By James Nicholson-Smith, Business Development Director & Managing Principal, West Midlands Region, The FD Centre
Many years ago, when I was the FD of a plc’s subsidiary, the chairman of the group told me in his most condescending voice “remember that bank managers should be treated like butlers, when you ring the bell, they come”. I was horrified at such a display of disrespect.
However over time, one can see that the way many entrepreneurs approach the relationship is fundamentally wrong and the master is the bank and the slave is the customer. This creates an unhealthy dynamic which the chairman was trying to exaggerate to make the point.
The checklist below identifies some of the key tips on how to manage a banking relationship effectively:-
Buying money should be treated in the same way as buying any other commodity based product from a supplier which the company considers is critical to its survival.
Banks do not invest money; they lend it. This is a really important distinction because banks have to be repaid. This is why bank’s assess the risk of not being repaid very very seriously. Therefore the questions you are asked about the reliability of your forecasts are really questions about the ability to repay and not a personal attack on your credibility.
Security issues, like personal guarantees, are always difficult conversations between the bank manager and the owner manager. In many cases the bank manager knows that a personal guarantee is not a deal breaker but has to ask. Owner managers should always ask why the security is required. This should flush out the real concerns within the forecast which support the repayment ability of the business. If these are not dealt with properly then the bank will walk away if there is insufficient security.
Fees and interest rates are a hot topic at present because banks are pushing up fees and their margin on interest rates. However, owner managers should consider this as price negotiations like with any other supplier. If you are under pressure on pricing, then you need an alternative to ensure you get the best deal.
The bank is a machine that consumes financial information about its customers. If you starve that machine, it will become irritated and irrational. More often than not, this is the root cause of a deteriorating relationship. To avoid this, you need to provide the bank with a full finance report every month setting out the financial position and latest forecast and a commentary. This leaves them with no need to fear the worst because the truth is in front of them. On the whole, the bank wants to support its clients.
Finally but by no means least, bank managers are human beings just like you and me. They like to be liked and they really want to be trusted. If you really really want to say thank you to your relationship manager for looking after you so well, recommend him to a another business and make an introduction.
Of course many owner managers find it very difficult communicating with their bank — communications are divided by a common language. Many SME (Small and Medium Enterprises) owners have engaged part time finance directors to manage this relationship as well as to steer them through their strategic growth plan.
To make sure you have the right team in place to manage your business, contact The FD Centre and ask for a free financial health check, carried out by an experienced Finance Director. If you are interested in finding out more please visit www.thefdcentre.co.uk