Jean Pousson, Programme Director for the Institute of Directors, West Midlands, reflects on the importance of building and maintaining a good working relationship with your bank following the first joint IoD Birmingham Post Master Class held at Fort Dunlop on June 22 2009.
On January 1 2007 all business plans looked good as continued economic growth was all but assured. Bank credit was cheap and was available in abundance as banks scrambled over each other to gain market share.
Reflecting on organisations’ planning processes when going through the traditional stakeholder mapping exercise, banks did not seem to get much air time. This was their first big mistake!
One economic tsunami later and just when businesses desperately need financial assistance, banks seem unwilling or unable to assist. The credit binge has turned into anorexia.
Despite many public anecdotes on banks being unfair to customers and withdrawing their facilities, there is also much evidence of businesses getting refinancing or in some cases getting increased credit.
So how did they achieve this? There are of course many reasons but, in my experience, managing your bank is something businesses often do not think about, or at least not to the extent that they should. This was the theme of the first master class, aptly entitled ‘How to get the best from your bank’.
For those of you who were unable to be at the master class here are a few hints and tips to help you get the very best from your bank.
Firstly, information is king. Banks need to assess the risks of your business. This is something that they cannot do with limited or incomplete information. Flood them with information! Send your business plan. Invite them to visit your business. Go and fetch them if you have to! Let them walk around and talk to who they want. This sends a very powerful signal.
“We do not like the risk” is often a reason given for a refusal by banks. Don’t get into an emotional debate. Ask what exactly they are uncomfortable with? Is it economic, sector or marketing risk worrying them. Give the discussion focus to ensure that you are both talking the same language.
Cash flow plans and forecasts need to be submitted regularly. They need to be stress-tested to show the worst case scenario. Trust me, the banks are going to do it, anyway, so you might as well do it yourself. If you can prove beyond doubt that, on a cash flow basis, the debt is supportable you are on to a winner.
Financiers do not like surprises, good or bad. It is often a sign of weak or non-existent planning. So if you foresee a request in a few months’ time, even if you are unsure, approach the bank now.
Don’t let your bank dominate the negotiation. They will appreciate a tough negotiation as it sends a powerful signal as to how you run your business.
Banks as financiers are key stakeholders, in good times and bad. They need to be managed as such.