Businesses depend on banks for more than just loaning money. Owners rely on banks to deposit cash, transfer funds, and process checks sent out to suppliers. Banks provide services that are essential to business owners, which is why it is important for business owners to maintain a good relationship with their bank.
Well, what happens if your relationship goes sour? Most business owners pay very close attention to their relationship with their bank, especially when it gets close to the time for the renewal of their line of credit.
Watch Larry Chester, President of CFO Simplified and financial savant explain how to build back a good relationship with your bank so you can be bankable again in the video below.
You can’t just fix a bad relationship with your bank overnight. It will take a number of months to show them that you’ve changed the way you’re working with them and that things are going to be better going forward.
Here are the steps your business should take to fix your relationship.
When rebuilding your relationship with your bank, it’s important that your financials are stable. You don’t want to be showing a large profit one month and a large loss the next month—even if over a period of time that balances itself out.
A rapid change in profitability or loss on a monthly basis looks bad because it shows that you’re not properly managing your financial reporting.
When looking at your financials, there are two main things banks are keeping an eye on:
Read this article to learn how to calculate profitability.
Remember that the bank is a business as well, and the one thing that they’re very interested in is making sure that whatever loan they’ve given you will be paid back.
For them, receiving financial reports that are stable and timely tells the bank what they need to know to be comfortable that they will indeed be paid back.
When you are trying to show your bank that your business is in fact, bankable, it’s important to show your value as a business. But how do you go about doing that? By building value in your company over time. The steps below help show your bank that you are building value and that your business has value.
Ensure your balance sheet accounts are in line. Stay organized by:
Realize that your bank has given you certain requirements for reporting on a regular basis. Covenants allow them to take a quick look at what you are doing and make sure that you’re able to cover your loan obligations with them.
There are two numbers that are very important here.
Whether that be just interest payments or interest and principal payments, either one or both is important that you have enough money to be able to function. These are all important things to do when you’re getting ready to renew your loan with the bank.
Most importantly, do these things on a regular basis. As your business rebuilds a relationship with your bank, it’s crucial to be able to show either three months or six months of steady operation with each of the measures indicated above.
Overall, it will certainly show them that you have control over your company and you’re actively managing it correctly.
Continue reading to learn more about why financial reporting drives good decisions.
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