Finance

When was the last time you really discussed your business with your banker? For many, the answer to this question comes only after a long pause, and often relates to a specific loan review. Yet, again and again, we see what enormous help a good banker can be when brought fully into the picture.

When their companies are growing, many owners and executives ignore their banking relationships. After all, the thinking goes, we’re doing fine. We don’t need any money right now. But growth brings demands for new capital for expansion, which accounting profits — as opposed to positive cash flows — are unable to satisfy. Often, we see businesses whose sales and profits are increasing dramatically, but they never seem to have enough cash. Paying the bills is a weekly, or even daily, juggling act. By nature, owner/entrepreneurs try to handle problems on their own. They are either too proud or afraid to tell their banker what’s going on.

Of course, the same phenomenon exhibits itself when business turns down. The thinking is that the bank will only make things worse by tightening the credit already granted. And, in any event, “we know this business better than anyone” and we “just have to ride out the storm for a while.”

I have yet to see a company succeed in the long run with this sort of head-in-the-sand strategy. There are several reasons for this. Most often, the situation gets a lot worse a lot faster than management anticipated, in part because no one in an organization run in this manner wants to be the bearer of bad news. Eventually, the executives have no other choice and must present their banker with a big and unpleasant surprise. This, in turn, attacks the very foundation of the relationship: trust.

Contrast this scenario with one where the problems of the business are identified, communicated, and dealt with on a timely basis. Indeed, the best run businesses identify potential problem areas, develop contingency plans, and control the damage if and when they are hit with an economic or competitive torpedo. Executives of these companies sleep well at night because they do not limit their communications to what they think their bankers want to hear; they do not wait as long as possible before giving out the bad news; and they do not run scared thinking that the banker is looking for an excuse to call their loan. Hardly!

Successful owners make the banker a member of the business team. He or she often has a wealth of experience which can help your business, no matter how unique your product or service. Indeed, a good banker may even be able to introduce you to potential customers or vendors. Of course, if you have a banker who trembles at the first sign of trouble, it’s better to find this out before his support becomes a matter of life or death for your company.

So, find a banker you can trust, then work on building his trust in you by open, honest, and timely communication. Even if you don’t need him now, you can bet that some day you most likely will. And don’t jump ship just because another banker is offering a lower interest rate. A few years from now, you won’t remember what rate you paid, but only whether or not the banker was there when you needed her. And, to a great extent, that’s up to you.

Steven R. Scheff is a business advisor, visiting instructor of finance at Florida Gulf Coast University, and a certified business analyst for the Small Business Development Center of FGCU. The SBDC offers services to new and existing small-business owners and can be reached by calling (941) 948-4040.