This golden rule can apply to just about any aspect of running a business, from communicating with staff to dealing with customers and suppliers. But it is just as vital to the relationship a business owner has with their banking institution. When the market sours, the bank can be the lifeline that means the difference between throwing in the towel or hanging on until conditions improve.

Too often business owners engage in a purely transactional relationship with their bank to serve the day-to-day and monthly needs of their business. The bank may have a poor or limited understanding of the business, the markets its serves and the typical cycles it endures. When the business is struck by tough times and finds itself going hat in hand to the bank to secure credit or re-negotiate the terms of a loan, it may not find the help it needs.

It is always more difficult to solicit sympathy – and more importantly, help – if you wait until the situation is desperate to begin the conversation. Banks want to mitigate risk and ensure their investment in your business will not end up accounted for in their loan/loss provisions. Your desperation makes them nervous.

To establish a positive relationship with your bank and ensure the help will be there when you need it most:

• Understand how your bank works. Most banks have a range of services tailored exclusively to businesses of various sizes and scope. Understand where you fit as a business customer and who has responsibility and decision-making authority over your account. Not just the title of this person, but who they are by name.
• Get to know this individual. Sit down and discuss your business with them. Often, this person will be more than willing to pay a house call and discuss in detail your business and its current and future needs.
• When times are good, secure a line of credit. Build a track record as a reliable customer by regularly drawing on it and consistently paying it down.

Keep your bank honest

On the other hand, your bank is in business to serve you, the paying customer. Approach this relationship with the legitimate expectation that you deserve and can expect attentive and courteous service. You do have the right, at any time, to take your business elsewhere.

Our banking system is typified by a fee-for-service structure. Businesses in particular are on the hook for Visa/Mastercard merchant fees, points rewards plans and other costs which nibble away at margins. Beyond these are the fees associated with everyday banking transactions, the interest rates on credit cards, and of course, the cost of borrowing through a line of credit or a loan.

Most if not all of these costs are negotiable to some degree. Having established that track record as a good customer through timely payment of your bills, combined with years of loyal patronage, deserves to be rewarded with better rates and reduced, if not waived, fees.

Banks, however, are often slow to offer such rewards unless you make a point of asking for them. Don’t be afraid to shop around and see if you can find more competitive terms elsewhere that you can use as polite, but firm, leverage. Your bank, just like your own business, should be willing to give a little to keep a good customer rather than have to find a new one.

If your business is in need of a short-term cash boost, the organizations that you can turn to will be far more receptive if you can point to clear and decisive measures you have taken to cut spending, increase sales and improve cash flow to more efficiently operate your business. It’s always easier to get help if you have demonstrated that you have first tried to help yourself.

Measures to improve cash flow include:

• Educating yourself. If you’re not familiar with bank statements or accounting statements, work with your advisor to be sure you understand cash flow, what it means to you and understand the issues. I’ve seen people who think their business is broke, and yet, they have a $150,000 in receivables on the books. One business owner was paying his creditors in two days, but giving his customers 30 days.
• Collect on your receivables. Don’t let customers use their debt to you as a form of credit. Consider offering them a quick payment discount as an incentive to pay early.
• Delay paying payables. By the same token, don’t put a creditor’s nose out of joint by using them as a form of credit. But don’t pay the bill any sooner than you are obligated to do so, unless there is some kind of obvious advantage, such as the incentive of a quick payment discount.
• Be co-operative and communicative. Everyone’s facing the same challenges. Be open and transparent with customers and suppliers and work together to establish a schedule for payables and receivables that everyone can live with.
• Manage your inventory. If you are in cash-and-carry business, such as retail, allow your inventory to drain a bit. Retailers typically carry at least 20 per cent more inventory than they should at the best of times. Cutting back on inventory can provide a big boost to cash flow. If times are tough, suppliers are more than likely dealing with their own inventory bloat and have the stock on hand to quickly resupply your business if the need arises.
• The loonie factor. On the other hand, if you import product, pay close attention to currency changes – be quick to take advantage of what is effectively a discount on foreign goods when the value of the Canadian dollar rises and stock up.

Sources of financing to consider

If, after putting your cash flow under scrutiny you still see the need for external financing, here are some options to consider:

Business Development Bank of Canada
BDC is a federally mandated institution dedicated to providing small- and medium-sized businesses with the financing options and consulting services they need to succeed. It offers venture capital to start-up and early-stage companies, subordinate financing for companies that are in transition, expanding or planning an acquisition, and term loans for businesses at various stages of development.

BDC does not offer grants, interest-free loans, lines of credit, or other services typical of a full-service chartered bank, such as bank accounts, term deposits or GICs.

To learn more, visit www.bdc.ca.

Ottawa Community Loan Fund
The OCLF provides short-term loans of up to $15,000 to small business owners, aspiring entrepreneurs, talented individuals with international training and community groups. It is a private organization that works with other community-based financial organizations to qualify borrowers, who must be able to demonstrate a worthwhile business concept, practical work experience and/or training, and a solid business plan.

To learn more, visit www.oclf.org.

Small business loans
Full-service chartered banks offer a diverse range of business services, including small business loans. These fixed- and variable-rate term loans are typically secured and reserved only for the purchase of long-term assets that support your business growth, to refinance an existing debt, or to fund a business expansion or acquisition. If your need is to cover a short-term gap in your cash flow, you need to discuss with your banker other options, such as a credit line.

