When I was COO of a $40-million company with seven locations, I was responsible for the finance department and learned quickly how important it is to have a good relationship with your banker. Business doesn’t always go as planned, and those are the times that your relationship with your banker can be critical to your future success.
I speak with many business owners, and few ever tell me that they have a solid relationship with their banker. When I ask business owners whether they know their banker, they usually say no, or that they haven’t spoken in a long time. My advice is always the same: Make time to get to know your banker sooner rather than later. If you don’t solidify the relationship when times are good, it will be difficult to do so when times are bad.
I have surveyed ten small and mid-market bankers on what they look for in their best customers. Their responses fell into these five key areas:
- Financials: Bankers want their customers to have a deep understanding of their financials and provide accurate information when asked for it. Bankers understand that the numbers drive everything in your business, and that if you lack a complete understanding of your financials, it is like going to a sporting event and not being able to see the scoreboard. You may think your team is winning, but you are not really sure. As a business owner, you need to understand your P&L and your balance sheet, and I would highly recommend that you develop a cash flow projection as well.
- Credit: It is important as a business owner to understand the principles of credit. Bankers like to think of credit from five different angles.
- Character: In order, for your banker to understand your character, they need to know you as a person. This takes time. Your character involves your past business experience within the industry, credit history, referrals, as well as your standing within the community.
- Capacity: Do you have the capacity to repay the money you are borrowing? Bankers will perform a debt-to-equity ratio on your financials to help determine your capacity to repay the debt.
- Capital: What kind of capital do you have invested in the business that will help to reduce the risk to the bank? You must have skin in the game.
- Collateral: Do you have both business and personal collateral invested in your business? Again, do you have skin in the game?
- Conditions: What are the current conditions in the economy and your industry? What are the current market trends, and are they trending in your favor?
- Proactive Communication: This was high on the bankers’ lists of what they are looking for. Regular communication is paramount to any healthy relationship. When times get tough, however, many business owners stop communicating with their banker. That is not a good strategy.
- Good Business Practices: Bankers are looking for businesses run according to solid business practice. If you are shooting from the hip, you will not have a good relationship with your banker. Have a vision of where you are going and a plan of action on how you will get there.
- Proactive Approach: If you run your business reactively rather than according to a plan of action, that will be a red flag to your banker. They understand that business doesn’t always go as planned, but the bank wants to see you acting in accordance with a plan that is headed in a clear direction. By taking a positive, proactive approach, you increase your chance of success and reduce the risk to the bank.
Your banker wants to help you succeed, and that’s why they want to see you engage in good business practices. The better you are in these five areas, the more confident your banker will be that your business will be able to weather the storms that come your way.
If you would like to learn more, give me a call 503-312-3145 or email me at garyfurr@garyfurrconsulting.com
You can also visit my website at http://www.garyfurr@garyfurrconsulting.com
Listen to my podcast Turning Complexity into Simplicity®
For more on this topic, you can find the book, Strengthen Your Business, a collection of advice from a group of six business advisors and consultants across three continents and four countries who specialize in working with small and medium enterprises, available on Amazon.
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