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Middle Market Businesses

Maximizing Bank Relationships - 10 Best Practices for CFOs

Financial executives need to think of their banks as strategic business partners, according to the three chief financial officers who participated in an MUFG Union Bank hosted webinar about managing commercial bank relationships.

Middle-market companies tend to have lean financial staffs, so they are wise to tap into the knowledge and expertise of financial services providers — and maintain a regular dialogue with them to reap the full value of those partnerships, the CFOs say.

“Our banks can’t add value to our business if they don’t know what we’re doing, our key challenges and strategic imperatives, and what’s going on with our customers, the industry, risk and opportunities,” notes panelist Jim Collins, CFO of Basic American Foods of Walnut Creek, Calif. “We view our banker as an extension of our company, a key resource who can add value.”

Here are best practices the CFOs recommend for maximizing bank relationships:

#1 - Adjust the frequency of contact with your banker based on business conditions. In difficult times it pays to increase the frequency of formal discussions. Nate Davis, CFO of Plymouth Inc., a Seattle-based distributor of food products, says in mid-March 2020, in the early days of the pandemic, his company was constructing a new facility that represented one of the largest capital investments in its history. “Because of everything going on, we started having weekly meetings with our banker rather than our normal quarterly sessions,” he says.

#2 - Have multiple points of contact on the business side but insist on a single point of accountability. Basic American Foods maintains multiple contacts with the bank, including not only the CFO but also the controller, the CEO and the owner. But to be most effective, everyone on both sides needs to understand that Collins, the CFO, is the primary contact with the bank, he says.

“Owners know the business but aren’t managing it on a day-to-day basis like the management team is,” Collins says. “To ensure the bank is in tune with your priorities, you need to have the key relationship at the level where daily activity is being managed.”

Mimi Taylor, Senior Vice President & CFO of Roth Staffing Companies, Orange, Calif., adds that at a private company it’s helpful for the owner to have a relationship with the banker, but it’s equally important, for effective day-to-day financial management, that the lead financial executive be the “face and voice” of the bank relationship.

#3 - Provide regular formal updates for club deal and syndicate banks. These updates on company plans and performance can position your business for quicker turnarounds on financing requests, Taylor says. She invites club deal and syndicate bankers to quarterly updates where she highlights quarterly results and financial projections and gives everyone an opportunity to ask questions. “Once I started hosting these updates, I found that, when we had an acquisition we wanted done in say 90 days, I was able to get approval on financing that much faster,” she says.

#4 - Highlight covenant performance and projections when presenting forecasts to your banks. The goal is to avoid springing any surprises. This practice is particularly important for companies operating in commodity-based businesses, says Plymouth’s Davis. “A lot can change in just one month in a commodity business,” he says. “Keeping those covenants up front and updating your forecasts 12 months out for your banks, on at least a quarterly basis, helps facilitate that ongoing discussion.”

#5 - Include the bank’s primary credit person in relationship meetings. Even if your bank relationship manager is the primary driver of the relationship on the bank’s side, it pays to understand the bank’s appetite for credit risk and the issues the bank focuses on in credit decision making. “When we were having our weekly meetings after the onset of COVID, we always included both our primary banker and our primary credit person,” Davis says.

#6 - Introduce the bank’s credit person to the owner. Taylor from Roth Staffing agrees and urges that, if yours is a private business, you make sure the bank’s credit person gets to know your owner. “This speaks to the heart of relationship banking,” she says. “There’s no substitute for having that credit person sitting across the table from — or on a Zoom call with — the business owner, so they can see the person behind the business, listen to them talk about their body of work, and understand their goals.”

#7 - Evaluate the strength of your banking relationship based on how the bank acts during a crisis. It’s easy for a bank to be supportive during good times. But how does it perform in a crisis? Collins of Basic American Foods says the 60-year relationship his company had with a bank turned sour at the tail end of the Great Recession, when the food service industry began to suffer and “the first thing the bank did was throw us into their workout group.”

On the other hand, each of the panelists say their current bank’s response to the 2020 pandemic has been positive and helped strengthen the relationship and ensure necessary funding availability. Collins, for example, says when the pandemic arrived he started meeting with his banker as often as two to three times a week. “During that time we went deep into the bank relationship and secured additional financing as an insurance policy,” he says.

#8 - Be prepared for the need to switch banks. Bank relationships can go south for a variety of reasons, and you have to be prepared for that possibility, the panelists say. That means cultivating a deep bench. For that, you want to maintain ongoing dialogues with bankers at other institutions to gain a sense for their knowledge and capabilities. “You can’t spend time getting to know a dozen other potential banking partners,” Collins says. “But it’s smart to get to know two or three. It behooves all of us to be ready with banks that are aligned with our companies and understand our business.”

Notes Taylor: “There’s no harm in cultivating relationships with other professionals, be it tax and audit folks, attorneys, IT consultants, insurance brokers or bankers. It just makes you smarter in dealing with your role. Along the way, you take note of the ones who are giving you good advice. If the time comes when you need to think about a change, those are the ones you call.”

#9 - Consider multiple factors when selecting a new bank. Among the top ones recommended by the panel: a demonstrated interest in understanding your business over time, values that align with your company’s, knowledge of and commitment to your industry, and strong technological capabilities. Regarding the latter, it’s particularly important that your people are comfortable with the bank’s treasury management platform and tools.

#10 - An annual meeting with all of your outside advisors. MUFG Union Bank recommends that financial executives at mid-sized businesses hold an annual meeting with their full team of external advisors — including their banker or bankers, tax attorney, insurance broker, accountant and any other critical counselors.

“You can use this meeting as an opportunity to report on your company’s strategy for the coming year or years,” explains Brian Mulvaney, commercial banking market president for the Pacific Northwest.

An annual meeting of this sort sets a foundation for future collaboration among your advisors on your behalf. “Even if they all know one another, they may not realize they are all working for the same client,” says Brooks Einstein, commercial banking managing director for the bank’s Washington office. “Pulling everyone together into a team setting can be more productive than having multiple one-off discussions.”

Union Bank dedicated client relationship managers are here to help. Union Bank offers a comprehensive approach, combined with exceptional service, and a full suite of commercial banking solutions. Schedule a call today.

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