More than just money: Tap into your business banker for financial success

By Stan Koopmans, Senior Vice President – Business Banking Sales Manager at Lake Ridge Bank

There’s a myth out there that bankers don’t want to work with contractors. However, that notion could not be further from the truth. In fact, most business bankers believe that the construction industry is a primary financial indicator of the economy, so lenders often look forward to helping contractors get established and grow.

Like most small business owners, contractors often prefer to focus on their skilled craft over the business side of their endeavor, sometimes creating tension between the high-quality service a contractor provides and the operation of their business.

In short, bankers can serve as an indispensable resource for contractors by:

• Helping you understand options for loans and lines of credit
• Managing cash flow
• Finding financial efficiencies
• Identifying risks and providing fraud protections
• Sharing ideas for limiting fees
• Navigating potential resources for funding or stimulus programs
• Effectively utilizing treasury management services

The B.S. (business side) of construction
Without question, contractors are experts at skilled labor. Quite often, contractors are even experts at the operational aspects of their industry. It is less common for contractors to excel at the financial side of running the business.

That’s okay. Your accountant or banker probably can’t wire an office building or drive a backhoe.

Unfortunately, reputation rules the roost when it comes to the construction industry, so it is important to get all aspects of running your business right. You cannot just rely on quality craftsmanship while ignoring the B.S. (business side, of course) of your work. Some of the things bankers are looking for that can affect your reputation from a business perspective include:

Bidding accurately. Financial success starts with step one. Providing accurate estimates gives you an edge with winning a bid because it means the project leader can trust the budget.

Collecting all lien wavers as soon as possible. Keeping a project on budget often relies on keeping it on schedule. Make sure that basic paperwork doesn’t hold up the process.

Invoicing in a timely manner. For example, if the landscaping subcontractor takes 4-6 months to send an invoice because they want to do all their paperwork in the “off season,” it can throw off the accuracy of the customer’s or general contractor’s cash flow.

Keeping your records current. Cash flow in construction can be unpredictable thanks to the accounting practice of billing a percentage of a project at intervals. Pair that with the fact that billing doesn’t always match up with what you have spent to date on a job. Keeping a detailed status report for a quick-and-easy review of your overall financial health can be a good idea.

Paying employees and subcontractors on time. You know better than anyone that there continues to be a shortage of construction workers and skilled laborers. Something as simple as getting a regular, reliable paycheck could impact an employee’s decision to stay or stray. And, if you have a reputation for paying subcontractors on time, you will get the best of the best lining up to work on your projects.

Running a safe worksite. No explanation needed.

Scheduling accurately. In basic terms, show up when you say you’re going to show up.

Having a plan for supply chain delays. You can’t always control every aspect of a job, especially when it comes to supply chain issues. Your best defense is to have a plan for when – not if – something goes wrong. Good communication can be the difference in how a customer feels about the situation. It’s also a good idea to try to anticipate potential snafus at the onset of a project and brainstorm ways to minimize the impact if a problem occurs.

Mitigating fluctuations in raw material costs. Another issue that is often out of your control: the rising cost of raw materials. That said, there are ways to reduce the impact of cost fluctuations within any specific job. Consider purchasing certain things right at the beginning in order to lock in the cost, or simply keep common items in stock so that your bids are based on materials you’ve already purchased. Negotiate prices based on bulk orders or guaranteed minimum business. An experienced banker has often seen many tricks of the trade that work effectively.

Keeping your equipment in good working condition. It may sound extreme, but people sometimes judge the health of your finances based on the “health” of your tools and equipment. As an added bonus, proper maintenance of your equipment can help it last longer and run more efficiently, saving you money while bolstering your image.

Using your line of credit effectively. If a LOC is meant to cover cash flow issues or seasonal ebbs and flows, your bank will expect your balance to get paid down to zero at some point each year, with money available in your deposit account.

If administrative tasks are taking up too much of your time, consider outsourcing your financial work to an accountant, a bookkeeper, or assistant. And don’t hesitate to ask your business banker for a basic financial review, along with recommendations or referrals for professionals they trust and respect.

Reputation Management
They say the three most important aspects in real estate are location, location, and location. In construction, its reputation, reputation, and – you guessed it – reputation!

While you may recognize the importance of reputation among your colleagues and customers, it’s equally important to maintain an impeccable reputation with your banker.

Larger loans or lines of credit you apply for get submitted to the Loan Committee for discussion, review, and approval or denial. That means bankers get to know who is a reliable partner or subcontractor and who can be unreliable. Your reputation can impact:

• Your ability to get a loan or line of credit
• Another contractor’s ability to get a loan or line of credit (because we ask who they are working with)
• Your cash flow (are suppliers or subs demanding money up front?)
• Your ability to win bids (customers need to trust your numbers and your capability to complete the work)
• Your ability to get the workers you need
• Your ability to negotiate credit terms with suppliers
• Your rating for credit references

Reputation should be the #1 product or service you provide. Build it with care. Protect it with enthusiasm.

Make Your Banker a Trusted Resource
One of the easiest ways to make or break your reputation is through communication. Contractors can’t control every aspect of a project, but the way you communicate about it can leave an impression.

When something goes wrong, communicate with all affected parties as soon as possible, including your banker. Try to come to the table with options or solutions so that the focus can be on working together to solve the problem. Be open to additional ideas, taking other perspectives into consideration.

Best practices suggest meeting with your business banker quarterly to provide a general update on work in progress. By reviewing your financials regularly, your banking professional can help identify additional ways the bank can serve you – often at no extra cost. Online banking tools, treasury management services, and other business banking perks are usually part of a full banking relationship. Take advantage of all the banking resources and systems that strive to make running “the B.S.” of your company easier.

Stan Koopmans is Senior Vice President – Business Banking Sales Manager at Lake Ridge Bank, with 20 locations throughout Dane, Green, Sauk, and Rock counties. Lake Ridge Bank’s mission is to “build prosperous communities, one relationship at a time.” For more than 100 years, this has meant getting to know each of our clients to offer personalized services to meet their specific financial goals. Lake Ridge Bank offers a full line of financial products and services. We focus on offering products and services to make your banking easy. Our business banking and mortgage lenders are trusted leaders in their field with the expertise to provide the right loan at the best rate possible for our clients. As a community bank, we are dedicated to reinvesting in, and making our communities great places to live, work and raise a family. Visit to learn more about how we can help you. Member FDIC | Equal Housing Lender

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More than just money: Tap into your business banker for financial success