Why your relationship with your bank is so important
How’s your relationship with your bank? When did you last speak to your manager? When did he/she last visit the farm?
If these questions make you uncomfortable, you are probably worried about the importance of your bank to your business. They control your access to adequate working capital and debt funded expansion. They could sell the farm if all doesn’t go to plan…right?
Maybe, but it might help you to consider the importance of your business to your bank. Bank’s need sound businesses paying interest and fees to maximise profits. They aggressively pursue market share. They want to lend to viable businesses.
When determining your interest rate, significant (and subjective) consideration is given to the relationship you have with your banker. If you haven’t spoken to them for a year, if they have to chase you for financial reports and cash flow budgets, if they have never set foot on the farm on which you work so hard, how can they make an accurate assessment of you as a business operator? They’ll likely charge you a higher interest rate instead – avoiding contact is perceived as higher risk by lenders and for them the game is all about risk and return.
What benefit then in taking a different approach? Get your banker to come to the farm each year – show them what a good job you are doing. Be pro-active preparing the cash flow, the monthly monitoring reports, get your accountant to send them a PDF of your annual return as soon as it’s completed. Involve your advisors in discussions around expansion. Why not take a giant leap and give them a business plan while you’re enjoying a nice morning tea?
All of the reporting components will have to be done at some stage anyway, so why not take the chance to promote yourself and your business and be perceived as the borrower they will support, the one they perceive as lower risk, the one who gets a better rate.
The banking relationship is one of the most critical of all business relationships – make it a good one for you and your bank and eliminate a few more worries. Win – win.
Until next time, Tony.