January 16, 2012

BANK MANAGEMENT ARTICLE SERIES

Rob Oades Partner, London Office

Bank Management | Copyright 2011-2012 Etos Partners

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

MAKING THE MOST OF YOUR BANKING RELATIONSHIP

As a business owner do you really believe that the relationship you maintain with your bank is one of the most, if not the most, important business relationship that you hold? In this article I contend that it should be! The problem, of course, is that all too often it does not feel like it and many SMEs report the view that their bank takes very little interest in their business and often gives the very firm impression that they really do not care. The constant build up of bad press has contributed to this overwhelming sense of negativity when it comes to the banking relationship and the sense of mistrust and, indeed, often fear, when dealing with the banks is now disappointingly perceived to be the norm in many cases. The main concerns, in no particular order, can be summarised around the following issues; No dedicated Manager to act as a contact point and to build a relationship around. Where a dedicated Manager has been allocated, the view that there is a very real lack of understanding of the business and a lack of any sense of proactivity. In addition, a general lack of awareness of how the business owner, particularly in these cost conscious times, needs to spread themselves across the whole range of responsibilities and not just the finance function. Lack of stability with individuals moving on quickly often without even conveying this change to the customer in advance and no formal handover process undertaken. Lack of access to the Manager where an annual meeting to review facilities is often the only contact made and is undertaken in a very superficial way. In addition, failure to respond promptly to telephone requests to make contact to discuss specific issues. A sense of very real disappointment when approaching the bank for financial support where the business owner is very often left feeling let down and unable to fully understand the reasons for being declined. In addition, the whole process of getting formal approval for facilities is invariably seen as inconsistent, time consuming, and lacking in real credibility. Expectation levels often set high by the Manager at the outset only to be destroyed by the time that the Banks internal Credit Department have had their say! A real sense that the banks are only interested in selling add-on products. A classic example being when the Manager arrives for one such infrequent meeting only to be accompanied by the insurance advisor without either initial warning or a sensible reason for why the advisor is attending.

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

The list could probably go on but the underlying perceptions do appear to be very real. If you accept my premise, however, that the relationship you maintain with your bank, at whatever level, is probably one of the most important that you hold, then does this sense of overwhelming negativity actually have to be the case and what can be done to ensure that you maximise the value that you receive from your bank? Remember that your bank, through the Business Account charges that they apply, may represent a significant part of your overhead structure and the question that you always need to be asking is am I getting real value from this relationship or is it just one way? The benefits of a meaningful relationship with your bank can be very significant but to achieve this will require investment in both your time and energy and will invariably mean the need to display a good deal of patience also! If you do this, however, the chances are that you will get some real added value. With this in mind here are my tips for building a strong relationship that will stand you in good stead in both good times and bad; Make sure that you understand the internal bank structures and what these mean for your business. A) When you do not have a dedicated relationship manager For a new venture when choosing your bank this is of particular importance. For small businesses or start-ups, with turnover less than 2m, the chances are that you will not be allocated a dedicated relationship manager- some may indeed see this as an attraction(!) but a specific point of contact is still possible and creates the opportunity to develop the relationship. o Is there a dedicated business banking presence in the branch that you wish to use and how accessible are they? Ask the question before choosing your bank and test it by asking to speak with the branch based business support team. o After Account opening make every effort to maintain local contact keep them advised of the progress you are making and make use of the local contact base that they will invariably have in terms of other professional services. o Make sure that you are on invite lists for any local events that they will be running irrespective of content these can invariably be great free local networking opportunities. These events will also give you the opportunity to meet with the banks local hierarchy which may well be of future value to you. If you work this local relationship as strongly as possible you will be best placed when the need for bank support arises and the profile of your business will be enhanced. B) Where you benefit from a dedicated Relationship Manager the challenges can often be very different but if you are prepared to invest the time, the benefits for your business can be significant.

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

1. Good communication is the absolute key to this 1 to1 relationship The scenario, therefore, where you meet on say an annual basis only for a review of facilities provided, should not be acceptable to either you or the bank. Regular updates re trading performance, but extended to other key issues also, should be provided to ensure that your Manager is fully aware of all the key challenges and issues within the business. Good communication means conveying the bad news as well as the good in a timely fashion and the tendency to hide the negative issues will serve no best interests in the longer term. If there is bad news to convey then make sure that this is accompanied by a clear message in terms of what will be done to rectify because this is the key. Remember, bank managers hate surprises particularly if they are negative it creates problems for them internally with their own credit functions but, just as importantly, will potentially reflect upon them and their own internal performance measures and there will be egos at stake! Through good communication you are striving to achieve a position where your bank manager is seen as a trusted advisor and almost an extension to your management team. The above is true irrespective of the degree of reliance that you presently have on your bank if the business is going well and reliance is limited at present, do not be complacent because the time might come quickly when this could change for a number of reasons and the stronger the communication (and hence the relationship) the better for all involved.

2. Constantly challenge your bank manager remember that the mind-set you need is that this must not be a one way relationship i.e. they need to prove their worth to you as well as the other way around and do not be afraid to test this! So - does your manager display a detailed understanding of your business and the industry/sector in which it operates? Are they pro-active in terms of coming forward with suggestions for improvement and do they display an understanding of the key drivers and challenges within the sector? Do they have an awareness of your key competitors and their performance measures (indeed, do they bank any of these themselves?). What experience do they actually have of looking after the banking needs of businesses in the sector in which you operate? If the answer is None then can they actually be of any value to you?

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

Finally, have you taken the time to convey a clear vision of the strategy for your business and the targets you have set for both the medium and long term? If the answer to this is Yes, then has your bank manager fully taken this vision on board and do they challenge this pro-actively on an ongoing basis by coming forward with ideas and suggestions to ensure that your business is best positioned?

