Simon Smith FCCA explains the importance of forming and maintaining a strong business relationship with your bank manager.
When looking to secure finance, often it’s important to start with your small business banking by building and maintaining a sound relationship with your account manager. This means establishing trust on both sides. As a business you trust them to meet your financial needs and equally they trust you to meet your financial obligations.
More often than not the first point of call will be your bank when you're seeking funding. After all they will know your business well and be in a good position to determine your credit worthiness. That said, don't forget there are alternative options to raise finance which may better suit your individual needs. Regardless, building your business up will require you to keep the bank on side.
Successfully maintaining a valuable relationship isn't always easy when you're busy focusing on the day to day running of your organisation. The key is to determine what your bank manager expects out of your business from the very start. Ask yourself, are you fulfilling the following 6 key expectations?
Business banking tends to be about risk, namely minimising it. Banks are looking for high quality and reliable clients that they can lend to profitably - they can’t make a profit on loans they don’t believe will be repaid, so you need to present your business as financially safe and secure.
Bank mangers want long term clients and relationships – that usually means greater than 3 years. Thus, both sides will need to commit to investing time and effort into the relationship to make it work.
When deciding on your bank provider, it's better to do thorough research from the start and decide on one which can fulfill all of your business requirements. Typically, banks don’t like competing on price frequently which is what having several banking relationships forces them to do.
This will likely lead to resentment because from the Manager's perspective it makes it difficult for them to sell you other products and services. The bank will also lose their appetite for risk with your company, affirming the need to make a well thought out decision on your provider.
When running a business it's easy to get side-tracked dealing with other tasks, typically resulting in pushing back or even cancelling meetings with your bank manager - especially with the convenience of day-to-day online banking. But, it’s important you stay committed to them to form a mutually beneficial relationship, after all there is no replacement for a secure bond with your banker.
3. Who deals with your bank manager?
Your bank manager will want regular contact, ideally with just one person. They don’t want to be dealing with lots of people as this can complicate the relationship for them, requiring more time to chase up for information and more channels to go through to get things done.
The bank will also want to know of all key decision makers in your organisation and will seek regular contact with the owner or finance director.
4. Openness and honesty
Communication is vital when it comes to the relationship with your bank manager. You need to be transparent and able to provide all relevant information as soon as it becomes available. Ultimately, the more you confide in them the greater the mutual trust and the stronger the bond between the businesses.
This can be particularly useful in areas such as representations, warranties and covenants in loan arrangements. You should also be careful to never promise more than you can deliver. Be straight forward in your dealings with the bank - explain for example that you aren’t willing to explore new business with them when you don’t have an intention of purchasing or agreeing to provide information that you aren't able to access.
5. Accurate information
Ensure you set up robust financial reporting systems that allow you to provide accurate, timely and relevant reports to your bank manager on a regular basis. This usually includesspecific financial documents such as your profit & loss, balance sheet and accounts receivable and payable. You should have access to this for your own reporting purposes in terms of monitoring how well you’re doing.
The likelihood is you will need to set up a customised report for your bank. How often you supply this will depend on the bank and relationship you have. The main takeaway here is to have robust systems that allow you to create reports easily as and when is required.
6. What kind of things should you report to the bank on?
From the offset it's important to talk to your bank manager to clarify what they need from you and when. This will likely include items such as budgets,forecasts and commentaries. Make sure you and your bank manager are clear on your financial goals as this will help define your business needs. You can then refer back to it in meetings to assess if, and how, your needs have changed thereby allowing adjustments to be made.
Remember that your reports can act as evidence that you have the ability to service and repay any debt you hold (or intend to hold) with the bank. You should have clear strategic and financial objectives that state how you will meet repayment terms of a loan. Be sure to revisit these regularly to ensure your obligations will be fulfilled based on current and expected performance.
If you are yet to form a strong and trusting relationship with your bank manager, you should start by asking yourself:
Who will deal with the bank?
What exact services do you need from them?
What information will they require and when?
A well established relationship with your bank manager will not only make the running of your business easier, but it can also help you to effectively manage and grow your business.
The content of this post is up to date and relevant as at 13/02/2018.
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