Because of the uneven pattern of work experienced by many firms in the industry, bank activity can be erratic. It is, therefore, important for partners and directors to do their best to maintain a good relationship with their bank. If you ever need to secure additional facilities to clear short-term cash flow hurdles or to avoid a charge on personal assets, read on.
The first step to a successful relationship is on-going communication. This means providing regular copies of business plans and financial projections to keep the bank informed, even if the news is bad. Use your accountant to make sure you deliver information that is critical to your firm in the way the bank needs.
Banks view their customers according to perceived risk. If they are confident about your management ability, they will be more relaxed about lending to you more quickly and cheaply.
Disagreements
Where insufficient or inaccurate information is supplied to a bank, this casts doubt over the management skills of the directors or proprietors. Problems may also arise when businesses seek to renew or increase their financing facilities, resulting in disagreements about debt structure, level of borrowing and the security required.
Bank/client relationships also become strained through frequent bank restructuring, changes in relationship managers, and apparently unfair account or interest charges. I also see cases where banks have a poor understanding of the industry.
Many of these difficulties stem from poor communication, with each side failing to understand the other’s needs and objectives. Whether your account is in the red or the black, however, few of them are impossible to resolve. Keep the bank on your side by giving them copies of financial reports. Follow the approach below and it is often possible to improve the relationship.
Funding plans
The essence of all good bank relationships is effective planning. Start by drawing up a funding plan tailored to your precise requirements. This might be a simple cash flow forecast for an overdraft or a comprehensive business plan for a management buyout. The plan should highlight the level and timing of funding required and explain what the money will be used for, but it should also give the bank a better understanding of the key items in your business.
Reliable management information
Accurate and regular figures on the performance of your business are critical to a successful banking relationship, and help to show whether it is progressing according to plan. Reliable management information reveals trends in funding requirements and can be used to help work out how to improve cash management. Besides, it warns both sides of potential problems. Key information should be tailored to the firm, its business and banking circumstances. An architect operating as a sole practitioner may need to produce weekly summaries of fees, margins and cash flow, whereas a medium-sized construction firm may have to give full monthly management accounts. Talk to your accountant to make sure the reports and summaries you produce give you the information required to monitor the firm's position. If you know how the business is performing and can explain any major fluctuations, the bank will gain confidence in your management ability and financial controls.
Negotiations
Before attending any meetings with your bank, carefully consider what information should be emphasised to convey your case effectively and anticipate possible questions and objections. Your accountant may even accompany you, providing support to help negotiate the best terms.
Assess banking costs
Review account charges and interest payments to ensure that they reflect the charging structure appropriate to your business. Software programs are available that check whether interest charges have been calculated correctly. Selecting the right tariff is important (this varies according to, for example, the volume or value of transactions), as is the use of BACS or CHAPS (electronic banking systems) to help minimise transaction charges on payroll and regular payments.
If the firm's financial position has improved and it is operating consistently within its facility, this may be grounds for either renegotiating more favourable terms or lifting a charge on assets.
The right support
When seeking professional advice, ascertain that your adviser has an in-depth understanding of your industry and sector underpinned by an extensive knowledge of how banks operate, and the expectations they have of different kinds of businesses. Your accountant should also have an established track record and strong bank links.
Treat your bank manager as an integral member of the business and advise him of developments as they arise so that he can support the business as and when the need arises. Your accountant is a key team member, providing an impartial link between a business and its bankers. A successful client-accountant-bank team should provide the framework in which a business can thrive.
How to build a better relationship with your bank
- Provide the bank with regular copies of accounts, business plans, cash flow and other financial projections; maintain a “no surprises” relationship
- Devise financial reports with your accountant to ensure that key indicators are identified so that progress can be monitored
- Explain any fluctuations in your business and funding needs to the bank
- Anticipate potential questions and objections before attending meetings
- Review bank and interest charges and ensure they are applied accurately
- Use your accountant for advice and as an intermediary who can vouch for your position, when necessary
Postscript
Nick Antoniou is a partner specialising in business services at Smith & Williamson Chartered Accountants. He can be contacted on 020-8446 4371 or na@smith.williamson.co.uk.
