If the pandemic has taught us anything in this time of uncertainty and change, it is the importance of communication. It is vitally important to communicate often with our employees, customers, stakeholders, etc. – even if we don’t have all the answers. Equally important as a business owner is to communicate with your lender. And by communicate, I mean open and honest discussions about what is really going on with your business – the good, bad, and ugly. Not just what you think your lender wants to hear.
If the business is in distress, communicating early and often is important for a few reasons. First, it builds trust with your lender because when you are transparent with issues and are forthcoming, your lender may be more willing to work together toward a solution. Second, it gives you and your lender more options for solutions, i.e. increasing advance rates, delaying borrowing base reductions, etc. Other changes are easier to make when the business remains viable. Lastly, it may save your business; communicating early forces you to address issues and will help prevent your lender from taking default or liquidation actions. Conversely, if your business is growing, early communication with your lender will allow them to meet your needs as your business grows.
When speaking with your lender, remember to be open, honest, and transparent. Tell them the exact situation or difficulties you are experiencing, as well as your thoughts and/or plans to get through it. It’s never a good idea to throw your hands up, announce the problem, and ask your lender to fix it. Put some thoughts into ideas so that you can work together toward a solution. It’s also critical to provide valuable information to lead this process. A rolling 13-week cash flow will help you see near-term needs and expectations and eliminates surprises. Never forget: cash is king when running a business. Having a good handle on your cash can’t be emphasized enough. Your lender will also want to see your current financial statements and collateral reporting such as A/R and A/P agings and inventory reports.
If you find your business struggling – as many are during this time – don’t wait too long to look for outside help. There are several organizations like SCORE or your local county economic development office or a municipal chamber of commerce that can provide business resources. I know that when difficulties arise, your first instinct is to reduce spending. But remember, adding the right experts may make the difference in success or failure. Using a part-time CFO can assist with preparation of financial reporting as well as analyze your cash position. Other consultants can review your purchasing and production to find areas for improvement. Part time CFOs, financial advisors and turnaround consultants provide valuable expertise as well as helping you see the forest through the trees. If mistakes are happening, you want to make sure they remedied and don’t get repeated.
All good relationships require good communication. Your relationship with your lender is no different. A point to remember is that your lender is successful when your business is successful. They have the same goals that you do. Communicating early and often builds that relationship and trust. Speak up early, speak up often, and speak up clearly about your objectives to help your business traverse these challenging times.