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How to Develop a Good Relationship with Your Bank (and Why You Should)

How to Develop a Good Relationship with Your Bank (and Why You Should)

While it may not always appear to be the case, banks are generally very keen to lend money to businesses. However, due to stringent guidelines and red tape, it can seem quite difficult to actually get credit approval. Maintaining a good relationship with your bank can be the key to this. Here are some simple tips to help your business (particularly your finance department) improve this relationship.

Change Your Mind-set

Dealing with the banks is a state of mind. If you consider the relationship to be ‘master and slave’, that is exactly the kind of relationship that will develop. Instead, think of it as a relationship of equals. Bank relationship managers are just like any other supplier, so negotiating with banks is really no different from negotiating with other suppliers. The product being negotiated just happens to be money.

Understand Your Bank’s Requirements

As with any negotiation situation, both parties have a list of requirements. You will already be intimately familiar with your own needs and goals. By taking the time to understand your bank’s list of requirements as well, you can help the relationships develop much more smoothly.

A bank requires 5 key things:

   1. High-quality management – your leadership team should consist of people who have a reliable track record and a proven ability to overcome obstacles.

   2. Thorough financial information – this should include comprehensive reviews of past performance and insightful analysis into where the business is heading. The maintaining of these records isn’t just important for the information itself; it is also a reflection of the personnel in charge of maintaining it.

   3. Income – a relationship manager’s top priority will always be securing the best price. Once the credit has been approved, it’s up to the relationship manager and his or her director to decide on the actual price.

   4. Loan repayment – the credit team will assess the forecasts while also taking into consideration the bank manager’s recommendations and observations. You need to clearly demonstrate how money will be repaid and openly discuss the factors that these repayments will hinge upon. Credit teams are often cautious in regards to repayment proposals (e.g. if sales end up amounting to only half of what is expected, they want to see that the debt can still be repaid). If you have already scaled back your numbers to allow for this, you need to make sure this is apparent in your presentation and discussions – otherwise your figures will be halved a second time!

   5. Security – when you think of business finance, recognise that this field is actually divided into two specific types of finance: equity and debt. Equity funders understand that returns may be unpredictable, and they charge a higher rate to facilitate this risk. Debt providers expect to be paid back regardless of what happens, and the price of their finance reflects the inherent risk of this not happening. At the end of the day, any bank simply needs to ensure that their deal has a safety net and won’t backfire on them if things go poorly.

Make Sure You Have the Right Relationship Manager

The quality of relationship managers can vary significantly, and this will have a substantial impact on the quality of your relationship with your bank. The best relationship managers can demonstrate very quickly that they both understand your business and you personally.

The best test is to ask yourself if you trust your relationship manager sufficiently to tell them openly when something goes wrong. If you cannot answer this positively, you should have a look at the relationship and determine what steps need to be taken to fix this – whether that means having a comprehensive catch-up meeting to discuss your concerns or requesting a new relationship manager.

The Benefits of a Good Relationship with Your Bank

Aside from having greater opportunities to secure essential finance for your business, having a strong relationship with your bank and relationship manager can have a multitude of other advantages. For example, you can:

  • Rely on your bank for general advice and guidance on a range of financial matters
  • Expect to hear about new products, services and deals as they become available
  • Access other relevant financial products for your business, perhaps at a reduced rate
  • Trust your relationship manager to work towards your goals and evaluate your business’s circumstances transparently
  • Genuinely enjoy dealing with your bank, rather than dreading it!

As you can see, a good relationship with your bank – as with almost any good relationship – is well worth a little bit of work. In some cases, having the right CFO can make the crucial difference; please don’t hesitate to contact us if this is something you are currently lacking. In the meantime, we hope these tips will help you strengthen your rapport with your bank.

Why Every Business Needs a Good CFO

Keys for Cash Flow Management

All too many business owners think that the battle is won once the marketing rolls out and the product is sold. They see that their investment of time and resources has paid off and therefore, assume that their goal has been achieved.

However, the fruit of these hard-won victories will quickly run out if the accounts receivable, as well as the accounts payable, is not carefully maintained with a structured cash-flow management plan.

Here are some key points for businesses to keep in mind when managing cash flow.

Analyse cash-flow history and identify patterns
This is particularly useful for businesses that have been in operation three years or more, as the past can prove a helpful guide for predicting future ups and downs. You can more consistently capitalize on the ‘ups’ while preparing for the ‘downs.’

Review your cash-flow management systems and processes
Who have you invoiced? Who has paid? And have you made your payments? Without reliable systems and processes in place to keep track, you simply cannot accurately ascertain what your monthly cash flow is, let alone manage it.

Ensure accounts receivable receives before accounts payable pays
Keys for Cash Flow Management With each new business relationship, decide with your debtors a credit plan that will ensure you get paid on time. If a particular arrangement is not working, try something different, such as a payment plan. A partial payment now is better than no payment at all. Make it easy and convenient for the customer, by having all the necessary information on the invoice, and offer various payment options.

As for accounts payable, try to get as extended an arrangement as possible. This will help ensure that you’ve been paid by your debtors first. You will reduce the risk of default and help ensure you make payments on time.

Be transparent with your bank
Your bank is your most important creditor. It can also be your best ally if your cash flow projections and business plan inspire confidence. Communicating with your bank about your payment status will also engender greater confidence and lessen the negative impact should a surprise late payment or default arise.

The above key points are all necessary elements in managing your cash-flow well, but they are not sufficient in and of themselves. They are no replacement for tailored advice from an experienced professional. The CFOs at the CFO Centre are all highly experienced in cash-flow management and are dedicated to helping ambitious businesses meet their strategic objectives. For more information, contact the CFO Centre on 1300 447 740.

Rate Your Company's Finance Function in 7 Minutes Using New ‘F Score’ Test

Rate Your Company’s Finance Function in 7 Minutes Using New ‘F Score’ Test

The CFO Centre has developed a quick and efficient tool for rating your company’s finance function: the ‘F Score’ test.  This test takes around 7 minutes to complete, covers the 12 key areas of your finance function and provides you with a detailed eight page report.

The purpose of this report is to provide you with your ‘F Score’ profile, from which you will learn about the role of the finance function in the wider context of your business as well as highlighting key areas where significant and valuable improvements can be made.

Your F Score is a terrific aid in identifying opportunities for improvement – not just in the performance of your financial function but, indeed, of your business itself.  It will help you maximise your chances of success and minimise the costs of failure.  By starting your journey here, you will find yourself better equipped to build a robust, strategic plan for your company, as well as squeeze more cash flow out of your operations.

The CFO Centre has extensive experience, a vast knowledge base, and a powerful set of tools and frameworks to facilitate sustainable and meaningful change in the financial performance of your business.

Not only do we provide ambitious companies with part-time Chief Financial Officers, we also serve as mentors to current CFOs who, although struggling with the changing economic landscape, are nevertheless driven by a desire to become “experienced, entrepreneurial CFOs”.

Click here to take the test NOW


Rate your company finance function in nine minutes

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