Businesses Need Strong Banking Relationship
Posted 1-6-2010 | By Mark Gibbs | Download Article
As seen in Minnesota Business Experts' Forum
As you celebrate the New Year, make sure your banker will be celebrating with you and your business in 2010. Your banking relationship needs to stay strong to keep your company growing and thriving with access to necessary loans and adequate lines of credit. Given the current economic climate, banks remain cautious and concerned about credit quality resulting in more restrictive covenants and more active monitoring of covenants. Even refinancing existing credit facilities may become more difficult.
Maintaining a strong relationship with your banker requires a proactive approach by you and your accountant to ensure compliance with all banking agreements throughout the year. Highlighted below are a few recommended steps to make sure all banking covenants are met:
- Improve your banking relationship. Treat your banker as a partner in your business by keeping them informed and helping them understand your business including financial fluctuations throughout the year.
- Consider alternative financing options such as term debt, line of credit debt, subordinated debt, or private equity. Improve management of cash flow and make sure you have a comprehensive understanding of all adverse consequences of covenant violations.
- Get to know and consider alternative lenders based on the size and revenue of your company.
- Make sure your certified public accountant (CPA) is connected to and works well with your banker to help you make sound business decisions moving forward. Consider having your CPA discuss compliance reporting with your banker to determine what’s truly necessary – an audit or a review.
- Determine ways to access cash in your business such as negotiating payments on overdue receivables, selling non-core assets, or requesting advanced or progress payments from customers.
- Monitor loans to and from shareholders and avoid excess distributions. This is not the year to buy what you want, stick with what’s needed.
- Consider staggering capital expenditures throughout the year.
- Evaluate and optimize inventory levels to match current sales projections.
- Work with your CPA to proactively estimate earnings throughout the year. With monthly evaluations, your CPA can highlight items that may cause problems at the end of the year or determine if you are overpaying or underpaying taxes based on your income level throughout the year.
- Know your contingency plan. If revenues drop significantly or you lose your largest client, what’s your plan?
- Tighten receivables with more restrictive credit terms and collection policies. As banks are more cautious and restrictive with their customers, you should be too.
For more information, please contact Mark Gibbs, CPA, HLB Tautges Redpath, Ltd. at mgibbs@hlbtr.com