Cash Flow Management Part 3

file2761263244943The final item relating to cash flow management is the relationship that you have with your banker. Why is this applicable to cash flow management?

The answer lies in the fact that if you have a line of credit or will need to apply for one, your relationship with the banker assigned to your account can be critical to your success inside the bank. If you develop a relationship based on trust and mutual respect, he/she will become your champion inside the bank, and with that role, getting approvals becomes an easier task.

I advise my clients to communicate with your banker at least once per month, even if it is non business related. I also advise that you send them your monthly financial statements, even if they are not asking for them. This is the first step in building trust and also gives your banker an idea on how your business is performing. If you incur a problem, financial, operational, or anything that is or will affect your financial outcome, communicate with your banker within a reasonable time frame. Do not attempt to hide or delay communicating your problem. The last thing that they need, is to find out about a problem from an outside source or after the problem is out of control. They have people to report to and no one likes to be surprised, least of all a banker or team leader.

Take some time to analyze the situation and determine what the appropriate corrective action will be. Once you have determined the action plan, call your banker and have him/her come in to discuss the situation. By taking a proactive approach, you will gain not only credibility, but you may also gain some time to implement your action plan. If you need to borrow more money, by using this approach, you may have a better chance of getting approved for increased lending to your company. Obviously, your current financial situation, along with your history will play a large role in accomplishing this, but business is still based on personal relationships. And banks will support good customers.

One item that you should prepare or have someone prepare is a cash flow analysis based on your current budget and add a section to provide information on how the money will be used and when it will be paid back even if this will occur over a period of time longer than the budget year. This information is critical to successfully borrowing money if that is the corrective action needed to get you through this rough patch. All banks want to know, how much money is needed, how it will be utilized, how will be paid back and when will it be paid back.

Make certain that your cash flow analysis is accurate, makes financial sense, and can be accomplished as presented. Add footnotes if necessary to provide additional information or assumptions contained within the report.

I have used this approach to managing banking relationships in both good and bad situations. The bottom line is that your business has to deliver the financial results needed to get your business back on the right track.

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