Like it or not, banks and other financiers will be a key stakeholder in almost every turnaround with many situations arising when critical support from your banker is needed such as interim funding or waiving of a technical default. A strong relationship with your financier built on understanding and trust in you/your company will be vital to them agreeing to such support.
Underscoring the importance of this relationship is the reality that for underperforming company, it will be much more difficult to obtain assistance from a financier as the company will likely have a “red flag” against it due to an increase in credit lending risk.
A banking relationship will generally need either repair or improvement to make a restructuring possible while the starting point between a company and their financiers in a turnaround is more often than not a breakdown in trust and communications. For the bank there will concern about how/why the company has reached its current position while for a company disappointment that it is not receiving the support it once did.
For both parties, getting over this mindset is critical. For the directors and management becoming warm and cosy with your bank may be uncomfortable, but do it you must! Below are some other thoughts on how to build and manage your bank relationships in a turnaround:
- Accept they are a key stakeholder in the future of the company and treat them accordingly by for instance keeping them abreast of major developments and obtaining their feedback about key decisions.
- Approach them early about forthcoming issues like a breach of covenant. This will demonstrate your control and visibility and make it easier to obtain bank support.
- Be transparent and open about the reasons for the current position and challenges ahead. ie no sense in denying reality. This will help build trust.
- Use advisers if the situation starts to get complex and when there is an increased risk of default. Dealing with banks in a turnaround can be somewhat of a “dark art” which often requires specialist support.
- Leave the emotion out of it (as hard as this can sometimes be!). Being objective makes it easier for all parties to constructively engage with each other.
- Present financial information in a way that is easy to interpret, consistent and timely. This allows the “financial facts” of the position to be understood and then focus discussion and interaction around how to manage the go forward.
- Don’t overpromise for the short term benefit of getting the bank off your back. This is will ultimately be detrimental to building the relationship that you need.
- As always, be sure to communicate and by the way you should also communicate, communicate and then communicate some more.
Engaging with financiers in the above way allows you to more readily hold your financiers to account and highlight when you don’t think they are acting in a way consistent with trying to achieve the turnaround. Hopefully that as a result of you making positive efforts to build a relationship you see this being replicated by your banker.
If you would like a no obligation, confidential discussion about turnaround management and executive solutions, please contact me at firstname.lastname@example.org.