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Most businesses have a need for a line of credit or other financing with a bank. Especially when business is slow or the company is in some way struggling, relations with your banker can become strained. When the banker is worried, he may start asking hard questions. Here are some ideas on how to deal with this situation and on how to make your banker a partner all the time, not just when things are going well.

The key to excellent relations with your banker is having excellent communications. To have him on your side, he needs to understand what you are doing and to be confident of what to expect in the future. You must reach the point in your dealings with him that you tell him what is happening before it happens. The better able you are to project, the more confidence he will have.

It should be self evident that the banker's main concern is being repaid. The objective here is to inspire genuine, earned confidence, not to pull the wool over the eyes of an unsuspecting lender. Be informed, do what is right, and communicate. Since your banker expects you to know your business much better than he does, communicate on an ongoing basis the following elements of your business.

1. What happened during the period? 2. What is going to happen in the next reporting period? 3. What are the main issues facing the business and what you are doing about them?

The assumption here is that you have an ongoing relationship with your banker that you want to improve by building his confidence in you. When appropriate communication is in place you will face fewer questions, in fact you will be the one posing as well as answering most of the questions.

The first thing you have to do is to report to him on time. Do not make him wait, or remind you. In the event cannot meet the dead line tell him before you are late and tell him when you will deliver your report.

Starting with your next submission write a one- page situation assessment describing what he will be see in your financial statements. Briefly, tell him what is going on that causes the numbers to be what they are. Tell him what you are doing and what you genuinely expect to see in your next report. You might even consider calculating some of the ratios for him that he uses to monitor your company. (If you do not know what these are, ask him). If you have a problem that you do not know how to handle, seek qualified help and tell him you are doing so. He may even suggest a trusted resource.

If there are problems evident in your statement be up front about what you are doing. Do not minimize the significance of items that you do not yet have under control.

This should serve as the basis for your discussion of the period.

Do the same thing next reporting period except now you add information relative to how good, or poor your projections were. If you were close, good, if you were not, you have to discuss why you were off and what you are doing to get better. You might think this is a chance to look bad. Maybe so, but if you cannot project for your banker, how good are the projections you are using for yourself? If you are not making projections, it is difficult to understand how it is that you think you are in control of your business.

Your banker will be pleased to be your partner, once you have exhibited that you are in fact in control of your business and that you know what is going on. Remember it is hard to say 'I told you so," unless you told him so.

Hugh Rhine is a consultant to small business owners. He can be reached at hrhine@xrrc.com



 
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