The A to Z of reading financials – a quick guide for brokers

Are you great with customers, but not so confident with numbers? If so, you’re not alone. The good news is, you don’t need a mathematics degree to get better at reading and understanding your customers’ financials. You just need to practice and take advantage of the many resources available.

“There are lots of tools to help brokers, as well as access to education sessions on these topics. Most banks have individual servicing calculators,” Robynne Frost, Suncorp’s national small business and commercial manager, tells MPA.

“For example, Suncorp regularly holds masterclasses and we are about to launch a new range of training programs to assist brokers to build their skills around SME lending and financial analysis.”  

Frost gives brokers a quick rundown on where to get started.

Step 1: Get to know your client
First you need to find out what’s important to them and how their business operates.

“If you get this right first, understanding the numbers makes more sense,” Frost says. “Then you can turn to documents like tax returns, financial statements and lease agreements.”

Step 2: Documents in hand, now what?
Now brokers need to sit down and dig into the numbers. Frost suggests comparing income and expenses over recent years to identify any trends.

“This is an opportunity to have a valuable discussion with your client about their business and understand the true income position moving forward for servicing financial commitments,” she says.

It’s also important for brokers to pay attention to one-off injections of income, such as the sale of equipment or property.

“If this is the case, then this income should be excluded when calculating debt servicing as it will not be ongoing,” she says.

Similarly, if there are any one-off expenses, for example consultancy fees, these may be added back for ongoing servicing purposes.

After analysing the financial statements to determine the servicing ability, additional analysis could be completed by looking at financial ratios.

Financial ratios give brokers some of the most useful insights into their customers’ financials. Any significant variance indicates an area of movement. “This tells you where you need to do some more investigation to understand the reasons why,” she says.

Step 3: Verify
Brokers have the ability to confirm processes via lender BDMs, who are only too happy to provide guidance when needed, Frost says.

While brokers can outsource this work, Frost encourages brokers to make use of the education and resources available to build their skills and confidence in this area.

“You know your customer best, so this knowledge gives you a real value-add. Whatever you choose, as a minimum, a broker needs to understand the basics of the transaction to ensure they are making suitable transactions for their client.”

“If you are outsourcing, you should cross check the figures yourself. If you’re a sole operator there are multiple providers to assist with financial reviews; it’s essential that you build a review process into your way of working.”

Step 4: Need more info?
If you want more assistance in this area, there are various industry and lender workshops that brokers can attend to upskill their understanding of financial statements.

Suncorp, for example, is currently running two education workshops that brokers can attend. Information with respect to these workshops can be located on the Suncorp Business Partners site or by contacting a Suncorp BDM.

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