TORONTO, Feb. 19 /CNW/ - While the economic downturn is forcing private
companies to address their financing needs, many are shying away from
proactively communicating with their banker for fear that they may be squeezed
by the credit crunch. At a time when private companies should be in regular,
constant communication with their banker, according to new data from a Pulse
survey of private companies conducted by PricewaterhouseCoopers (PwC) in
Canada, only 39% of respondents have increased communication with their banker
in the past three months. However, dealing with your banker - even in this
economy - is not something to be feared.
"While banks always need to be cautious, it is in their best interest to
see the companies they deal with succeed," says Vince De Luca, managing
director in PwC's Corporate Finance Practice. "Business owners who can
demonstrate to their bankers that they are forthcoming and proactive - and
have strategic plans to see their business succeed - will be more likely to
receive help and secure financing."
To help private companies ensure financial solvency for their business,
De Luca offers the following tips on dealing with your banker.
- Stay in touch. If you're not performing well, let your bank know and
explain what measures and actions you've implemented to address the
issues. According to the Pulse survey over one-third (37%) of
respondents only communicate with their banker on an annual or
quarterly basis. Even if your business is performing well, talk to
your bank relationship manager at least twice a month and keep them
apprised of your situation.
- Do your homework. During a credit crunch and an economic downturn,
extensive forecasting is highly recommended. Private companies should
perform detailed six, 12 and even 24-month forecasting, looking at
various worst-case scenarios and preparing strategies for dealing
with each one. Only 60% of private companies surveyed perform
forecasts, and of those who do perform forecasts, only 56% share them
with their bankers. It is crucial to share these plans with your
financial advisors to help gain and/or increase their confidence in
your company, and don't be reluctant to ask them for help.
- Be open and candid. Unlike public companies that disclose detailed
reporting and strategy on a quarterly basis and discuss it with
financial analysts, private companies tend to be very private. In
today's climate it's vital that you are as candid and forthcoming as
possible with your banker.
- Communicate your new focus. Bankers expect to see that management
teams have shifted from a sales growth orientated focus to a capital
preservation mode. "We have seen numerous examples recently where the
subject companies did not adjust their production and purchasing
behaviours despite the fact that sales were significantly decreasing.
These actions, or lack thereof, resulted in drastic increases in
working capital and covenant breaches," says De Luca.
The full article can be found in the "Let's Talk About" section at
www.pwc.com/ca/businessinsights. This series of articles from PwC's Private
Company Services group helps business owners think about topical issues and
opportunities that can affect the performance of their business.
For more information on managing in a downturn, visit
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