The Red Phone

When your phone rings, you want it to be a new customer waiting to drop loads of cash on your services. You don’t want it to be your banker, asking you prying questions about your financials.

But, increasingly, that’s what’s happening, and business owners don’t always know the best way to deal with the reality that their fiscal situation isn’t as rosy as they’d hope.

At a session at the OFA show in June, Michael McGregor, managing director of Robertson & Foley, a Charlotte-based investment bank, told attendees the banks are in trouble, and are getting more aggressive with their customers.

“Last year they were throwing money at clients,” McGregor says. Now, they’re looking for any reason to call loans in, they have no patience for excuses and they’re ignoring customers’ good years of banking.

“They made some pretty bad underlying investments,” he says, and they are doing what any business does when times get tough: trying to shore up their own balance sheets. 

But businesses can work ahead on these problems. Look for the same early warning signs your bank is looking for: poor financial performance – slow sales, bad margins, rising costs – as well as things like cash flow problems, bounced checks and too much growth too fast.

“Sometimes, instead of organic growth, hyper growth can lead to too much leverage,” he says. 

He says business owners should focus on three areas to help them get out of a tight financial spot with their bank:

• Reduce perceived risk: Keep more cash on hand, review your financials more than once a year, form a clear management structure
• Improve EBITDA: Increase sales, control expenses, lower the price of your goods or services
• Increase attractiveness: Develop a stronger market position, keep margins high and have a strong management team in place

But, more than anything, McGregor advises businesses to take action. Don’t just wait to see what happens.

“Businesses that see there’s a bad situation and react the fastest are perhaps the ones that are going to survive,” he says. “It’s not a time to be shy. It’s a time to throw everything at these problems. Be proactive.”

The author is associate editor of Lawn & Landscape. Reach him at cbowen@gie.net.