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Are You Getting the Most out of Your Banking Relationship?
Your lawyer, your accountant, your banker. Most companies know they need this trio of professionals in order to meet their business and financial goals. But too often, management turns to their banker only when they need financing or an upgrade to their treasury management tools.
But what if your banker could provide much more?
It’s likely that your bank has a wide range of business and financial solutions and advisory services in its toolkit that can help you take advantage of more sophisticated strategies with confidence.
It’s important to realize that you and your banker are on the same team. And that team has one primary goal: the success of your business.
The first step is to be proactive in managing the relationship involving your bank and banker not just in your business’s finances, but also as an advisor around key aspects of your operation.
Second, you need to understand what kinds of expertise and assistance your banker can provide and what other specialists within the bank he or she can leverage.
Schedule Regular Planning and Strategy Sessions
During these sessions, you should update your banker on your near-term, mid-term and long term strategies. That professional, in turn, can offer valuable insight into where your market, industry and the economy in general are heading—and how changes might affect your strategy. Armed with this insight, you are better prepared to consider adjustments to your approaches. During these planning and strategy sessions, ask your Relationship Manager (RM) to describe the bank’s capabilities to help you meet financial and business challenges.
Meet and Communicate Regularly
Many executives don’t think about communicating with their bank until they have a financial need—whether this is a new or expanded credit facility, a treasury management product or service, or maybe help with exporting or importing.
You should expect your RM to offer new ideas on a regular basis. Your RM is trained to recognize where and when the bank’s capabilities and its product/service solutions could help businesses like yours. But he or she doesn’t have the insider’s in-depth knowledge of your operations that you have. Working and planning together creates a synergy that can help your business thrive.
Be Open and Transparent
This includes discussing everything that is going on with your business honestly—both the good and the bad.
Managers facing challenging financial or business circumstances may fear that sharing bad news will limit their credit options. However, it’s wise to be transparent with your banker through ups and downs.
By providing a complete and unbiased picture of your financial situation, you make it easier for your RM to deliver ideas and solutions that will help you meet your challenges—including credit terms and capacity that might not have been available if you had not been totally upfront.
In addition to traditional loan criteria like cash flow, leverage, equity and collateral, most banks also look closely at less tangible factors when considering loan requests—things like the management team’s experience and integrity, the company’s historical performance, and its competitive position in the industry. Maintaining transparency is key to building trust.
Even companies facing serious financial and operational challenges can position themselves better for a credit request if they have taken the time to establish a strong relationship with their bank and can demonstrate a solid action plan for turning things around. Providing incomplete information, or providing information in a less-than timely manner, is sometimes viewed by banks as a potential red flag—and may signal that more bad news could be on the way.
As you discuss your company’s challenges with your RM, be prepared to provide timely answers to detailed financial questions. For example:
- What’s the make-up of current outstanding accounts receivable (30/60/90 days past due)?
- How is the mix migrating?
- What is your current customer concentration mix?
- What kind of insight do you have into your client base and revenue mix?
- How are your current sales figures and gross margins trending versus your forecast and prior periods or years?
- What’s driving current operating expenses and what factors are fixed versus variable in nature?
- What’s your current working capital cycle and how are those elements trending and comparing to industry norms?
Your RM will closely analyze your most recent financial statements in order to calculate key ratios (such as debt to cash flow, cash flow coverage, and collateral coverage).
By keeping your RM informed about all the latest developments at your company and in your industry, you make it easier for him or her to be proactive and offer value added solutions to the challenges you face.
Know What to Expect from Your Banker
In a strong relationship, your banker should provide you with valuable information that is not readily available elsewhere, such as:
- Industry trends, issues and updates
- An analysis of your financial statements
- Recent debt capital market deal pricing and deal structure for other companies in your industry
- Financial comparisons and benchmarks to other companies in your industry
- Bank financial and credit metrics
- Suggestions for solving vexing financial or operational challenges
- Connections with other executives with whom you can network
- Introductions to other professional service providers like attorneys, CPAs, investment bankers and insurance brokers
- Challenges to assumptions you might be making about particular aspects of your business or industry
- Industry data and statistics to help you benchmark your company’s performance against your competitors and peers
The bank you choose should be able to provide the products and services you need—and also to customize and scale them to the requirements of your specific business. In addition to credit and treasury management solutions, these may include:
- Capital Markets—Advice and assistance for companies that need to access the syndicated loan market or raise equity
- Advisory Services—Domestic, international and regional advising as well as advising on IPOs and mergers and acquisitions
- International Services—Letters of credit, foreign exchange, foreign currency hedging tools, and Ex-Im Bank assistance
- Risk Mitigation—Transaction, interest rate, currency and fraud risk
- Wealth Management— Asset management, succession, trust, estate, tax, retirement and personal financial planning
- Workplace Programs—401(k) and other qualified retirement plans, payroll services and discounted banking packages for employees
Your RM should also strive to build credibility and trust with your business through honest and persistent engagement. This includes asking detailed questions in order to better understand your company’s operating performance, cash flow and capital structure. And he or she should demonstrate a commitment to your business by being consistently responsive and by following up meetings to confirm what was agreed to and next steps.
Get to Know Everyone on Your Banking Team
Most of your contact is probably with your RM, but other members of your banking team might include a credit officer or approver, your RM’s manager, a wealth planner, a personal banker, and an investment advisor. This helps to cement understanding of your company at the bank and establish trust and confidence in your business, and it also helps smooth the transition if there is a change in personnel.
Banking and Your Bottom Line
Your bank wants to grow its relationship with you by earning your confidence. And you want your bank to deliver the financial solutions you need most, when you need them. These goals are mutually beneficial: The better able your bank is to deliver the right solutions to your business at the right time, the more confidence (and business) it will earn from your company. And the more of your company’s business the bank has, the more complete its understanding of your business model. With better understanding comes more insightful advice from your bank, delivered in a more proactive manner to help your business succeed.
For More Information
To discuss more ideas like these, please contact your PNC Relationship Manager or complete our form and we will get in touch with you.
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Important Legal Disclosures & Information
This article was prepared by PNC for general information purposes only and is not intended as legal, tax, accounting or financial advice, or a recommendation to buy or sell securities or currencies or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained in this article be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed in this article are subject to change without notice due to market conditions and other factors. Financing is subject to credit approval.
PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”).
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