Manage Your Banking Relationship as a Partnership
2 Feb 2009
Most entrepreneurs don't give much thought to how to deal with professional vendors such as bankers, lawyers, and accountants. They just dive right into their business and don't think about how they should treat these people, what their vendors can do for them, and what their vendors in turn are looking for in a client. With a little thought and effort, you can ensure that you get the most from your vendor relationships.
Your banker, lawyer, and accountant each have the ability to drastically influence the success of your business. It is very important that you develop long-term, personal relationships with them--if you do that, when you hit the inevitable bumps in the road, they'll be there to help you.
Banks are very risk-averse businesses. Bankers aren't in the business of betting on your dreams or predictions; they are in the business of loaning secured money--money that is backed by both your personal guarantee and hard assets (not just your business assets, but also your house, your bank CDs, etc.). Your banker has to answer to his boss and explain why he loaned you money, how you are going to pay it back and why you are a good risk.
The more your banker knows about your business, the more value you are going to get from the relationship. Don't think of your banker as an outsider and withhold information from him--do just the opposite: Think of him as your partner. Get to know him personally, take him to lunch (he might even pay!), and help him understand your business and personal financial goals. You should give him constant status reports and keep him in the loop as your business grows. Keep this in mind when you are meeting your banker for the first time. The meeting should be a two-way interview. You should leave there asking "Is this person genuinely interested in me? Is he trying to understand my business? Does he understand my objectives?" If the answer to any of these is no, then find another banker.
At one of my former companies, I used to create a regular state-of-the-company status report for our employees. I would talk about new contracts, marketing and sales efforts, cash flow, etc. When I would e-mail that to our employees each week, I'd cc: our banker, who would put it in his file. He later told me that he had better documentation on our company than anyone else in his portfolio, and when we occasionally called him with an emergency, it was easy for him to pull out that folder and quickly make a decision.
Unfortunately, the way most people do this is to call their banker with a request and then spend the next two weeks getting him documentation and bringing him up-to-speed on the state of the company. This can be time-consuming at best and devastating at worst (if you really need the money but don't have the financials to justify your request).
An additional benefit to keeping your banker informed is that he'll help keep an eye on the financial side of your business, and if he starts to see any trends that concern him, he can alert you and help you straighten them out before they get out of hand. A very important point, which is hard for new entrepreneurs to understand, is that it is always good to have an outside set of eyes looking things over.
So remember, get to know your banker as a person, treat him as an insider, teach him all about your business, and feed him regular financial reports. Follow these steps, and you'll go a long way toward increasing your chances of success.
Michael A. Evans
High-performance Profitability Enhancement and Cost Reduction Specialists