Balance of power Featured

8:00pm EDT July 26, 2009

Chances are you’re feeling the pinch of today’s economy in ways you never expected. With the recent banking crisis, you may be hesitant to share your worries with your bank for fear that it may see you as a risk. And your concern may be well-founded, as more than 40 percent of banks reported a reduction in credit lines to small businesses, according to a survey by the Federal Reserve.

But now, more than ever, is the best time to buddy up with your banker to develop a strong relationship that can help pull you through hard times and can ultimately save you money.

Forming a partnership with your banker makes sense, as you both share a common goal: the financial strength of your business. By talking candidly with your banker about all aspects of your business, you bring a financial expert to your inner circle of decision-making. Along with your accountant and attorney, your banker can help you streamline efficiency and keep you on the track to financial soundness.

“We act as a counselor or adviser to businesses during a very unusual time,” says Rod Banks, executive vice president commercial banking services, City National Bank. “The biggest thing we owe our clients these days is communication about what we’re seeing and how to deal with things.”

When you make time to talk with your banker regularly, you ensure that you receive the best services possible as well as the advice you need to keep your company running smoothly — even when the economy is bumpy.

Keep communicating

Communication is key during any climate, but keeping the lines of communication open becomes of utmost importance during downtimes.

“During times like this, you have to communicate twice as much as you normally would, on both sides of the equation,” Banks says.

Rick Davis, executive vice president, division executive for Southern California, Bank of the West, agrees.

“That openness of communication is really the cornerstone of a good banking relationship,” Davis says.

Like in any new relationship, those first discussions can feel a bit awkward. But each time you sit down with your banker — whether during a quarterly meeting or through a monthly phone call — it becomes more of a friendship. The most basic way to begin building the relationship is by inviting your banker to visit your business, so that he or she can visualize your passion.

“A business should be inviting their banker to their facilities,” Banks says. “If you have a banker that’s not coming out to see you, that’s probably a sign that they don’t know the business very well.”

From the onset, you must convey to your banker a sense of openness and eagerness to discuss the various aspects of your company. Additionally, there should be an understanding that both sides are in it for the long haul.

“One of the important things we do is to sit down and reassure customers that we understand what’s going on, and we see what they’re doing and how they’re coping with it,” Davis says. “That has been very beneficial to reducing the stress level out there, as they cope with a very difficult market.”

Discussing a vast amount of information will help your banker understand that you respect the partnership and are looking to the future.

“Openness, honesty, communication and candor are just critical,” Davis says. “You should not be hiding anything from your bank, the good or the bad things.”

While it’s easy to share positive news, such as unexpected revenue, some executives may find their heart racing when they think about telling their banker that a major account is hovering near bankruptcy. However, discussing matters quickly and honestly can pave the road to an amicable solution. Bankers detest surprises, so ensuring that you are their first line of communication is paramount.

“This is a time when you don’t provide surprises to your bank,” Davis says. “You let them know if you’ve lost a major account or you’re not going to make your numbers or you’ve lost a sales manager. You should sit down with your bank and talk about what you need to do to get back on track.”

Maximize the relationship

With a trusted adviser on your side, you can work together to develop a plan to prosper. To make the most of the partnership, go over your business plan together and discuss how to improve efficiency. Even if your company is thriving, you can always benefit from the sound advice of a financial professional who can help you look to tomorrow.

“They should be sitting down with their bank, around their business plan, and having us validate their assumptions; taking a look at their projections and giving them any insight that we have,” Davis says.

As a CEO, it’s your job to update the bank on any changes in your industry. Your banker can then help you plan your next best step, whether it be trimming costs or planning an expansion. It’s also a good idea to ask for your banker’s opinion on how you can take advantage of the low interest rates offered today. Refinancing may lessen your payments and free up cash for other investments.

“One of the advantages, if you’re a borrower in a recession, is that rates are at an all-time low,” Davis says. “Your banker will tell you all the different products so you can lock in low rates.”

Once you have a relationship with a bank, it may be tempting to shop around for additional services. However, remaining loyal to one bank for a variety of products — even when you could get a slightly cheaper price elsewhere — may actually save money in the long run. When a company has a variety of services throughout different departments of the bank, that company becomes a household name inside the bank and may be considered for special offers.

Find the right products

Banks today offer more services than ever before, and tackling the list on your own can be overwhelming. Once your banker understands your company, he or she can assist you in selecting products and services that can streamline your workday and improve your bottom line.

Though some services have a fee, the benefits can outweigh the costs. For example, compared to traditional check depositing, remote deposits can save time and money by eliminating the need for an employee to drive to the bank.

In today’s market, cash is king. Products are available that can maximize your cash flow. Your banker can also provide advice on the best use for additional money — such as investments or paying down loans.

With the nature of banking constantly evolving, a business must trust its banker to match the business with appropriate products. A company should review its banking products annually to stay fresh on the offerings.