Staying on good terms with your bank manager is always a good idea, and all the more so in the current climate. Mark Blayney outlines how to make the relationship work.
How important is your bank manager’s support to the stability and success of your business? How far do you understand how your bank operates, and how it views your business? How well do you think you manage your bank manager to ensure their continued support?
For many small business owners, your bankers (or other secured lenders) are usually a key financial stakeholder in your business and an important potential independent source of advice and support when the banking relationship is working properly.
But as a result of the bank’s power, a breakdown in this relationship can be a real threat to your business’s survival. So for you as a business owner, now more than ever, knowing how to manage this critical relationship to maintain your lender’s support, and how to remedy any problems that may arise, can be critical to the survival of your business.
Here are seven practical tips for keeping your business in your bank manager’s and your bank’s Good Book (literally the set of customer accounts that are seen as ‘good’ risks, which the bank will want to retain and grow), and what to do if things start to get difficult.
1 Be a low maintenance account
Your bank manager will have a large number of existing accounts to manage, a constant stream of credit applications to deal with and present to credit committee, targets for new customers to acquire, and strict regular internal reporting requirements to meet. The last thing they need is to be chasing customers for information, so ensure you supply whatever reporting requirements you have agreed with your lender, such as monthly management accounts, reliably; in the banking world, no news is always regarded as bad news.
2 Be a high-value customer
Your bank is a business. It wants to make a profit and your manager will be incentivised to generate income, so they will have an interest in selling value-added services. In general, the more valuable you are to your bank manager as part of their profit and loss, the greater their incentive is to support you and any funding applications you wish to make.
3 Understand your bank’s security position
Fundamentally, banks are not entrepreneurial investors in your business. They are secured lenders taking charges over assets to back their lending, in the same way that your mortgage is secured on your house, so they are instinctively risk-averse. Ensuring adequate levels of security cover at all times for all facilities is a core part of how your bank operates, and requires your bank manager to manage your account. To keep an eye on how risky your business looks to your bank, ensure you understand the value of their security cover; essentially how much the market value of the assets, given in security such as property or plant and machinery, exceeds the sum
of the outstanding loans.
4 Always ask first
Bankers do not like surprises. They equate these with a lack of control of the business and its finances, which makes them extremely nervous and could cause them to lose confidence in the business and its management. So never make payments that cannot be covered by your existing facilities. If you are reaching the limit of your facility, always talk to your manager in advance about what you need, why you need it and how you will return to within facilities.
5 Keep your credit history clean
Banks have highly developed early-warning systems to pick up signs of financial distress, and a County Court Judgement (CCJ) is a major red flag. With the current disruption and people working away from the office, there’s a risk that vital paperwork could slip through the net, and some companies are having CCJs registered against them by default – with serious consequences. Make sure any such claims are properly dealt with.
6 Managing in and out of ‘intensive care’
While the name varies from bank to bank, every bank has an ‘intensive care’ or ‘business support’ section tasked with taking on accounts flagged as having become too high risk for normal banking and requiring additional hands-on management. If your account is transferred into intensive care for any reason, it’s tempting to get angry and to see your new manager as the enemy. Natural as this reaction may be, it’s potentially very damaging.
Instead, look to establish a strong working relationship with them to achieve your common goal, which is a return of your account to Good Book, as the alternative to an exit – at best through a refinancing or at worst through an insolvency – will be painful for both sides.
7 Surviving an independent business review (IBR)
A transfer into intensive care often triggers an IBR: a commercial investigation into and report on your business to the bank, usually by an insolvency practitioner. This will look at solvency, the bank’s security position (and so its risk) and the business’s prospects of survival and recovery. Don’t panic if an IBR is required, but do ensure you use the process to effectively present your business’s case and get appropriate professional advice and support to do so.
Mark Blayney is a partner at K2 business partners