together with the first instalment for the tax
year 2008/9. These sums are likely to reflect the rising profits in
recent years but will need to be funded at a time when cash is slow
in arriving. There may be a number of ways where the tax liability
may be reviewed and minimised but early action will be required and
it will not be wise dealing with this in the week ending 31 January
2009.
VAT liabilities
January is a common payment date in respect of firms’ VAT
liabilities and these will need to be factored into any funding
requirements being sought from the firm’s bankers.
Rent
The Christmas period slows billings and cash is frequently hard to
find in January when firms will find themselves having to pay rents.
Colin Ives, Partner, BDO Stoy Hayward LLP concludes: “The maxim that
‘cash is king’ will definitely be the case in January 2009. In the
last year we have witnessed more and more firms struggling. In some
cases, they have failed due to lack of cash and the increasing
burdens that they are facing through the current economic climate
and changes affecting the profession.
“Firms rarely fail due to a lack of profits but a lack of cash is an
entirely different matter.”
Email:
matthew.longbottom@bdo.co.uk
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