If your perceptions on the above issues are negative in terms of your bank managers performance then do not accept second best. Do not be afraid to take these concerns to the local hierarchy. This implies that you need to know who this is and it is important that you do. When you take these concerns do convey them in a positive manner but always remember that if you are not getting a proactive relationship which adds very real value then you must press for a change of person or decide to move to a bank that will give you quality. If you achieve this the benefits will be great because they will display as much enthusiasm for your business as you do! The message, therefore, is do not be afraid to challenge. 3. Regular communication will also provide you with the opportunity to benefit from the established business network that will invariably be available through the local business/commercial banking offering. o Challenge your relationship manager to make introductions to you from amongst his/her other customer base in an effort to generate business - do they have customers or contacts that could benefit from the services/products that you provide? The answer to this will invariably be yes and a recommendation like this is so much stronger than any marketing or cold calling that you undertake. Continue to press your manager for these leads and ensure that they make a good initial introduction. You need to be receptive to any invites that come your way re bank organised events (the topics might well not be of great interest but the opportunity to meet other like minded business people are significant!). In this respect make sure that your personal networking skills are sharp and that the words you use in those first few key moments are memorable! These events will also, as highlighted above, give you the opportunity to introduce yourself to the banks local hierarchy - remember these names (get the Business Cards) and make sure that they remember you by perhaps dropping them a brief note soon after the first introduction.

4. How do you deal with the totally frustrating issue of a constant change of your Manager because of internal movements?

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

A client said to me recently that he had actually been allocated seven different managers within the space of 18 months! Hopefully this is not the norm (or is it!) and how does the business owner build a meaningful relationship against this backdrop? Very difficult but remember that every change potentially presents opportunity also and I come back to this again shortly. So; 1. Be aware of the potential for change. How long has your Manager been in situ and ask them what their plans are for the future 2. Make sure that they are fully aware that if a change is due, that you will expect (and demand!) a formal handover and a face to face introduction to the next manager. If your relationship is strong the chances are that you will get good warning! 3. Make sure that your Manager holds a written and up to date profile of your business on file provide this yourself if necessary. This will make the handover process smoother 4. If change, as in my example above, is constant then make your feelings known strongly to the hierarchy and ask them what they will do about this in future.

A change of manager can, as stated, and despite the frustration, generate opportunity. Remember that potentially it gives you the opportunity to restate your business aims and vision and to start a new relationship in the correct fashion and in the way that you would wish to continue. Get them on your side early and the benefits will flow. The proviso, however, relates to all the issues regarding pro-activity and understanding as highlighted above. Has this new Manager taken the time to understand what your business is about do they sell themselves to you and show that they can add value? If the answer is No then, again, do not be prepared to accept second best and do not be afraid to make your feelings known to the hierarchy. There are two other contentious issues that I believe do need some additional focus and comment and where the potential to achieve some cost savings are evident as follows; 1. Bank Charges Time and again the issue of bank charges comes to the forefront of business banking issues. So make sure that you fully understand how you are being charged for the bank services that you use this can be an absolute minefield and will take some of the time and patience referred to above! Most importantly, make sure that your own Manager fully understands how you are being charged and can display this understanding quickly and without hesitation. If they do not understand the charging structure how does this actually reflect? For most businesses there will be opportunities to do things differently to influence bank charges and these often revolve around

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

ensuring that both cash and cheque usage is kept to a minimum and that maximum use is made of electronic banking. Do not accept the scenario where you are confronted by a manager with the message that your bank charges are rising in line with some central policy and, therefore, totally out of their hands! I would certainly expect them to be coming forward with pro-active suggestions in terms of what you could potentially be doing differently in order to counteract these increases. Do not be afraid to test the market and make sure that your manager is fully aware that you will do so! 2. Additional bank services If you have not already done so, you will undoubtedly experience at some point a sales pitch for related bank services with insurance (Life cover/critical illness/share protection etc) featuring pretty high up the list. Indeed, if you have requested bank facilities by way of overdrafts/loans, the provision of the above will invariably be built into any formal offer by way of a condition. The rationale is often absolutely correct and will provide a fall-back in the event of unforeseen happenings. Remember, however, that by buying bank products you are generating very real income for the bank (and will be helping your relationship manager to achieve his or her personal targets). One of the very first rules in becoming a successful negotiator is that you never/ever give anything away for nothing! If a condition is imposed upon you for taking any such product as part of a lending package do remember that, if you agree to purchase the bank product, as opposed to testing the wider market, the income benefit to the bank can be very positive. Do use the opportunity, therefore, to seek concessions elsewhere i.e. fees/interest rates etc. The message is to negotiate your bank deal as a package and be very aware of the value you are generating for them.

In summary, there is absolutely no doubt that a strong relationship with your bank should not only be actively sought but reviewed on a regular basis and I strongly support this view. Remember always that it is a two way relationship and do not be afraid to stand up and convey the fact that you are not getting value if you perceive this to be the case Do not be afraid to negotiate and to test the market if you remain unhappy. It is all about investing the time in ensuring, however, a meaningful relationship built on mutual trust and if you achieve this it is certainly worth maintaining. There are some first class managers out there and the trick is to find one for your business and to hold on to them. Good luck hunting!

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

Rob Oades is a banking specialist with many years experience of working within the sector. To seek advice regarding your business banking needs, or to comment on the above article, please respond to roboades@etospartners.com

EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx

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EP Bank Management Article Series, Making the most of your Banking Relationship, Rob Oades v2.0.docx