Building a Positive Banking Relationship

Building a Positive Banking Relationship

By Bob Palmerton

After listening to a plethora of quarterly earnings reports from public companies, I began to consider how the discipline and transparency of effective communications practiced by a public company can be replicated for a privately-held firm. Besides keeping owners and investors in the loop, an effective communications strategy with your company’s bank is just as critical.

The loan a company obtains from its bank will likely be accompanied by a variety of covenants. Delivering timely covenant reporting, however, should be merely a piece of your company’s communication strategy with its bank. Managing a bank’s expectations and staying ahead of the curve as the business grows and/or changes are similarly important to build trust and a positive, growing banking relationship.

Here are a few “good deeds” to help build rapport with your bank:

Quarterly Reviews

Bankers like to be informed (and not surprised) by their clients. Inviting the bank for quarterly reviews (just as public companies deliver quarterly reports) is key to building trust and keeping the bank educated about the nuances and shifting priorities of your business. These sessions are valuable not only to provide color on the quarter’s financial results, but to communicate business strategy (i.e. new markets, new products) and to share financial projections. Demonstrate to the bank your company’s ability to support its debt service as well as communicate your company’s growth plans.

Contingency Planning

Should risk suddenly appear on the horizon, resulting in a miss to projections or a weak quarter, your company should persuasively communicate contingency plans to mitigate that risk. “What If” scenarios should be analyzed and action plans defined and presented to get back on track both from a top and bottom line perspective. Share with the bank the degree of flexible, controllable costs in your business that can be reduced or eliminated to sustain adequate debt service coverage and to conform to the bank’s covenants. Calculate and communicate your fixed charge coverage (costs such as debt service, rent, equipment leases, and insurance that need to be paid regardless of your company’s revenue). Know your numbers! Again, this helps to build your company’s trust with its banker, and it demonstrates that you are taking care of your business as well as taking care of the bank’s senior credit position.

Timely Submission of Financials and Covenant Reports

Never let a bank chase you for something. And should the financial reports raise a red flag or two, jump in ahead of time to explain it. Stay ahead of the bank’s questions. A company should understand the key expectations of its banker and provide timely updates to manage the relationship. Be proactive! Remember, your banker will retain greater trust and confidence in you if you are forthcoming with information, however unpleasant that information might be.

Sharing of Financial Projections

These give insight as to where you are taking the business as well as the opportunities and obstacles your company faces in achieving its goals. Try to stick with quarterly financial projections rather than monthly (this can give you time to manage to a bad month). Focus your projections on cashflow, and don’t forget to support those revenue projections with realistic assumptions and contingencies should the projections not pan out.

Now that you have been on your best behavior with your banker, ask for more from your bank! You have provided a lot of information, spending time and energy on strategy, financial reporting and maintaining a solid banking relationship. So maybe it’s time for you to ask for free services, reduced fees, or even a relaxed covenant or a short-term credit line bump to handle a timing issue. If you are renegotiating a line of credit (or asking for an increase), a positive relationship can help close the deal, and the additional business will be appreciated by your bank

Bob Palmerton is a CFO for FocusCFO, based in Detroit, MI.


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FocusCFO Joins JumpStart’s Preferred Partner Program

FocusCFO Joins JumpStart’s Preferred Partner Program

Cleveland and Toledo, OH − December 3, 2019 − FocusCFO announced plans to join JumpStart’s Preferred Partner program, giving JumpStart clients across Cleveland and Toledo access to seasoned professionals for help with cash management, financial reporting, forecasting and managing growth.

“We are excited to be joining the JumpStart Preferred Partner program and look forward to sharing our expertise with JumpStart clients,” said Fred Dannhauser, FocusCFO Area President in the Toledo region. “We love entrepreneurs and our entire business is built on helping companies scale and grow.”

JumpStart’s Preferred Partner program offers partners in several core focus areas, including legal, accounting/finance, marketing, advertising, product development and human resources.

“The program allows us to connect our client companies with services they need from providers we trust who know how to serve them,” said Adam Salon, Partner at JumpStart. “It’s a mutually beneficial relationship. Our clients get high quality services at a price they can afford and our preferred partners build connections to a new pipeline of valued clients.”

As a JumpStart preferred partner, FocusCFO will carefully select one of its experienced CFOs to work onsite with each client. During the first several months, the CFO will work with the business owner to create a financial roadmap and as part of the company’s internal management team in all aspects of cash flow, finance and operations. This results in unprecedented clarity and a strategy to meet the client’s goals.

“Our CFO’s have an average of 30 years of experience, in just about every industry,” said Greg Gens, FocusCFO Area President in the Cleveland region. “We know how to help entrepreneurs provide the financial reporting and forecasting that funders want to see.”

