MANAGING THE BANKER RELATIONSHIP

HIGH INTEREST RATES AND THE BANKING RELATIONSHIP – A SHIFT

Rodney Davis: We had a long period of low interest rates for a number of years and many people thought it would never end. And it wasn’t that it ended that created the problem, it’s how quickly and how abruptly it went up and the extent to which it went up and what that caused from a bankers perspective was an increased risk, an increased number of defaults, and a higher cost of capital. And so you had the relationship with the bank. In many cases, the bank initiated conversations with their clients and said the very thing that I was okay with yesterday, I’m not okay with it today. And if you didn’t have a good two-way dialogue with your bank ahead of that high interest rate regime, you might have gotten a pretty big surprise at the conversations you were having with your bank last summer versus the summer before.

THE BANK: A STAKEHOLDER OR A SERVICE PROVIDER?

Rodney Davis: You’re dealing with the pressures of running your business and there’s this unforced error of interest rate increases that causes you to have to to continue to run your business a bit more shrewdly and a bit more savvy than you might have had to do the day before. And this stakeholder pressure and stakeholder pressure in businesses is very different than customer pressure because a stakeholder will shut you down faster than customers will. And so the relationship with the bank, the higher or the riskier you are as a client to the bank, the more it becomes a stakeholder relationship than you the client relationship because now the stakeholder is saying, wait a minute this person who I serve could actually cause me to lose money. And so the relationship changes during those times and the better your relationship, the more effective you are at communicating, the more efficient you are at communicating information to the bank that satisfies their needs so they can continuously assess their risk, the better that relationship is going to be.

THE ACCOUNT MANAGER OR THE INSTITUTION – BUILD YOUR FILE

Rodney Davis: Unfortunately, all too often we take for granted that the account manager is going to be there forever. And so what I say to clients is when you’re giving information to the bank, give information to the bank, not the individual. So keep in mind that the individual might change. 

People are people, and so it’s going to be about the relationship whether you have that with that banker, but you’ve got to be prepared to have a relationship with a new banker. And I think that the quality of information you’ve historically provided is the best reference that you can give to the incoming account manager that you’re going to be a good account. If you have good conversations with your banker about important topics, you have to follow it up with an email. If you have a conversation with your banker about your financial outlook for the business – if they don’t follow up with an email, you should follow up with an email confirming what you discussed with them because that’s going to go in the file.

So when that new person comes in, they’re going to look at the file. And if that file is mostly in the head of the outgoing account manager, it’s going to be much more difficult for you to transition. You have to think ahead. You have to say, “I’m going to just send something to confirm,” or if you have a difficult discussion with the banker, but it’s just a discussion. And if you’re concerned about the implications of that discussion, send an email confirming what you heard, confirming what you understand the actions to be, because that goes in the file.

THE IMPORTANCE OF BEING EARNEST

Rodney Davis: The point is that you have to be candid with your bankers. You have to make sure that you disclose the challenges, as well as the opportunities. Often when we’re talking to our bankers, we tend to try to spin everything in a positive light. We tend to try to only tell them the things that cast us in the best light. And I think it’s really important that you trust your banker with the good news, the average news, and the bad news. 

So for me, the importance of being earnest is you want to be as transparent as you can with your bankers because that’s going to help them make the decisions. You’re a customer of the bank. 

And as long as you remember that, you will govern that relationship a little bit differently than if you think that the bank is really in charge of every discussion. Yes indeed, they’re an investor and a stakeholder in your business during important times, but at the end of the day, they make fees and you’re a client. So if you think about how you deal with your clients, if you don’t feel as if your banker is dealing with you as a client, then let them know. I’m your customer, first.

MAINTAIN CONFIDENCE – PUT YOUR FINANCE TEAM UP FRONT

Rodney Davis: So, when bankers as a stakeholder are now saying, “Look, I need better and more insightful information in order to decide how best I want to treat this account”, the GreySuits team has experience with bankers. They can put themselves in the position of the bankers, and therefore they have the ability to prepare the right information, quickly, to get that banker what they need, so that they can make the decision – with the primary objective of being able to maintain the bank’s confidence – in the outlook of your business and the reliability of the information. That’s where GreySuits plays a huge role.