To explore your options for a small business loan, arrange to sit down and have chat with your banker. RBC, for example, offers these options and terms for a small business loan.

Export Development Canada
EDC is a federal agency that provides financing, insurance and bonding solutions to Canadian companies that export goods and services, or that invest in other countries. On the financing side, it provides a number of services to support international transactions, such as paying for the up-front costs associated with the production of a large export order, to expand into new markets or to respond to a buyer’s request for financing.

Learn more about the various financing options EDC provides for exporters.

Friends and family
Never overlook the resources that are closest to home. Friends and family can come through for you in a pinch when institutional lenders will not. The challenge is to make sure to formalize any arrangement on paper to prevent family feuds or bitter estrangements. For example, in return for a cash investment, a family member can be given a convertible share. And pay interest on any loans with a formal repayment schedule.

Customer financing
This isn’t always a viable option, but you never know until you ask. Depending on the circumstances, a customer may be willing to make an upfront payment or a series of milestone payments. This is much more likely if you are recognized as a stable and trustworthy organization and you have a longstanding relationship with the customer.

With one of my ventures, we had a customer in the telecommunications industry who wanted to spend $350,000 on a product we hadn’t even developed yet. To secure this product, the customer was willing to pay 95 per cent of the value of the order up front to finance development. The customer was also in a bind where it needed to spend its budget before the end of its fiscal year, which played to our advantage.

And lastly, a note on personal exposure

It’s worth mentioning measures such as drawing on retirement savings to help float the business or using one’s home as collateral to guarantee a bank loan. But this kind of personal exposure can be risky and should only be considered as an option of last resort. Look before you leap and make certain you fully understand all the implications.

If you do put personal money into your business, ensure you cover it with repayment plans and loan agreements to get it out tax free. I have often seen people put money into their business, then declare it as income and pay income tax when they pay themselves back. This IS NOT taxable income. This is the repayment of a loan you have extended to that separate entity known as Your Business, Inc.

It takes a significant commitment of time and resources to provide adequate answers to these questions and determine if there is in fact an opportunity worthy of the pursuit. If your organization is challenged by lagging sales, consider first if you are in fact doing all you can to a maximize revenues from your existing customer base.

It is far easier to retain existing customers than to acquire new ones. I have seen examples where having the sales team devote 25 per cent of their time upselling existing customers has boosted revenues by 30 to 40 per cent. Get to know your customers, understand what they need, and how they can derive more benefit from what you have to offer. Odds are, you have a product or service that could be of interest to an existing customer and they are not even aware of it.

If you do identify a new market opportunity to pursue, don’t lose sight of how important this established client base is to your business. Avoid the pitfall of devoting so much of your time and resources to developing a new market that you neglect your existing customers. Otherwise, you may be leaving money on the table, or even worse, giving customers reason to embrace overtures from your competitors. Customers always need to feel the love.

When looking at a new market

Address it as narrowly as possible. The more you understand your market, the better you can target your marketing. How to go about this depends on the scale of your business. Are you a local retailer looking to open a new location on the other side of town? Are you a growing software company with a solution that has an established track record in the banking industry that you believe can help manufacturers improve their supply chain logistics?

Biggest is seldom best. Expanding companies often think they should go after the largest market. But it is often the smaller niche market that can provide higher margins and greater profitability. A large share of a small market is often more desirable than a small share of a large market where there may already be well-established incumbents. If you control the market, you will see a greater return on the investment. Competitors will be at a disadvantage and will find it difficult to undercut you.

Get to know your customers. It’s one thing to identify an untapped market opportunity, but quite another to understand how you should address it. Talk to prospective customers, ask them what pain points they are trying to address for which there isn’t an adequate solution, then tailor your offering to fulfill these needs. Don’t even bother proceeding with new product or service development until you have obtained this intelligence from the field. Customers should first be consulted at the earliest stages of product/service development, rather than asked to critique something that is about to roll out.

Where do I find new markets?

A new market can be one based on geography, industry or price point. The type of business you operate and the nature of the new market will dictate how you should go about defining and capturing it:

By sector/industry. This generally involves targeting an existing product or service at a new industry or sector. It may involve customization by tweaking functionality and features, simply retooling your promotional literature to highlight the product/service’s relevance to this new market (case studies with established customers in this market are great marketing tools in this regard), or some combination of both.

By geography. In this circumstance, you may be targeting the same customer profile, but in a different part of town, country or continent. Geography obviously means different things to different kinds of businesses. For a retailer, it could mean the other side of town, or a neighbouring community. For a high tech firm, it can mean another continent. Whatever the individual circumstance, the same rules apply – you must identify and qualify the market opportunity and in the case of international expansion, the culture of your target market.

If you are an export-oriented business, the further away the new market is from your home base, the greater the likelihood that you will have to establish a satellite sales office. When operating in other countries, there are obvious differences in culture, customs and language that necessitate an on-the-ground presence.

By price point. This involves tweaking your product or service to provide customers with different price options, such as the deluxe version with all the bells and whistles and the most scalability, versus the stripped down, more economical version appropriate to a smaller customer with basic needs and fewer staff. In a challenging economy, being able to provide customers with that economy version can make a significant difference to the bottom line.