Is Your Bank A Stakeholder In Your Business Or The Enemy?
With the number of insolvencies continuing to rise it is important for businesses to re-visit their strategies for managing their banks.
Most businesses present a good picture to their bank when they need to increase or extend their facilities due to business expansion, or when a loan matures.
However, once the facilities are in place, do you simply react to your bank’s questions and annual reviews? Or are you pro-active in managing the relationship, both in the good times and bad?
Your bank should be managed as a key stakeholder in your business.
Managing your bank as a stakeholder requires you to maintain regular contact, similar to your key customers or suppliers.
This involves scheduled meetings to keep the bank updated on your business performance and industry trends that are relevant to your business.
It is also an opportunity to openly discuss any risks and opportunities and demonstrate what you are doing to manage these.
Keep in mind that your bank remotely monitors your business performance and sector performance well before you address any problems or challenges with them.
Remaining pro-active with your bank highlights to them that you are managing your business.
Most good banks and bank managers are not just “fair weather friends”. They are in banking relationships for long-term benefits, including income through distribution of products and services.
Banks and their credit departments dislike surprises, and the more you treat your bank as a stakeholder the greater the support you will have from them.
Tips on how to manage your bank as a stakeholder:
- Schedule regular meetings to provide an update on your business (quarterly meetings are a good target)
- Provide good information flow on your business management (including management accounts on a quarterly basis, delivered in a timely manner)
- Deliver timely annual tax returns and accounts
- Provide timely forecasts for future sales and EBITDA
- Understand your security structure (i.e. fixed & floating charges and covenants). In the good times your bank may be open to relax these; in the challenging times your bank may want to strengthen their position.
- Monitor covenants on a monthly and quarterly basis. If you breach covenants you are able to engage with your bank early and agree on remedial action.
- Highlight that you have trusted advisors (e.g. accountants, lawyers and insurance brokers). Having access to professional advisors demonstrates your ability to mitigate risk.
- Diversify your banking relationships (e.g. have one bank for trading accounts and overdraft; another for leasing/hire purchase or trade). Having competitive tension in annual reviews is important for both parties. It shows you are regularly benchmarking pricing and terms, and not solely dependent on one bank.
Treating your bank as a stakeholder in your business, and not the enemy, is likely to result in a sustainable relationship for both parties.
I’d be interested to hear your tips on how to manage your bank as a stakeholder.
Vantage Performance is one of Australia’s leading turnaround management and profit improvement firms – solving complex problems for businesses experiencing major change.