The Perfect Pair – Bankers and Cash

A good banker has your best interests at heart and can be a key advisor to your business. Not only do commercial lenders provide lines of credit and short term cash flow, but they can also offer import/export cash management and protection assistance, cash for expansion and growth, and advice and counsel about a number of issues related to your business. Of course bankers can’t tell you how to run your business and they walk a fine line to keep the regulators happy, but most mid-market bankers I know are excited to help their clients in any way they can.

So what does a banker look for in a well-managed, bankable business? First and foremost, the ideal owner is honest, realistic and communicates openly with accurate information. They have a clear strategy and the team to execute it. They have a strong succession plan and allow their team to run the day-to-day aspects of the business while they focus on developing a vision and strategy for growth and profitability.

Second, bankers tend to focus on the balance sheet more than the income statement. Watch Joe Connors CFO Ed Talk Do You Know What the Income Trap Is? You’d Better for proof straight from a banker. Of course, they want the company to be profitable, but over the years, I’ve seen many “profitable” companies run out of cash and end up in the ditch. Bankers look for a strong relationship between asset and liabilities and a short cash-to-cash cycle, which is the number of days from when you spend a dollar on goods and services to when you get it back from the customer. Inventory is a particularly big part of that. To calculate your cash to cash cycle in days use CFO.University’s Cash Velocity Calculator.

Third, bankers look at how companies manage capacity. Is the company ready for growth? Do they have the resources to support it? Do you need to work with your banker on a capital line to support expansion?

Use your banker as a key advisor. They can have a useful perspective on your company, and if they don’t, perhaps it’s time to seek a new banker. Your successful future might depend on it. For more on managing you banking relationship, Why Your Company Needs a Good Banking Relationship

It All Comes Down to Cash

Who in the organization drives the cash-to-cash cycle? Most company managers assume the CFO is managing cash, so they don’t think much about it. But in reality, how sales does their deals, how purchasing buys, how supply chain designs the distribution/warehouse network, how engineering designs products and how marketing and product management bring new products to market and retire old ones all play major roles in the cash-to-cash cycle.

For example, if purchasing makes large volume buys in an effort to get deeper discounts, or if they buy truck-load quantities in an effort to reduce freight, that can have a negative impact on inventory turns, which increases cash consumption. If product management focuses on new products and not on old or obsolete products, the warehouses can accumulate obsolete inventory, which also consumes cash.

To manage cash flow effectively, companies must do more than just improve efficiency and save a few days of cash flow; they need disruptive thinking and innovation to really move the needle. Techniques such as supplier partnerships, auto-replenishment systems, effective terms with suppliers and customers, product design for supply chain management (DFSCM), and just in time inventory and production can greatly reduce the need for cash and can be woven into the operations strategy.


​Not a member-scholar yet? Join our financial community here!

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

Follow us on Linkedin, Facebook, Twitter.