When bad news visits Featured

7:00pm EDT February 28, 2007

Don’t wait until the last minute to clue in your banker on bad news. Maybe you lost a key client, or perhaps last quarter’s financials substantiated what you predicted — a weak year. During challenging economic times, certainly your business isn’t the only one struggling with customers, vendors and market trends in general. Include your banker in these conversations early, and he or she will be more likely to work out solutions for your business.

“You know when business is going south before we do; don’t wait to tell us,” says Craig Johnson, president and CEO of Franklin Bank in Southfield. “The key is communication, and this means consulting with your banker during good times as well as bad. Your opportunity to work through an issue, or a bad year, will be more successful if you have consistent, strong twoway communication year-round.”

Smart Business spoke with Johnson about what information readers should bring to a banker meeting and what to expect during regular performance discussions.

How should you prepare for a meeting with your banker?

Before the meeting, call your banker and let him or her know why you are coming. Don’t show up and say, ‘Well, we had a terrible year.’ Your banker will want information, such as financial statements, so he or she can conduct an analysis before you arrive. This way, the meeting will be more productive, and the banker will be prepared to present viable options to help your business move forward.

So the first rule is to preface any bad news. Say, ‘I want to meet with you next week. We had a tough year. I’ll get you the information ahead of time so you can take a look at it. I want to see where we stand and get some guidance from you.’

What documents should you bring to a bank meeting to help communicate your company’s performance?

Certainly bring your financial statements and reports from the last quarter. It’s always a good idea to update a business plan regularly based on those quarterly results. You’ll want to show your banker this document, as well.

Also, be prepared to discuss market trends. What is going on with your competitors, good and bad? What patterns do you notice in customers and vendors? Are you seeing an expansion of pay times from your customer base? Are vendors having difficulties meeting delivery dates?

In turn, your banker should counsel you and provide insight on what he or she is seeing across industries. Bankers meet with various types of businesses, and they can lend perspective on whether the customer/vendor trends you notice are across the board.

What questions should business owners be prepared to answer?

First, you should approach the meeting with an open mind. Come in with a plan, but also be prepared to listen to the banker’s proposals. Depending on the circumstances, the bank may want you to consult with a third-party specialist who can take a look at the business and provide an unbiased opinion. These specialists are looking to protect the bank, but they also want to see you, as a client, succeed. Because they don’t have direct relationships with your employees or vendors, they can assist you with tough decisions, which may ultimately improve your financial performance.

What other conditions should a business expect in a bad-news situation?

Generally speaking, and depending on the loan amount and circumstances, a bank will put you on a dominion of funds. You will be asked to put monies into an account that is controlled by the bank.

Or a bank may also do an analysis and request additional collateral. If you expect your financial institution to stand behind you when you are having difficult times, you should expect the bank to also ask you to step up and provide collateral support. That may include an additional pledge of assets of the company or personal asset pledges. Be prepared to address that.

What about good times? Are meetings just as important then?

Absolutely. When business is great, many owners don’t think they need to talk to their bankers. But those are times when you should keep your banker informed. That will make him or her feel a part of your team. Then, should something go wrong, the banker is in a better position to work with you, understanding your business history and success in the past.

CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield. Reach him at clj@franklinbank.com or (248) 386-9860.