Practical Advice for Communicating with Your Bank During a Crisis
As a follow-up to our communication on practical considerations regarding COVID-19 (https://dwhcorp.com/covid-19-advice/), we thought it would be helpful to offer a perspective on how companies can best communicate with their bank in this unprecedented time of crisis. Since many DWH clients have been referred to us by banks, we are in a position to have concurrent relationships with both – and we have been talking extensively with many banks in recent weeks about the COVID crisis and the banks’ responses.
Every bank has had to adapt to the same challenges facing other businesses; uncertain forecasts, employees working remotely (if able to at all), financially challenged customers, and understanding government stimulus programs.
As you work with your bank, remember that it’s in the bank’s interest to work with you to maximize value and minimize risk in your business. Your bank is a critical stakeholder in your business and can be a tremendous resource to you as you navigate this crisis.
Here are some practical things to consider as you communicate with your bank:
Demonstrate emotional awareness – now more than ever
We are all people. We all have concerns about our family’s health and livelihood. This is a difficult time for everyone, including your lender. As such, communication with your relationship manager and his or her team is more important than ever. We no longer have the ability to meet in-person, so we must work even harder to convey concerns, ask questions, express gratitude, and calibrate our communication in an emotionally intelligent way. Doing so in a way that anticipates how messages and shared information will be perceived can make a significant difference.
Understand and clearly define your company’s situation
As we stated in our last publication (https://dwhcorp.com/covid-19-advice/), a detailed, rolling 13-week cash flow forecast (CFF) is the best tool to use for managing liquidity, especially in times of distress. A good 13-week CFF will allow you to see how changes in sales, receivables, payables, payroll, and future expenses impact your liquidity and will let you take action. A good model will also be easy to use and repeatable, so you can update it every week to adapt to the ever-changing world.
Take the time to build a 13-week CFF and use it to model out different scenarios based on your company’s situation and available options. Be as honest and realistic as possible. This will allow you to clearly define what your company is facing and will give you a great tool to communicate with your stakeholders, including your bank.
Define sources of cash and risk
It is important to remember that banks are a source of liquidity, but they cannot be the only source. Your lender’s ability to support your business in these times remains based on your ability to repay your indebtedness over time. In preparation for a productive virtual meeting with your lender, we recommend that you evaluate your 13-week CFF to identify “levers” or actions you can take to increase cash. These may include:
- Additional owner’s equity
- Reduce customer receivable terms
- Push payment terms with vendors
- Reduction of labor costs
- Negotiate deferral of rent or lease payments
- Sale of unused assets
Determine how much cash each of these actions will generate and how long it will take for actions to impact your cash flow.
You should also identify risks in the forecast and actions you are taking to mitigate risks.
Taking these steps will ensure that when you talk to the bank, you are presenting a well thought out plan.
Clearly define your request from the bank
Before you speak with the bank, you should be able to answer the following questions:
- What is the exact ask?
- What impact will this have for the company?
- What is the company giving up in return (this may be additional collateral, increased interest, or personal guarantees)?
- When does the company need it?
- How long will the company need it?
These are questions the bank will ask to determine what they can and cannot provide. Having answers ready will speed the process up.
Pick up the phone
Don’t wait for your lender to call you. Also, don’t just shoot off an email. Make a personal connection over the phone and stay in touch as you learn more together. Together, you can work through this.
At DWH, we’re here for you, even remotely. Let us know what we can do to help. A lot of our clients have questions about what this all means for them, what options and conditions for support or exemptions apply, what implications are for employees, how to mitigate business value erosion, how to manage communications with banks/creditors/vendors/customers, etc. Although we don’t have all the answers, we are here to help you. Please feel free to reach out.