Most businesses at one time or another will experience challenging periods where revenue dips or profitability is compromised; whether from market contraction, emerging competitors, loss of a key customer, raw material price increases, regulatory changes, or broad economic downturn. Those that succeed despite difficult conditions typically have two things in common: they tap into the collective experience and creativity of their business teams (internal team members along with external accountants and attorneys) to identify strategies to improve performance, and they leverage the experiences and services of their bankers to identify process improvement opportunities. However, it’s important to keep in mind that while a valuable resource, the advice bankers offer is only a recommendation — a “suggestion box” of sorts. It is always the business owner’s responsibility to make the final decision. Keeping that in mind, here are five of the general ways bankers can help their customers weather tough times.
- Improving cash flow. One of the first things a banker will do to alleviate the stress on your cash is to review your cash flow history and projections and recommend ways to shorten the company’s order-to-cash cycle. They will also examine accounts payable policies and practices to maximize cash utilization. In addition, your banker should look at current debt structures to identify opportunities for refinancing that may reduce the pressure on cash. That might mean reducing payments through modified terms or loan consolidation.
Another way he or she may recommend managing cash flow is to establish a line of credit (LOC). A LOC is often used by seasonal businesses or those experiencing growth that outstrips access to long-term capitalization as a bridge when accounts receivable (A/R) isn’t keeping pace with accounts payable (A/P).
- Business insights. Bankers are eager to share the insights they’ve gained from years of experience working with other businesses, and much of their expertise is related to effective small business management. Your banker might recommend a customer retention program to improve loyalty, new technologies that streamline selling or customer service processes, or staff optimization to utilize outsourcing or third party service providers, all with the goal of improving profitability and cash flow. Because community bankers are deeply involved in their local markets and typically have well-developed professional networks, they’re often able to offer suggestions that leverage complementary local or regional business partners. Other topics they may cover include equipment/space leasing, short-term or permanent staff reductions, pay freezes, and even accounts receivable insurance to minimize potential uncollectible losses.
- Guidance on financial statements and projections. When it comes to struggling businesses, those that fall behind on their financial reporting often get into financial difficulties the fastest because they don’t have a clear, current picture of their situation. When under the pressure of financial challenges, business owners must be able to make good decisions quickly, and having an accurate and timely financial reporting discipline allows you and your banker to make the best decisions for your business.
- Communications with customers and vendors. If a market or industry is experiencing headwinds, chances are some of your vendors and customers are experiencing similar financial strains. That’s why it’s even more important during periods of financial stress to communicate your situation and intentions regarding payments. A business banker can help facilitate these conversations and recommend modifications to terms or other steps you may take with customers or vendors.
- Opportunities. Don’t underestimate a community banker’s ability to contribute to your business development efforts. Because the bank works closely with dozens if not hundreds of companies in the area, he or she often has a “direct line” to opportunities and can connect you with those that may be in need of your product or service.
A business owner’s first thought when cash gets tight may be to reach out to his or her banker for a loan – and in some instances that’s a wise move. But successful business people know that business bankers are also invaluable assets that can contribute to the long-term vitality of the company – during good times and not-so-good times. A community bank with small business expertise is uniquely qualified to help local businesses grow, with knowledge that enables them to help customers develop tailored solutions that address their specific needs and goals.
Learn more about the role your business banker can play in optimizing your processes and helping ensure long-term profitability by downloading 8 Ways Your Banker Can Impact Your Business.