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May 2013
Your CPA Says: Invite Your Banker to Work
By Michael Waddell

     Many small and mid-sized businesses rely heavily on their banking relationships. It is not uncommon to have a business checking account, payroll account, line of credit, equipment loan, commercial mortgage, company credit cards and/or merchant account with one or more banks.

     While many companies are heavily dependent on their bank, some business owners and managers do not know their banker, or they may even consider their bank an adversary, not a partner.

     Businesses frequently invite customers and vendors to visit or tour their companies regularly, so past performance and future expectations can be discussed and problems identified and solved. These visits help strengthen business relationships.

     This same process should be used with your banker. Your bank can significantly assist your business, so you should “invite your banker to work” and try to build as strong a relationship with your bank as you have with other critical customers and vendors. For a bank visit to be successful, however, you should consider the following:


Understand your bank’s wants and needs

     Banks earn profits by providing financial services and loans, and these services are not free. For example, while most small commercial bank loans are backed with some form of collateral (such as accounts receivable, property, equipment and other “hard” assets), the bankers underwriting these loans almost always want to be confident that the loans can be serviced and eventually repaid through a company’s cash flow, since confiscating and then trying to sell collateral is always a last resort.

     As a result, these bankers are keenly interested in factors that impact your company’s ability to generate cash on a consistent and predictable basis including your total annual sales, operating margins, net profits, total number and diversity of customers, types of items produced and sold in a year, etc.


Approach your banker as a partner

     Your banker should not be an adversary; instead he should be a partner who supports your needs. If your bank is aggressive toward your company, your account is either not profitable for them, or they feel you are too risky and are worried about losses. Ask your banker if you are a good customer. If you are not a match and you determine the relationship cannot be fixed, then change banks.


Market to your banker

     Give your banker a tour of your facility, and explain what you do and how you are different from your competitors. Market your company, as you would to a customer or another supplier. Be excited about your products, your expertise, processes, competitive advantages, etc.


Be comfortable discussing your financial performance

     Bankers should be trained to read and analyze financial statements and ask tough questions. Do not be intimidated by this process. Do your homework and be aware of what your financial statements show. Discuss your successes and failures and explain how you are working to fix your problems. Failing to discuss your weaknesses suggests that you are either not aware of the problem or you are not working to fix.


Discuss your future

     Banks usually ask to see your budget, because it shows them your plan for the next year. If you do not have a budget, explain whether your sales are expected to increase or decrease, and how this change will affect your net profits and cash flow. You should be able to talk about how much your material, labor and other costs will increase or decrease as a percentage of sales. If you do not know or cannot explain, then your banker may get concerned that you have no plan.   

     Also, talk about new equipment needs or building additions. These changes could require a working capital loan, equipment lease or loan, or a new mortgage. These products generate additional profits for your bank and make you a more important customer.


Ask your banker for advice

     Bankers visit a variety of companies and review financial data from many. Ask if your banker sees any problems or if they have concerns about your company. Then ask for suggestions about how they think you can improve.

     Building a strong bank partnership takes time, but you can begin the process by “inviting your banker to work”. You have a wealth of knowledge about your company, and you can use a visit to teach your banker about your unique business and expertise. This is also a great time to honestly and openly discuss your past performance and future needs, and ask for advice about how you should improve.

Michael Waddell is a Financial and Management Consultant at Potter & Company.
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