How your banking relationships can help you reach financial objectives Featured

1:32pm EDT March 1, 2012
How your banking relationships can help you reach financial objectives

Too often, business owners view their bank as simply a bank. But when they partner with their bankers and treat them as part of the company’s management team, they can receive valuable guidance to help their businesses grow and succeed, says Earl Martin, business banking sales executive at First Commonwealth Bank.

“By planning and having open communication with your banker, putting objectives in place and measuring success with benchmarks, business owners can heighten the stability of their operations and continuity of employment,” says Martin.

Open communication will set the stage for a rapport that’s mutually beneficial: Businesses gain financial support to help grow their operations and bankers can stand with businesses with confidence, using their vast market insight to help owners navigate through the muddiest of waters.

Smart Business spoke with Martin about how to assess and enhance your current banking relationship to get the most out of it.

How does a true banking partner work with a business?

To get the most out of your banking relationship, rethink how you communicate with your banker and consider this adviser as part of your management team. By doing so, your banker can offer you deeper insight and provide the tools necessary to reach your short- and long-term goals.

Your banker should understand your objectives, because these greatly impact how a business is financed. He or she should also have access to regular financial reports, which are essentially a numerical interpretation of past management decisions. Because banks review and interpret those financial statements when making lending decisions, they need that deeper relationship with you to understand the engine that’s driving the performance. In other words, they need to understand your story.

So the closer you can bring a banker into your operation, the better. Include the banker in quarterly meetings with other advisers, invite him or her into your offices regularly and have frequent discussions addressing performance to goals. Don’t lose touch with this critical player on your team.

How can businesses position long- and short-term objectives with a banker?

If all a banker sees is the numbers, there’s little insight into the ‘why’ and ‘how’ that are important for structuring the best financing scenario for a business. The more a banker understands the direction and objectives of a company, the more that person can assist in positioning the business for the future.

With a deeper understanding, the banker can analyze the balance sheet and consider how goals and objectives will affect current and future cash flows and how the direction of the company will affect future operational investments. Also look at how any financing arrangements fit into the bigger picture of your long-term aspirations.

When the banker knows exactly how a business is managed through its respective unique cycles, it helps that person position the company moving forward. For example, a business that wants to grow 10 percent could have self-sustaining growth based on reasonable gross profit margins.

However, a company that desires a 40 percent growth objective will have different leverage requirements, experience different cash flows and administrative challenges and, as a result, will require different financing arrangements.

Ultimately, a banker must understand where your business is today and where you desire it to be in the future. That way, he or she can provide guidance and appropriate financing opportunities that align with your objectives.

How can a business enhance communication with the bank?

The business and its banker should meet on a regular basis. Certainly share the good news, but don’t be afraid to share the bad, as well. Don’t wait for a quarterly or biannual meeting with your banker to discuss financial performances that aren’t meeting projections. And recognize that a banker has the resources to help grow your company in ways other than providing leveraged capital. For example, a banker can get you on track with succession planning or assist in reducing intrinsic risk, minimizing administrative expenses associated with banking and retaining employees.

Ideally, you should include your banker in regular meetings with other trusted advisers, such as an accountant and an attorney. Each of these professionals comes to the table with a different perspective on key business decisions. If your goal is to maximize personal wealth — and that’s the goal of most business owners — an accountant will consider the tax implications of your decisions.

However, the minimization of taxes can be in conflict with what a bank looks at when analyzing the solidity of cash flow and the impact on a balance sheet. So it is critical that the accountant and banker, especially, understand your goals and objectives so the best financial strategies can be implemented in the most appropriate manner.

What key benchmarks should a business review while working toward its objectives?

Many businesses look at revenue growth as a measure of success. But one should look more closely at gross profit margins and the business’s ability to control expenses as a percentage of revenue. Also important are a company’s liquidity, capitalization and cash flow. These benchmarks will vary depending on the industry in which a company operates, the company’s history, current economic situation, as well as where an owner wants to position the business moving forward. That is why having these discussions with a banker is so critical. Go deeper than numbers when working with your banker. Let him or her see the real picture of your business, where you are today and where you want to be tomorrow. This insight will go a long way toward positioning your business for the financial backing needed to meet your goals.

Earl Martin is business banking sales executive at First Commonwealth Bank. Reach him at (724) 926-1332 or