In the construction business especially, banking is very important. Why? Because we have natural timing differences in costs versus billing. Additionally, sometimes we need financing for larger equipment and/or a fleet of vehicles. So it should be no surprise that having a strong, healthy relationship with our banker is paramount to our success in construction.
There are three things that are almost certain to destroy your relationship with your banker. Luckily, these things are also easily avoidable! Let’s break it down:
- Poor financial reporting
Bankers need good, reliable, accurate financial reporting. They can’t use poor, incorrect or erroneous data. Here are some key points to remember:
Your balance sheet needs to be correct so they know the available assets in our organization and see something that can collateralize their debt.
Financial projections are very helpful. Where is your business headed? Are you expecting growth in our sales, or a tightening in your gross profit? Financial projections will improve the relationship because they give more information and insight that leads to meaningful discussions. You’ll get bonus points for sharing projections, but some banks even require them.
Your banker wants to help you succeed, but you have to give them something to work with. Help them to help you!
- Lack of truth or disclosures
All relationships are built on trust, and your relationship with your banker is no different. Guess what – bankers can handle bad news! And they’ll even work with you to get through it. They’ve been there, they’ve done this before, and they understand the cycles in the construction industry.
What they can’t handle, however, is a lack of trust. This boils down to simply telling your banker what’s going on in your business, doing what you say you’re going to do, and preserving trust with truthful conversations. Don’t try to sweep things under the rug to avoid the banker finding out some bad news – that never ends well.
- Continued poor performance without heeding the banker’s advice
Let’s say you have two to three years of less-than-stellar financial performance. Bankers can usually handle that, but they do have systems and processes that they must follow in order to get you through this challenging time frame. That could mean additional covenants, reporting or other requirements.
These extra requirements can get frustrating for us and test our patience, but let’s remember that our banker wants our business to be healthy too. Now is the time to lean into these relationships and work together to give them what they need. The ultimate result will be a win-win for everyone!
So, what can you do right now to start (or continue) building that relationship with your banker?
Call them. Let them know what’s going on in your business – chances are they’ll welcome the conversation!
Provide accurate financial statements, so they have something to work with.
Use financial forecasting to look ahead. Giving them an idea of what’s coming down the pipeline for you will only improve the relationship further.
If you want to get more construction financial information like this, check out our courses here.