In this uncertain economy, many executives and entrepreneurs may soon experience a serious erosion of their cash flow. Some will work to keep this situation a secret from everyone, including those closest to them. And for many, the last thing they want to do is to discuss this with their bank. To do so would, in their eyes, be an admission of failure and open the door to closer scrutiny.

Successful business owners have learned how to work closely with their banks during good times and bad. Whether your business is experiencing rapid growth or adjusting to a slowdown, your banker should be seen as a resource to help you handle these challenges.

Although bank requests for detailed financial information can be unnerving and time consuming, accurate financial statements build a banker’s confidence in you and your company. Many will find a great payoff in seeking professional assistance to prepare these documents.

This issue of the MagePage features Mage Principal Craig Bentley discussing how building a strong relationship with your bank will maximize financial flexibility, profitability, and stability for your business. Mr. Bentley has more than 25 years of senior management experience working for major international financial institutions including BankBoston, Citibank and Harris Bank. At Mage, he continues to assist numerous companies build stronger and more profitable organizations including efforts to prepare for and secure debt financing.

We hope this newsletter serves as your guide to creating and implementing strategies to build strong and viable banking relationships. We look forward to seeing you at the September 25th Breakfast Seminar on this topic. See the last page for details.

Best Regards

Jeffrey S. Davis
Chairman & CEO

Building Strong Bank Relations

By Craig Bentley
After 25 years of experience working in the banking industry, and in my current role as a business consultant, I have increasingly come to realize the essential role that a bank can play in the success of a business. I would like to take this opportunity to share some insights with you.

For most small businesses, building a strong banking relationship is one of the most important tasks facing company management. Yet management oftentimes underutilizes or regards its banker as an “outsider” who imposes arbitrary restrictions on the company and whose information requests are little more than another level of unnecessary reporting requirements. However, as a source of a wide range of financial services, having a bank “firmly in your corner” can mean the difference between success and failure in creating a solid business foundation and in having the necessary resources available to fund corporate growth.

This newsletter is designed to assist you in the process of selecting the right bank for your business and in managing that relationship to realize the maximum benefit for you and your company.

Selecting a Bank

There are a number of key factors to consider when looking for and selecting a bank.

Size of the Institution
The size of a bank can be important for a couple of reasons. First, the bank must be of sufficient size to be able to meet your company’s borrowing needs. Choose a bank that has sufficient resources to grow with your company. Banks operate under a restriction on their lending activities called the “legal lending limit.” This rule imposes a maximum limit that the bank may lend to any one customer and is based on the size of the bank’s balance sheet. Remember that banks rarely lend up to their legal limit, so be sure that the bank you choose can reasonably meet your anticipated borrowing needs.

Secondly, the size of the institution may affect the range of services the bank can offer and its commitment to small business lending. Talk with peers in your industry to learn of their experiences and get recommendations as to banks that are truly committed to working with smaller entrepreneurial companies.

Service Offerings
Service is the area in which a lot of small businesses underutilize their bank. What services offered by a bank will be important or useful to your company as you look to the future? Will a strong cash management capability, including first class lockbox operations, be helpful as your company expands? If international activity is on the horizon, can your potential banker provide a range of competitive international banking services such as foreign currency exchange and letters of credit supported by an extensive network of correspondent banks around the world? If you are a business owner, is there an array of investment options and investment management services available that can help you protect and grow your personal financial portfolio? Take time to think about the services you need now and the services that you may well need in the months and years ahead.

Industry Awareness
Bankers will try hard (or certainly should try hard!) to understand your business, including any unique factors inherent to your industry. These might include extended terms for accounts receivable, the need for deposits with vendors to obtain necessary supplies or equipment, inventory practices that are exclusive to your industry, or higher than normal cash requirements for day-to-day operations. When interviewing a prospective banker, be sure to ask about his/her personal experience and the bank’s involvement with your industry. Do they currently bank any of your major competitors? Are they involved with any companies that are in related industries? What has been their experience with such companies – favorable or unfavorable? The latter is important because a bank may shy away from dealing with a company based on their experience with a certain industry or type of company. This can occur regardless of your own company’s financial performance or market position.

Personal Approach
Finally, when selecting a banker, be sure to get a commitment from the bank as to who will actually be servicing your account and determine their level of authority. Once that is clear, make a careful judgment as to whether or not you can work constructively with that individual. The personal rapport that you develop, and the trust level that is created, will have a great impact on the service and support that you will receive from the bank.

Managing Your Banking Relationship

Establish a Dialogue
Once you have chosen your bank/banker, it is important to immediately begin to create a working dialogue. Communications should be clear and concise. Keep your banker informed as to current or changing industry trends. Be sure that the banker understands your current financial and market positions. Provide sufficient detail of your business operations so that the banker can comfortably explain your business to his/her colleagues, especially to those who will be making final credit decisions. And remember to keep your banker abreast of your future plans for the company.

Deal with Integrity
You must build a high level of trust with your bank. Thus, it is very important that you maintain a highly ethical approach to managing your business and when dealing with your banker. Establish clear guidelines for business operations and ensure that all employees follow company policies and procedures. All communications with the bank must be as accurate as possible and presented in a clear manner that encourages understanding of the major business and financial issues involved.

Keep Your Banker Informed
It is vital that your banker is kept informed on a regular basis about company operations, industry and specific market news, and the company’s sales breakthroughs and setbacks.
Properly prepared financial statements should be completed on a timely basis. These reports need to be consistent in terms of format and also in release date. Many companies try to have their previous month and year to date reports ready for distribution by the 10th of the following month. If this is a problem for your company, it’s time to analyze your internal accounting procedures and/or your accounting software to determine any roadblocks that are interfering with timely completion.

Prepare detailed budgets and share this information with your banker. These will give the banker a yardstick by which to measure current performance. It is also important to prepare financial projections. Projections will give your banker insight as to where you are taking the business, as well as identify the opportunities and obstacles you will likely face in achieving these future targets.

Be proactive in supplying this information. You will create a higher trust level, develop your banker’s sense of confidence in you and your company, and establish a stronger dialogue if you are forthcoming with information.

Maintain Contact in Good Times and Bad
One of the real stumbling blocks to maintaining a strong corporate banking relationship is the tendency to establish good communications with your banker when times are good and then run for cover when there is any type of negative variance to plan or an economic downturn. When your company is experiencing hard times is precisely the time when you should be increasing contact with your bank.

Bankers work with companies through all aspects of the business cycle. But they cannot provide support if they are left in the dark. When discussing a difficult situation, be honest and open about the status of the company, the outlook for the business, and the steps that you are taking to address the company’s immediate problems.

Your banker, based on his/her experience in similar situations, may be able to provide guidance as to an appropriate action plan and discuss with you possible adjustments to your credit arrangements to improve cash flow.

Your Banker as a Business Partner
Remember that your banker is your representative, your spokesperson at the bank. The more tools in terms of information, strategies, and forecasts that you provide, the better equipped your banker will be to “defend” your company and ensure the bank’s continuing involvement and support.

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MAGE's Breakfast Seminar Series
MANAGING BANKING RELATIONSHIPS:
FINANCING THE GROWTH OF YOUR BUSINESS
A Complementary Breakfast Seminar for Entrepreneurs and Executives
TUESDAY, SEPTEMBER 25TH, 2001
7:30–9:30 A.M.
NEWTON MARRIOTT, NEWTON, MA
To reserve your place or for more information please call Michael Lynch at 781-449-8366 or e-mail at mlynch@mageusa.com
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