Jim Thompson, Executive Editor and Founder

The last time it was my turn to write this column, I titled it "How to shave 250–500 basis points off your secondary borrowings." I want to continue along this general theme.

Another way to keep your lenders on your side is to keep them informed. Lenders get unhappy and tend to be quicker at pulling the plug when you keep them in the dark about your situation, good or bad. Nothing can make a lender more nervous than thinking you are withholding information—and this goes for private lenders as well as the public markets.

So, when you have serious bad news—disclose it. It is a 1-2-3 process:
1. Here is what we thought would happen.
2. Here is what happened.
3. Here is what we are doing about it.
This is more likely to keep your lender in the game than anything else.

Actual case—nearly 15 years ago I watched a good senior leader in our industry privately buy an old mill. He had some great ideas for changing the product mix and returning the mill to decent profitability. What he did not understand was that he was now dealing with a private bank that could pull the plug any day they wanted to do so. He implemented change number one—it went a little rocky, but they got through it and made their objectives. In a few months he implemented change number two, with the same result. In just a few more months he implemented change number three and he could not recover. In just a few weeks, the bankers shut him down.

I visited him shortly after that. He was sitting in his office, in shock, wondering what had happened. It was quite simple—he had lost the confidence of his bankers. From their limited experience with this manager, they thought they had a wild guy on their hands (which was absolutely not true). But again, from what they had seen, they did not like and did not want to participate in any further.

My friend had failed to make the bankers his friends. It is a common mistake when managers come out of public companies where they are insulated from the sources of capital.

If you are a senior operating manager in a public company, you probably take the treasury department for granted. You just might want to stroll down there this afternoon and thank them for keeping the cash flowing. It is a big job.