Liquidity is the lifeblood of a company, especially a small business. Driven by ongoing economic turbulence and disruption, monitoring cash and accurately forecasting future cash flows has become a top priority. It’s a business imperative to keep on top of and effectively manage everything from payment terms with vendors and efficiency in customer payments to accessing lines of credit when needed. That said, one of your best friends in navigating liquidity should be your banking partner.
The Questions Every CEO Was Asking On March 13
Although CFOs and their teams have always prioritized cash flow forecasting and aggressive liquidity management, many took their banking relationships for granted — until recently. On March 10, the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank (SVB) and, two days later, regulators closed Signature Bank. By Monday, March 13, many CEOs were in their CFOs’ offices asking rapid-fire questions such as, is our bank healthy? Might it fail? What if we can’t meet payroll or pay our vendors? And, by the way, how does FDIC insurance work?
Steve McNally
The recent bank failures were certainly a wake-up call and the banking industry continues to wobble, but, as the dust settles, now is the right time to think more deeply about your banking relationships. Specifically, what should you expect of your banking partner and how do you build a good relationship with them?
Why Do Banking Relationships Matter?
In the wake of March’s banking events, the Federal Reserve reported 47% of banks tightened lending standards for small businesses and 77% of small business owners are more concerned about their ability to access capital. There is a seeming lack of trust between small business leaders and their banks, and this year’s events are showing a weak banking relationship could mean losing access to vital business loans.
As you work to build strong relationships with your banking partners, credibility earned along the way will allow greater trust in one another. They will become valued advisors who know your company well, and having gained historical knowledge about you, can turn around requests and issue resolution more quickly, with fewer hurdles, and less frustration. A good banking relationship might even be the deciding factor as you navigate your liquidity options.
What Should You Expect From Your Bank?
As in any meaningful relationship, your banking relationships should be built on a foundation of trust and respect. You should expect a natural rapport to develop in your interactions. You should be confident they have relevant expertise and will maintain total confidentiality regarding your business discussions. They should make every effort to understand you and your business, knowing where you are, where you’re headed, the headwinds you face, and how the bank can help and support you.
The relationship must be more than just a transaction. Your banker should be looking for ways they can help or how they can introduce you to other subject matter experts who can (e.g., M&A specialists, vendors, small business leader peers, and others). They should be doing the right thing for the community, industry, and, of course, you, their client. Your banking partner should be sincerely trying to help. They should, within appropriate parameters, have the philosophy of “let’s find a way to say yes.” Ideally, your banking partner should be your first speed dial, your trusted advisor, and your sounding board. This trust, of course, is earned over time.
8 Keys to Building Trusted Banking Relationships
1. Know Your Partner. Before selecting a banking partner, research the bank, assess its reputation, understand where the bank’s deposits are coming from and how it invests its money, analyze key metrics, and otherwise gain comfort. In addition, meet the lead executive and others who will be supporting you, ensuring there is appropriate chemistry.
2. Build Relationships. Like any relationship, banking relationships need to be nurtured. As CFO, you should regularly connect and network with potential banking partners, developing several of such relationships before they are needed. And when you select a new bank, whether or not there was prior contact, invest time to aggressively build the relationship, knowing trust is earned over time.
3. Build Personal Credibility. You, as the CFO, need to build personal credibility with your banking partner. To do so, demonstrate competence, develop believable strategies, budgets, and forecasts, meet your reporting commitments, and communicate consistently, whether business results are good or bad.
4. Be Honest, Candid, and Transparent. Share your liquidity, on good days and bad days, with your banking partner. Don’t hide the bad news. Rather, share the good and the bad and then, together, work out a solution. If you have an issue, engage your banking partner with the attitude of “hey, let’s talk through it”. There must be transparency!
5. Return Calls. Don’t go radio silent with your banking partner, especially if there are concerns your company is challenged. Doing so only increases potential concerns. I know of a small, private company that, although struggling, developed a solid plan and budget to overcome this challenge, including significant new investments by the owners to overcome a short-term cash flow gap. Unfortunately, while this proposal made business sense, the bank forced them into receivership, a lose/lose proposition, because there had been poor communications leading up to the proposal.
6. Leverage Services. Although you may have engaged a new banking partner for a specific reason, whether to open a new company checking account, obtain a line of credit, or fund a new piece of equipment, explore the many products and services offered by the bank and leverage them accordingly. For example, maybe your banking partner offers services to streamline customer collections or enhance controls over disbursements. Or maybe they offer financial wellness training to benefit your employees.
7. Don’t Be the Squeaky Wheel. Think of your customers. There is always one, often a relatively small one in terms of sales, who is highly demanding. They frequently call to complain, even regarding the smallest of issues. They are the customer you wouldn’t mind losing. Don’t be that squeaky wheel with your banking partners.
8. Stay in Contact. As an industry, bankers need to do better than just reaching out when something is needed of you. Your banking partner can be a valuable resource but, to become one, they must build a relationship of trust through meaningful, ongoing contact. There should be at least three or four proactive check-ins each year. If your banking partner isn’t initiating these check-ins, you should. You should also likely start building new banking relationships as well.
While a strong relationship wouldn’t have guaranteed protection if SVB or Signature Bank were your primary bank, you can never have too many trusted advisors in your corner. And those who know your “stars and scars” are more inclined to respond quickly, minimize barriers, and advocate for you when needed. A strong banking partner should be your confidant, helping you make informed decisions faster and with greater confidence. As CFO, prioritize making your banking partner a close ally!
Steve McNally, CMA, CPA, is CFO of The PTI (Plastic Technologies Inc.) Group of companies and chair emeritus of the Institute of Management Accountants.
