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In the latest in our series of blogs written by the winners of our Dealmakers Awards 2010, we hear from Ian Howey of Yorkshire Bank Corporate & Structured Finance, winner of the Corporate Banker of the Year prize. Ian says management teams that plan for adversity and tackle difficult decisions head on are those which win the confidence and support of their bank

Here at Yorkshire Bank Corporate & Structured Finance we are looking as positively as we can at the year ahead. However, we would all of us be naïve and foolish if we had not taken into account and learned from the recent turbulent past.

Appropriate forms of finance lie at the heart of any business, no matter what stage of development it may be at, and regardless of whether the general economic conditions are benign or difficult. Seed capital at the outset will be supplemented with bank development capital once earnings are established. During any phase of growth, in the majority of businesses cash will be absorbed into working capital.

Yorkshire Bank Corporate & Structured Finance specialises in providing funding for transactions which bring about a succession and exit strategy for owners – and at the same time new beginnings for the new owners. These businesses will very often be carrying a higher level of debt than most, especially in the early years following the deal.

An important part in securing funding for such transactions lies in the contingency planning, the sensitivity analysis that sets aside the growth potential and optimism that underpins the business plan and takes a look at how the business might survive if things don’t go according to plan. For example, what happens if the business underperforms through no direct fault of its own but is blown off course by spiralling material costs, the failure of key customers or the knock-on effects of reduced discretionary spend.

Good contingency planning has helped many businesses to retain the support of their banking partners throughout the last few years, because the key lies in demonstrating that whatever systemic shocks may have affected the business, the management team has still got things under control.

The best prepared management teams anticipate and plan for adverse events. Even if such an event is totally unforeseen, a good management team will tackle it head on and take difficult decisions early. Importantly, they will also communicate the strategy to its funders keep them fully advised of developments.

Difficult decisions often carry immediate costs, for example making redundancies or even site closures, but they may be necessary to secure the long-term future of the business. If your banking facilities are already fully utilised then bringing the bank onside with the plan will be critical to gaining this additional support.

High quality, timely management information is a must as well as a proactive and open dialogue with funders. The strategy may sound good around the board table but it has to make sense in hard financial terms. A supportive bank will provide funds in difficult times as long as the means of repayment are set out clearly in forecasts. A good track record of achieving previous budgets during normal trading times will go a long way to ensuring your credibility when times get tougher.

And so to the future. Let’s assume, as we all hope, that economic conditions improve, trading for UK corporates stabilises and then grows. Many people argue that the marked slowdown over the last 12 months has been a good thing. Unusually though both the private and public sectors have been out of balance in this recession and needed corrective action.

The funding needs of UK corporates will not be for cost reductions or defensive purposes but for working capital growth driven by increased orders. It may be a more positive outlook, but as professionals who have been through a few cycles will know, it is certainly not without risks of its own.

The Bank of England cutting interest rates close to zero has seen many over-leveraged parts of the economy not placed under as much pressure as they might have been in the past.

2011 will see the appetite of banks and private equity investors remain very closely aligned, though the fact is that viable private equity transactions are in much shorter supply than bank debt. Banks and Private Equity houses are understandably keen to fully examine the risk profile of leveraged transactions. Understanding the aspirations of the vendor from early beginnings will help to focus attention on those deals which have a realistic chance of happening.

At Yorkshire Bank Corporate & Structured Finance our track record of deal completions speaks for itself and no-one could argue that we are anything but ‘open for business’. And I’m pleased to say we have good examples of customers whom we have supported through difficult times and for whom we are now putting in place appropriate facilities to take them to the next stage of their lifecycle.

Needless to say, they all have management teams which have helped themselves by being mindful of past events and factoring this into an open and timely dialogue with the bank. At the end of the day, funding is the lifeblood of business and the best banking relationships are built on communication, trust and openness.

Ian Howey is area director, Corporate & Structured Finance, with Yorkshire Bank in Birmingham

For Insider's full Midlands deals coverage for January 2011, click here