Vol. 36: How to deal with your bank

The North Bay Business Journal, a publication of the New York Times, is a weekly business newspaper which covers the North Bay area of San Francisco – from the Golden Gate bridge north, including the Wine Country of Sonoma and Napa counties.



Article published – February 23, 2009

BUILDING A BUSINESS: Ideas for your business you can take to the bank

“Money is better than poverty if only for financial reasons.”   – Woody Allen

I’ve received a lot of questions lately about banking issues and the “rules of the road” for dealing with your bank in a troubled economy. All of us are facing an economy that I refer to as the “Double V” – an insidious environment comprised of big volatility and little visibility. These twin engines will predominate for the foreseeable future.

This week’s column will start with Banking 101 as we make our way toward more subtle concepts. Unquestionably, this process is more artful than scientific, and while there are mechanical tasks and financial metrics that apply, managing your banking relationship requires both judgment and discretion.

• No Surprises. It’s no surprise that “No Surprises” is at the top of the list. In our roles as business leaders, the bogeymen we fear most are the “surprises” that lurk in our organizations. We know that critical information that is obstructed by employees, however inadvertently, could forestall firestorms and create more effective solutions.

Experienced business leaders advocate a “penalty free environment” to encourage full disclosure by employees at all times. The data that ultimately appears may harbor minor twitches, but more often, major catastrophes are whelped.

Our bankers feel the same way. They expect full disclosure. Their experiences, like ours, recognize that surprise packages are rarely gifts and that something inside is usually ticking. The knee-jerk reaction of borrowing novitiates is usually not to tell their banker bad news. They envision that the bank will overreact and take immediate actions that will threaten the business’ very survival. Rarely is that correct.

Mostly, they are more interested in developing an action plan with their clients to work through difficult challenges. They are rarely interested in “closing businesses.” Contrarily, they prefer to work closely with customers and in this environment understand that there are fewer choices to repay or recover failing loans. There is a growing realism all around and recognition that everyone is best served by working together as collaborators rather than adversaries.

• Preparation. But you do need to do your part, and preparation is an invaluable component. This ground rule has many applications. One of the bedrock principles is not to take anything for granted when dealing with your bank. Don’t assume they remember everything you’ve told them. Don’t assume that your banker will share your interpretation that a covenant default is “minor.” Don’t presume that you can talk your way around a problem without a cohesive and comprehensive plan.

Comprehensive does not mean a full-blown business plan or a 10-page explanation. It does require that you apply a cohesive and deliberate thought process to the situation and deliver a well-considered action plan that considers all of the available alternatives. Whether it’s a simple paragraph or a three-page description will depend on the nature and severity of the problem.

Preparation also means you need to have a solid grasp of business fundamentals. You need to have command of the financial performance metrics of your company, in both the recent past as well as the foreseeable future. In my experience, bankers are more unsettled by a “seat-of-the-pants” response than by a cogent answer with which they disagree. At least in the latter case, the cards are on the table, and you can talk openly with them about how to move forward.

Preparation may also mean “shelling the beach,” a more subtle topic that belongs in the advanced course ahead. For now, get in the habit of under-promising and over-delivering on your bank commitments. Talk to your banker often. Share your concerns as well as the action plan to address those challenges. Prepare for meetings as well as phone calls.

You can take that to the bank.


Lary Kirchenbauer is the president of Exkalibur Advisors Inc., providing practical business strategies for family and other privately owned businesses in the middle market. He works closely with senior executives and their businesses to accelerate their growth and improve personal and professional performance and hosts a CEO Round Table for middle market companies in the North Bay. Please visit his blog, The Daily Bull, at www.exkalibur.com.


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