Strengthen Your Relationship with Your Banker

A recent survey of economists concluded that there is a better than 60% chance that the U.S. economy will fall into a recession in 2023. If your response to this is, “sure, that’s what they’ve been saying since last summer,” I’m right there with you. In the past year, we’ve heard all kinds of predictions about a slowdown that was due to hit the economy first in Q4 2022; then in Q1 2023, and now it’s either Q2 or Q3 2023. We’ve heard both that it will be deep and long and also that it will be shallow and short. When will it hit, and how bad will it be? Who knows. Despite that uncertainty, we can say for sure that there will eventually be a recession. That’s how economic cycles work. In light of that, now is the best time to prepare your business for that eventuality.

One significant step you can take to prepare your business is to begin strengthening your banking relationship. A strong banking relationship is critical to the long-term success of a small business. Still, most small companies aren’t optimizing that relationship. In times of economic downturn or other setbacks for the business, this lack of optimization can become a liability for the company.

“The definition of a banker is someone who will give you an umbrella when it is sunny but wants it back when it begins to rain,” a 30-year banking industry veteran told me jokingly. “If your banker only hears from you when you need something or when you are in trouble, then that’s not a relationship. It’s important to stay in touch.”

The banker offers this sage advice to business owners:

Maintain an open dialogue. Silence between a company and its bank isn’t good. If you have a line of credit, be sure all of your reporting is in on time. If there are any anomalies in your results, proactively discuss them with your banker. Make it a point to touch base with your banker even if you don’t have any reporting requirements. A simple phone call twice a year or once a quarter is a good idea.
Be open and honest. Don’t try to hide issues in your business. If you are open and honest, that builds trust, and you will be able to work with your banker when times are tough.
Have a plan. If things are going sideways, approach your banker with a plan. If there’s a hiccup in your results and fresh capital may be needed, come to the bank with a plan of how you will right the ship. Show good faith by putting in some of your own funds to help bridge the gap. If you can’t do that, offer to do something like cut your salary. Show that you are shedding expenses to offset the downturn. Most banks will think that it’s great that you have a plan and will be willing to work with you.

To illustrate his point, he shared a story. “I once banked a small business client that was in the staffing industry. On a few occasions, the timing between when a customer check was due to come in and when payroll needed to go out was tight. Instead of waiting for this to come crashing down, the owner would call the bank at least a week before to give me a heads-up about the issue. We would strategize about what the owner could do to lighten the amount of the potential overdraft that would result from the cash flow timing issue. We were always able to come to an agreement where I covered his payroll, and he might be overdrawn for one or two days until the check came in. The owner didn’t hide the problem from the bank. He had a plan, and he communicated with me. Had he not been open in his communications with the bank, that could have been the perfect trigger for the bank to say we can’t do business with you anymore.”

Now is an excellent time to reflect on your banking relationship. When was the last time you communicated with your banker? What do they know about your business? If it’s been a while, schedule a phone call or visit the branch. If you’ve never spoken to your banker, visit your local branch and find out who’s assigned to your account and get to know them. A relationship with your banker is just like every other relationship. The more someone knows you and feels that you’ve invested in that relationship, the more likely they are to trust you. The more they trust you, the more likely it is that they will be willing to work with you when you need help.