Your Question:

Three part question:

  1. What should we be looking for to determine if our business borrowers are taking necessary steps to weather the storm or are burying their head in the sand?
  2. How can I be a resource and what might I suggest in conversation?
  3. How does all of this impact my focus on relationships instead of transactions?

Linda says:

In normal times, the ‘Special Assets’ team digs deeper to see what can be done by a business in trouble. In this ‘all hands on deck’ economic environment, understanding the steps your business borrower can take to weather the storm will benefit every business lender. You’ll spot problems more quickly and can be a resource with ideas that can help your borrower.

In a recent AICPA WebCast ‘Braving the Economic Crisis’, aimed at CPA/CFOs, three CPA/CFOs provide insights1. One of them is also on the board of directors of a bank.

Feel free to browse the main points. I have included more detail in case you want to dig in. If you like, you can cut and paste this into a letter out to your business borrowers to let them know you are thinking of them.

CFOs need to:

1. LEAD: One of the most important functions for a CFO in this environment is to ease the collective psyche of their organization, accept the uncertainty and remain calm. (Probably a good idea in your bank, too).

2. OBSESS ABOUT LIQUIDITY: This is a ‘no net’ environment.

a. Maintain a rolling 13 week cashflow forecast

b. Keep checking your debt covenants

c. Plan for non-cash write-offs and write-downs

d. Reread ALL financial documents

e. Keep in touch with major customers and key vendors


a. Unexpected liquidity crunch

b. Restricted access to credit

c. Decrease in sales and pipeline

d. Compressed margins

e. Loss of consumer base

f. Loss of market share

g. Non-compliance with loan covenants

h. Increased lender attention/scrutiny

Linda’s note: By the way, that is the second time this week that I have heard from a CFO or business advisor that it may make your business borrowers very nervous if you pay more attention to them than is usual.


a. Then get the razor out and shave away non-core activities


a. One is the ‘bank’ budget, most conservative worst-case scenario, includes 13 week rolling cashflow, very focused on debt covenants, for internal use and not to be shared outside the executive team

b. Second is the ‘living’ budget, used as a compass to manage the business, distributed internally, updated very frequently


a. Opportunity to right-size, down-size or top grade

b. Find the super stars who are unemployed through no fault of their own that you might be able to hire now

c. Change incentive plans to be realistic, perhaps more activity-based than results-based for the short term

d. Be very aware of system security if you are laying off employees

e. Consider offering the year-end bonus throughout the year as quarterly bonuses if your cash situation allows since your employees need cash, too


a. Suppliers, Vendors, Banks, Customers

b. Make no assumptions

c. Communicate often to reduce surprises


a. If your house is in order, look for acquisitions.

b. This is not the time to over-reach.

c. Do twice the due-diligence you would normally do and then double it again

What is realistic for a CFO to hope for?

• A living plan that absorbs and integrates information as things become clearer

• Long-term clarity and focus on core, profitable business that positions you for 2010 and beyond

• A work force that is less scared, more focused, and feels a realistic chance at an incentive reward

• Reduced SG&A with an evolution toward variable, flexible cost structure

• An enhanced sense of control in a chaotic environment

How does a CFO measure success?

• Have you become self-reliant in managing liquidity?

• Are you able to access and integrate information nimbly and understand immediately its impact on your business?

• Do you have flexibility in reacting in terms of resources?

• Do your key constituents feels informed, assured, and as if they are in ‘good hands’?

• Are you trained now to think opportunistically?

• Are you positioned for the future?


What does all of this say about relationship banking?

I asked two questions…

One: What do these CFOs want their individual bankers to be doing now? What are some bankers doing that is helpful? Their answers are not surprising but worth a look.

• Take a philosophical approach.

• If the client is open, honest and candid…work with them.

o The corollary: If they are not forthcoming or are hiding or misleading, cut them loose quickly.

o Since this presentation was aimed at CFOs, they advised that CFOs who are bluffing in meetings with bankers will not gain any traction in this environment.

• Try to help your customers live to fight another day.

o One CFO told the story of a business owner who years and years after a tough time carried a note in his pocket with the names of the two banks he would never do business with again. He would continue to discourage other business owners from doing so as well. Why? Because of the way he and his business was treated in tough times.

o Customers will remember when times are better.

• At another point in the presentation, the presenters acknowledged that more bank scrutiny or attention can indicate ‘trouble’. Consider how to reach out to customers in a non-threatening way that lets them know you are there for them and what information you need to continue to work the challenges with them.

Two: How do you implement a two-bank strategy for a better safety net when banks want the entire relationship; deposits and loans?

• One presenter indicated that 5 months ago the answer would have been different, but currently many banks are more than happy to share the risk with another bank and are not aggressively looking to land the entire relationship.

• Be transparent with both banks and try to have the covenants similar.

In closing, one CFO had these request of five segments to hasten recovery:

1. MEDIA: Please report the good news as much as you report the bad news

2. LENDERS: Please loosen up. Recovery will only occur if businesses have the funds they need.

3. INVESTMENT BANKERS: Please keep identifying the good deals. They are out there.

4. CEOS: Stay calm and lead.

5. CONSUMERS: Go out and make one completely irresponsible purchase in the next week. If we all did, we could turn this around.

Source: AICPA WebCast Series…Braving the Economic Crisis

1 Panel:

Rebecca Irish, CPA Managing Partner of Central & North Florida Tatum, LLC

Cynthia Jamison, CPA National Director of CFO Services Tatum, LLC

Francis X. Ryan, CPA President F. X. Ryan & Associates Ltd

John F. Hudson, CPA President (& Moderator) Hudson Consulting Group, LLC

Related Posts

Why Guaranteed Payments are not Guaranteed

Why Guaranteed Payments are not Guaranteed

Passive vs Non-passive K-1 Income/loss: Confusion reigns!

Passive vs Non-passive K-1 Income/loss: Confusion reigns!

What to do with 481a adjustment?

What to do with 481a adjustment?

Self-employment earnings from 1065 K-1

Self-employment earnings from 1065 K-1

Linda Keith, CPA

Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis.
She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans.
Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.