If you’re like most companies your financial strength can be excellent one month and worrying the next. Cash-flow is the bane of many small business owners. You can be making a good profit and doing well with sales, but if there’s not enough cash to pay your staff or suppliers then you’re in trouble.
Here’s a question for you; is it easier to borrow money from a complete stranger or from someone who trusts you? No, it’s not a trick question, but often the first time a business owner meets his, or her, bank account manager is when they are in financial difficulty. If you’ve never even met you account manager and she knows little to nothing about your business you are not going to be in a strong position when things get tough and you need help from the bank. Building a strong relationship with your financial institution is vital to the long-term success of your business.
Get to know your account manager during your businesses good times. When your finances are sound and perhaps you’ve just got editorial coverage in a local newspaper or magazine, or you’ve just landed a major new contract. Why? Because there’s no pressure on either party at that point - you probably don’t need money - the ironic thing is if you do, the bank is likely to offer it before you even ask. This is also an ideal time to give your business plan to the bank. Let them know you are planning for future growth and perhaps alert them to the fact that sometime down the line you might be looking for help to fund this growth. Then, keep them informed of how you are doing from time to time.
If things start going downhill keep your account manager informed; let them know the market is tightening up and that you might need some help in the near future. Banks don’t like surprises, but the more they know and understand your business the more likely they are to help you out in difficult times.
Take your account manager out for lunch, or a coffee occasionally and build a professional relationship with them so they feel they are part of your team - a professional adviser. Bring them onside and when you need money, they will be there to support you.
This may sound crazy, but consider borrowing money when you don’t need it. For instance; your office needs some new computers and you have the money in the bank to pay cash; rather than do that however, go to the bank and get a loan to pay for them. Assuming you then pay the loan back ahead of time, you are building your credit rating for the time when a major expense crops up where you definitely need financial support from your financial institution. There’s a lot to be said for having a good track record!
Beyond just building a good relationship with your financial institution, consider requesting an increase in your line of credit at a time when your finances are strong. Banks love lending money to companies that don’t really need it. Then, when times get tough you can call on the credit you established when things were good.
You may not think of your suppliers as being important to your financial success, but they most certainly are. As with your financial institution, take time to get to know the managers and owners of your suppliers. Building a strong relationship will help you get better discounts, and better payment terms. Also, if you ever get into cash-flow problems, they are more likely to be understanding about an occasional late payment.
This tip only applies if you think that at some stage in the future you might want to bring onboard a partner, sell shares, or attract investors. Building a strong network of people with deep pockets can be very worthwhile. Create a corporate portfolio that can be used to promote your company to anyone you think might be useful in the future. This promotional piece can also be used for journalists and writers to solicit media coverage, or even to potential customers.
When it comes to financial health, it’s always better to be ahead of the game and promote your company during the good times. Don’t wait until you are in financial difficulty before seeking financial support, or you may find that those who should be helping you close their doors on you instead.
Trenval Business Development Corporation is Bay of Quinte’s Community Futures Business Specialist, financing business start-ups, expansions or successions in the Quinte region for 34 years. Trenval can help with small business support including small business funding and small business loans.