About JumpStart:
JumpStart is a nationally recognized investing, entrepreneurial support and economic development organization dedicated to unlocking the full potential of diverse and ambitious entrepreneurs to economically transform entire communities. For more information, visit www.jumpstartinc.org and follow @JumpStartInc on Twitter.

About FocusCFO:
Founded in 2001, FocusCFO works closely with small to medium sized businesses, helping business owners gain control over three the key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. FocusCFO provides CFO Services on a fractional basis, meaning clients get all the advantages of a full-time, highly experienced CFO under terms that are flexible, affordable and within each client’s budget. What really sets Focus CFO apart is their CFO’s are highly experienced and work exclusively onsite at the client’s office under a recurring schedule. Typically, engagements range from two days a month to several days per week, and many clients are in the $2 to 6 million revenue range when they initially engage with FocusCFO.

FocusCFO is the leading onsite fractional CFO services provider in the Midwest, with more than 90 CFOs and Area Presidents serving over 200 clients throughout Ohio, Michigan, Pennsylvania, Kentucky, Indiana and West Virginia. For more information, visit www.focuscfo.com or follow us on LinkedIn.

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Mark Snyder Announcement

Welcome Mark Snyder

Welcome to Focus CFO

Mark joins our Northeast Ohio team with over 20 years of diverse experience in finance, accounting, operations, and administration. His background encompasses the Manufacturing, Wholesale, Distribution, and Service industries. His experience also includes family owned businesses as well as publicly held entities and involvement in mergers and acquisitions and liquidation events. Mark and his wife Sarah and three sons live in Wadsworth, Ohio.

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Small Business Travails

Small Business Travails

By Mike Derringer

According to a recent unscientific and informal survey of small and medium sized businesses, the following are the top five problems they were looking to solve, with the percentage of businesses suffering from each malady:

1) Lack of proper information (77%)
2) Deficient internal processes (68%)
3) Insufficient cash flow (50%)
4) Margins below benchmark (27%)
5) Desire to expand/grow without the proper resources (23%)

Let’s take a look at the details of each of these five.

1. Lack of Proper Information

It’s common to have a lot of data but still not have the right information to run your business. This can be as basic as periodic financial statements or as sophisticated as daily or weekly key performance indicators. What drives your business, and are you properly measuring it? Do you have the right tools in place to potentially measure it? If you cannot give a definite ‘YES’ to both of these questions, then this might be your top item too.

2. Deficient Internal Processes

This does not necessarily mean internal controls, although if fraud is a possibility within your business then maybe it does. But more general, having the right processes in place to run your business is essential to eliminating waste. Simply speaking, this could be as easy as properly receiving and then recording subsequently sold inventory. Without proper procedures to capture the right data, chances are good you are either not able to sell something you think you have on hand or slow in billing the item after you sell it.

Have you paid for the same thing twice? Hey, don’t laugh, it happens way too often.

Chances are also good that your people are stressed out and complaining about being overworked; they need help. Fixing the process can eliminate the need to hire and lower the stress level of your employees.

3. Cash Flow Insufficient

This is not profit but cash flow, and there’s a huge difference. Here’s a question – is your cash flow sufficient to fund your growth plans? Acquiring inventory to subsequently sell requires cash, and possibly even a short-term bank line of credit. For example, small businesses selling products to larger companies are going to get hit at both ends – lack of lengthy payment terms from suppliers and ever-increasing payment terms from customers, sometimes ranging 90-120 days. As a result, if you have to pay for your inventory within 30 days, and if you turn your inventory 4x per year (thus holding it for 90 days), you are potentially facing a working capital cycle of 150 days. How do you fund this? Better yet, how do you keep on hand the items you can sell while still being able to acquire the latest and greatest models to sell? Both require cash.

4. Margins Below Benchmark

Companies may want to look at Turn and Earn ratios – looking at the average inventory turn while combining that with the margin on each item. Are you keeping in stock items that turn 2x per year at low margins? Why? Sometimes reducing the number of items sold can drastically increase the bottom line on cash flow. For more on margins, see a separate article “Gross Margin Improvement”.

5. Desire to Expand/Grow Without the Proper Resources

Do you have a growth strategy? Does it involve new product lines, expanded sales efforts or territories, or even acquiring another business or two? Do you have the proper resources to address these areas? What is your plan to achieve the next cycle in your business evolution? Without a strategic plan that prepares for expansion, you’re doomed to fail.

Nobody can do it alone. There are solutions to each and every problem above. Surrounding yourself with great business and financial advisors can help you identify when problems arise and guide you to resolution.

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