Its Important Today To Get Friendlier with Your Banker

The economy has caused a credit crunch for businesses large and small so the one thing that all businesses should do is to get cozier with your banker.  This can take the form of calling more often, visiting, inviting your account manager to your business premises, anything which will provide more real world contact with your banker.

The one thing that is definite right now and that account managers are under more pressure to ensure their clients are worthy credit risks and are up to date in their monthly bank reports.   So now more than ever, its important to better your relationship with your banker, even if you don’t need more financing at this time, but very important if you think you may need to re-finance,  get waivers, or get amendments to their current financing.

Banks through their own databases, but also through credit bureaus have statistics on every industry and if you’re an underperforming company compared to the average in your industry, you may have already gotten a call to ask you whether you really do need for example a $4 million credit line, when you’ve only used $1 million for the past 3 years, yet your debt to equity ratio is higher than the industry average.  Not a good sign, but manageable if you take the time to provide comfort to your banker.

It’s hard to think of your banker as a partner, but they really are, they want to see you succeed, not fail, so having them understand your business and your competitive advantage compared to your competition is very much smart business.  So here are some steps to take to improve your banking relationship:

1. Make Verbal Contact with Your Banker
   - Call your account/relationship manager at least once a month or even better twice.
   - If your company isn’t doing well it’s even more important to outline your strategy to your banker to improve and give them comfort in what’s your business direction.
2. Build Trust with Your Banker
   - Private companies have quite often reported the bare minimum information to their banks, because they have wanted to remain private in all respects.  In today’s economy, in order to get help either re-financing or potentially finance acquisitions its time to bring down the curtains and let the bank see what you’re doing well.
3. Prepared Detailed Forecast Information
   -  Public companies are used to sharing information with their banks so for them this less of an issue because of the quarterly presentation done by CFO’s for their public companies, but some have gotten away from this practice in the last few years but should think about re-instituting it only for the confidence it shows to stakeholders about their business direction.
   - These forecasts should include various scenarios of financial, operational, and employee headcount variables.
   - The forecasts should include worst to best case scenarios going out at least 2 years.
4. Hire Reliable, Knowledgeable Financial Advisors
   - Today its a good practice to ensure that information is presented accurately and consistently by advisors who understand your industry, your business, and advisors who have gone through economic downturns before where maybe your current management haven’t.  In today’s times, you better know you’re making decisions on good reliable financial information.
5. Communicate, Communicate, Communicate!
   - Now is the time to be proactive, treat your banker as your partner in business, keep them informed of major milestones, and what you’re doing to beat the current economic environment.  Be a leader, manage your banker rather than have the bank manager you!

Written by Richard Wong, CMA    rwong@firstchoicecapital.ca