Are you in the top performance quartile or bottom quartile of businesses similar to you? Wouldn’t you like to know? Your banker knows.
My most successful clients have benefited from long-term relationships with bankers who were their strategic partners and supported the business growth.
From my upcoming book, The Four Roads to Business Wealth, here are seven ways your banker can help you grow your business and build your business wealth:
- Cash Flow Management – your banker can help you accelerate cash inflows by accepting electronic payments (the Europeans don’t even use cheques anymore), automating payments, funding payroll, and timing your payments to match your normal cash ins and outs.
- Working capital – in addition to cash, banks can provide you with operating facilities to support your inventory, carry your accounts receivable, and make payments on your accounts payable. The key is to optimize the velocity so you’re working capital is turning over more quickly. Keeping your accounts receivable under 60 days and your inventory moving quickly all help.
- Debt – there’s good debt and there’s bad debt. Good debt is matched to the useful life of the item being financed, such as leasing or term debt for equipment, or mortgages for land and buildings. Company credit cards can simplify expense management and reporting.
Bad debt is when you fund losses out of the operating line. Therefore, avoid losses. - Advice – your commercial banker has probably dealt with hundreds of businesses of various sizes in various industries, and they’ve seen a lot. They can share best practices and strategies from other businesses or industries that you may never have thought about. They are probably one of the best business advisors out there: because they understand cash flow!
- Information – banks have performance metrics about their clients and about the industries their clients operate in, to give you a benchmark on how your business is performing. Do you know how your rank? Ask your banker how you’re doing.
- Data – electronic data interchange has been available for a long time. Downloading your transactions directly into your accounting software can increase accuracy and decrease costs of data entry. Just make sure the data is being coded so that it’s useful for internal management and not just the external accountant.
- Connections – your banker deals with many accountants, insurance brokers, lawyers, and business consultants. They will have a few good recommendations for you, if you ask.
Now, we all know that the bank rents money and expects to get repaid.
For you to be able to rent more money, here is what you need to do to be a good tenant:
- Reporting – don’t send in your monthly reports at the last minute, or even late. Send them early if possible as it will increase your banker’s confidence. A good accounting department should have your month end completed by the 5th business day of the month. The process is to have an early cut-off and to accrue as much as possible. It’s not rocket science.
Share good news and bad news and what you’re doing about it. Bankers don’t like surprises as surprises make you look like an amateur and make them nervous. The more information you share, especially without being asked, the stronger the banker relationship and trust, and the more flexibility you’ll have in slower times. - Timing – If your accounting department is busy until the 25th working on month-end, that doesn’t leave much time for them to provide useful analysis or information for management. If they’re done by the 5th, there is lots of time to help management with analysis of sales, profits, margins by area or product line, slow moving and fast-moving items, and so on.
- Minimizing taxes – this is the most common problem with many small and growing businesses. When you minimize taxes, there is no or very low retained earnings on the balance sheet. Since most banks can’t lend more than two to one for a debt to equity ratio, and that’s all debt, you need equity to borrow more.
Therefore, pay your tax, leave earnings in the company, and strengthen your balance sheet. This one thing will help you significantly. Large companies have figured this out, pay their taxes, borrow, and grow. Don’t ask your accountant how to minimize taxes, ask them how to maximize your business growth and wealth. - Meetings – meet your banker more than they require. They’re busy, and if you want to get great service and be at the top of their list for growth and more funding, you need to be proactive. If you’re in high growth mode, perhaps meeting them quarterly and sharing your quarterly report (you have one, right?) will impress them because you’re thinking and acting like a much larger company.
- Management – the bank’s main criteria on your risk assessment is the strength of your management team. Know your strengths and weaknesses. Many growth entrepreneurs are strong at operations and sales. They may not have high expertise on strategy or financial management. That’s okay. Know your weaknesses and back fill those positions with experts. You don’t need more full-time employees. You just need more expertise.
- Partner – treat your banker like a valuable strategic partner. They are not just a cost to be minimized. Do your best—and most profitable—customers constantly grind you on price? I didn’t think so. Focus on the long-term relationship and value to you and to the bank.
