Toronto — 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.