An asset that isn’t included on the balance sheet
When a company spreads a financial culture within its organisation, it is not just improving a management process. It is also strengthening an intangible asset that contributes to its growth in value over time, with the added benefit of improving its relationship with banks.
This is an indispensable asset for any SME aiming for financial independence. Some entrepreneurs ask, “If the goal is to sustain the company through self-financing, why continue to invest time and energy in relationships with banks?”
Why nurture a relationship I could do without?
The answer lies in a mechanism that only becomes clear in the long term: only companies with a solid financial structure and healthy finances have a balanced and lasting relationship with credit institutions. Companies with excessive debt, on the other hand, pose a risk that limits their ability to fulfil their obligations — and this inevitably affects their relationship with their bank.
A useful analogy is that a bank treats a company like an investor buying a bond. The bank expects two things: periodic interest payments and the return of the principal at maturity.
If the company achieves its earnings targets, this demonstrates its ability to manage its operations, just as a low-volatility stock signals a low risk profile. Debt, by definition, has a beginning and an end: companies that respect this principle present themselves to the bank as low financial risk, according to the same criteria that the bank applies to its own supplier/client relationships.
What happens when debt is continuously renewed?
The flip side of the coin is equally clear. When excessive debt pushes risk to the point of jeopardising regular interest and principal payments at agreed maturities, the relationship with the bank suffers.
To understand the significance of this shift, it is worth revisiting the bond example. What would happen if a company, unable to repay the principal at maturity, asked investors to renew their investment, perhaps promising a higher interest rate? The investor would effectively lose autonomy. Moreover, there is no guarantee that the higher return would compensate for this loss of autonomy.
The same thing happens to the bank: while it remains an external lender remunerated at a fixed rate, it loses its negotiating autonomy. While it can raise the agreed rate, it cannot change the nature of the contractual relationship that binds it to the company. Of course, companies are not bonds — the variables involved in management are much greater, and the results are much more uncertain. For this reason, a continuous and constant flow of information with the bank is not just an option, it is an integral part of the relationship.
The Impact Beyond the Bank
One important point that often goes unnoticed is that when a company becomes the subject of a sale negotiation or investment by an entrepreneur, the entrepreneur will always rely on a private equity advisor.
A company that rigorously applies the supplier/client logic to its banking relationship is highly regarded by the bank. This consideration extends well beyond the bilateral relationship to potential investors and their advisors.
Every investor relies on a financial advisor during the acquisition negotiation phase, and this support continues until the final payment is made. One detail that many entrepreneurs overlook is that financial advisors working in private equity have a banking background and use their contacts in the credit system to gather information on the target company.
If the banker interviewed can provide precise answers because they truly know the company and its sound financial management, the company will be perceived as having a higher value than that emerging from financial statements or public information. However, if the banker is unable to answer precisely and remains vague, the assessment will be more limited and the company will be penalised.
The bottom line
A widespread financial culture doesn’t just produce better numbers; it also influences management decisions by increasing the entrepreneur’s ability to interact with other stakeholders and encouraging collaborators to consider the economic and financial aspects of every decision. It builds a reputation for the company, even when the entrepreneur isn’t present — during due diligence, sales negotiations or evaluations that also depend on what the bank says or doesn’t say.
Developing this culture isn’t a formal exercise; it’s one of the most profitable and least noticed investments a small or medium-sized business can make.
Want to learn more about how to structure your company’s financial relationship with its bank? Follow us on LinkedIn @Pietro Cavalli to never miss a step along the way.