4. Exercise self-control.
This is especially important when the information you're conveying is negative, Hitzemann believes. "I think it's a good idea to try to think about the impression you're going to make on your banker or investor, before you even go to see them," she says. "If you seem to him or her as though you're panic-stricken or like you're some kind of an idiot who doesn't really understand what's happening or why, then it's only going to be natural for your backer to lose confidence in you. Why would they want to support someone who's not in control of herself or her company?"
Here's where prep time can really pay off. Rehearse your conversation in advance, perhaps even by asking an outside adviser or key executive to lob tough questions at you so that you can prepare your responses. Your ultimate goal should be to convey a sense of realism (not pie-in-the-sky optimism), openness (not self-defensiveness), and calm self-confidence (rather than arrogance).
5. Use documentation to your advantage.
If you go to your banker or an investor with bad news, "the first thing he or she is going to ask you is what you've been doing all this time. What have you done to try to prevent the problem from happening or to try to solve it so far?" explains Brett W. Kaplowitz, a vice-president at Potomac Valley Bank of Gaithersburg, Md.
You'll be better able to support your case if you begin documenting your actions at an early stage. Prepare for questions like these: When did you first become aware of the problem? How did you assess it at that time and initially respond? What caused it, and why did it happen? What other steps did you take to try to counteract difficulties (for example, improving collections, slowing down accounts payable, renegotiating arrangements with vendors, and so on)? "It's important to remember that your banker will want to be your advocate, so long as he or she maintains confidence in you and your company," says Kaplowitz.
6. Seek assistance, if need be, from outside advisers.
Although entrepreneurs need to build personal ties to their bankers and investors, they don't need to handle all the communication themselves. "I have one client who just cannot bring himself to break bad news to his financial backers, so we've worked out an arrangement where I'm the bringer of bad news and he handles all the good reports," notes Richard Rampell, a certified public accountant based in Palm Beach, Fla.
That relationship works quite well. "My involvement actually gives this company's banker a strong level of comfort," says Rampell, "because he knows that any information I provide will be credible and timely." In more serious cases, the business owner attends banking meetings along with Rampell, since it's important to convey the owner's commitment to the strategies being discussed; but the accountant's presence ensures a professional, rather than an emotional, exchange.
One last point: sometimes a company's outside advisers can help break a pattern of bad communication with backers. "One of my clients had developed a real problem. He had a history of looking at the world through rose-colored glasses, and he tended to always report bad news too late. He began really feeling the heat from one of his investors, who was clearly losing confidence," recalls Rampell. Rampell's advice: "I told him to call this particular investor every single Friday and tell him everything of significance that had happened during the week. It was remarkable how much that helped.
"Investors and lenders want peace of mind," he concludes. "Even bad news, if conveyed in a timely and realistic fashion, is better than no news, or wrong information."
Jill Andresky Fraser is Inc.'s finance editor.
Communication questions
Uncertain about how to communicate an unexpected development to your backers? Ask yourself these questions to help fine-tune your approach.
Is it good news?
Things that might fall into this category are an important new client, a significant improvement in your collections, or an upgrade of your technological systems. Don't miss the opportunity to bolster a financier's belief in your business with information beyond what he or she will see in your quarterly reports. You can drop your financier a note or, if it's been a while since you've made personal contact, use your news as a good excuse for a telephone call.
Have you received kudos your backers should know about?
Although it may not be worth a call, you should certainly send along copies of any articles written about your company, news of community awards, rave reviews from customers, or other out-of-the-ordinary feedback.
Do you have a real problem or just a quick blip on your company's radar screen?
You need to answer this question, without being excessively optimistic, before deciding on the proper course of action. Although you'll always benefit from being open with your bankers and investors, you may not want to worry them unnecessarily if a cash-flow glitch can be cleared up so quickly that it will not affect either quarterly results or your ability to meet monthly financing commitments. What if you can't tell the difference? That's why you have an accountant, a board of directors, and a corporate lawyer to consult.
Is your news both negative and significant?
There's no doubt that the longer you wait or the more you try to inaccurately minimize your bad news, the more you'll hurt your relationship with backers. Remind yourself that your credibility is everything with them. Then, break the news promptly and, preferably, in person.
But don't end on a bad note. It's a good idea to look for ways to follow up with communications about positive developments as soon as they start unfolding.
