Every business will hit a rough patch at
some point. A company’s momentum
can be stunted by a number of factors including an unfavorable economic climate,
the loss of a key customer, or disappointing
results from a merger or expansion.
Regardless of the cause, during trying times,
it is important to maximize the relationship
you have developed with your bank. By
being candid and forthcoming about potential challenges, you put your banking partner
in a position where it can proactively identify
solutions to meet your needs.
“The ability to maintain a relationship
with a financial institution during challenging times will save a company time and
money,” says James Wade, first vice president of Comerica Bank.
Smart Business spoke with Wade about
how to best maintain a relationship with
one’s banker during challenging times, the
importance of communication and how to
plan an investment strategy during the
midst of an economic downturn.
Why is it so important for businesses to maximize the relationship they have with their
bank during challenging times?
Having a long-term trusting relationship with a bank’s decision-makers
should provide you with a clear understanding of their expectations, which
will allow your management to focus
on operations versus interviewing
alternate sources of financing. If you
find yourself in a situation where your
bank is not willing to understand your
business, especially during challenging times, it may be time to find a new
financial partner.
In what ways should companies work with
their banker in advance of, and through, economic downturns?
A company needs to choose a financial
institution that has a history of supporting its customers through cycles. Look
for a bank and a team that has operated
through multiple cycles. If this experience is part of the culture of the financial institution, it provides the confidence and patience to support a company through challenging times. Invest the
time to develop a relationship with multiple decision-makers in your financial
institution when times are good. This
strategy will pay off when cycles change.
What role does communication play in sustaining a positive working relationship?
Communication is critical; no one
likes surprises. A financial institution
and banker deserving of your business
will bend over backward to support
your company through challenging
times, assuming you have taken the
time to communicate the good and
bad, timely and accurately. A banker
who trusts the information you are
providing will have an easier time supporting your company during challenging times. However, remember
that commercial banks are regulated
institutions that have legal requirements and their role is not to fund
long-term losses or other equity situations. Banks do have the flexibility to
work through short-term problems
and may ask for flexibility in return in
the form of additional collateral.
How should a company communicate disappointing results to its banker?
Communicate as soon as possible and
provide an action plan. Include monthly
projections with your plan for a benchmark to operate against. The objective is to
agree on a plan so you have the ability to
operate your company without wondering
how your bank will react. Meet often during these times and provide actual performance comparisons to your plan. If you
deviate from the plan, meet with your
banker to discuss what happened. It may
be necessary to revise your plan if the environment you are operating in is changing.
In the event that a company loses a key customer, what strategy should be utilized?
A company should be diversifying from
concentrations prior to losing a key customer. However, if a key customer is lost,
the obvious and most conservative answer
is to cut expenses to remain profitable at
the lower volume. Your company becomes
self-sustaining quickly and can implement
a long-term plan to replace the lost revenue. Business owners are entrepreneurs
and may want to invest to replace lost revenue quickly. This can be done through
acquisitions of a company, technology or
people. All have an element of risk. Plan
ahead and, if possible, implement your
plan before losing that key customer.
How should companies plan their investment
strategy during the midst of an economic
downturn?
A cyclical business that is affected by
economic downturns needs to develop a
strong balance sheet during the good
times. This will provide a competitive
advantage during challenging times. You
may be able to acquire a competitor at a
great price or increase your market share
one customer at a time. Regardless of your
specific strategy, the flexibility provided by
having liquidity during uncertain times will
prove beneficial. <<
JAMES WADE is first vice president of Comerica Bank’s San Diego Middle Market Group. Reach him at (619) 652-5778 or
[email protected].