1. Communicate. Keep the lines of communication wide open and frequent with your banker. Consider the banker a part of your team.

2. Plan. A strong business plan will demonstrate your understanding of the business. Map out the strategies that will be pursued, which will allow you to monitor the success of these strategies. The plan should also include contingency plans.

3. Management. Build a strong management team, which can be complemented with outside experts.

4. Growth. Pursue controlled growth, and match growth in sales with development of the subsystems necessary to handle the growth.

5. Network. Draw on the experience and exposure of others. Information is power.

6. Profits. Retain profits. Save for the rainy days.

7. Debt. Manage the level of debt.

8. Inventory. Align the level of inventory to expected sales.

9. Expenses. Mange expenses so they are proportionate to sales.

10. Taxes. Keep current with all taxing authorities.

"When will the shoe drop?" questions Tom Burke, Vice President and Manager of Small Business Administration and Economic Development at Norwest. With low inflation, low unemployment, low interest rates, record growth and seven years of economic expansion, many are wondering when the economy will take a downturn.

The February, 1998 Fortune Business Confidence Index, developed by surveying 205 top executives of Fortune 1000 companies was above where it was a year ago. Respondents reported confidence toward continued economic growth, and 50 percent indicated they would be aggressive in making large capital expenditures. (In May, 2001, the Index fell to 1980 recession-era levels. Another Fed half-point cut occurred after the survey was completed.)

Conversely in February, Federal Reserve Board chairman Alan Greenspan suggested that the country should battle "complacency about inflation prospects." He warned that lenders and investors are taking greater risks than were historically taken. While Greenspan did not recommend any Federal Reserve activity, he did indicate that the tight labor market, resulting in accelerating wage gains, could cause inflation.

What can a business owner do to prevent the financing from drying up when the company hits a bump in the road resulting from a change in the economy or even internal factors? Several seasoned business owners and lenders were queried.

Gary Briggs founded Wayzata Marine in 1967. Briggs attributes his longevity to his persistence. After all, his customers are "thinkers", rather than "doers". The "thinkers" act as a barometer to the economy. They know what is going on in the market because they follow interest rates and the Federal Reserve activity. The products of Wayzata Marine fulfill its customers' wants rather than their needs. Therefore, they will stop buying ahead of an economic downturn.

According to Briggs, a key to preparing for such a downturn is to be constantly aware of controllable expenses. Semi-fixed and variable expenses, such as advertising and interest expense, should be monitored. As part of managing interest expense, the amount of inventory finance must also be monitored. When sales decline, it is too late to manage interest expense. Inventory and expenses should be aligned with sales expectations.

Briggs values the personal relationship that he maintains with his bank. He appreciates the weight the bank places on "character," one of the five "C"'s of credit (capacity, capital, collateral, conditions and character) they use to evaluate a risk. In fact, Briggs made the move to his bank to obtain more personal contact. "In a large bank, a credit analyst in a far-off city does not have a way of properly valuing this character component", says Briggs. In the merger and acquisition driven banking industry, he enjoys the small bank atmosphere where the bank is part of the company's success.

A successful relationship requires constant communication in good times and bad. "The temperament of a banker: they are among the least able to handle surprises, " says Briggs. With this in mind, Briggs recommends that business owners keep the banker in their comfort zone. Less than stellar can be handled, but not surprises. With the bank's understanding of his business, Briggs has been able to ride out the storms and take advantage of opportunities such as the opening of Minnetonka Marine in 1997.

Teresa Tembreull, vice president at Anchor Bank, echoes the need for good communication between business owner and banker. When the banker is added to the team -which includes the company management, the accountant, the attorney and the insurance agent - the very worst of situations can be worked out.

To maintain good communication, the bank is looking for a minimum of quarterly meeting to increase their understanding of the business. A business with goals focused on a viable product or service, along with performance that mirrors projections, increases a banker's confidence. The ability for a business to take advantage of opportunities without losing sight of what they do best, as well as demonstrate an understanding of the big picture without missing the details, demonstrates strong management. Consistent profits and good employee retention are additional signs of financial strength.

Tembreull adds that businesses can prepare for rainy days by retaining profits. In doing this, the banker knows that the business is not solely relying on debt. The bank is only sharing the risk when providing financing. Tembreull suggests that a business should also leave money in the bank to maintain strong vendor relationships by preparing for any downturns in profit.

Proven management enables a banker to stick with a business when it hits a bump in the road, suggests Mike Zenk, Senior Vice President and Branch Manager at Riverside Bank. The strength of management is identified through consistent communication with the banker. Many businesses wait until a problem occurs to talk to their banker. Then, a sense of panic hinders problem-solving. A banker who is able to stay current with the business can apply this understanding to provide advice through troubled times.

To strengthen management, Van Sickle, Allen & Associates Inc. relies on several adjunct advisors. Van Sickle, Allen & Associates Inc. is a professional services firm that provides engineering planning, including design and drawing. When sales started to slow, Dick Van Sickle teamed up with his advisors to extensively rejuvenate the firm's strategies. This team consisted of Van Sickle Allen's internal management and outside advisors in the areas of financial management, marketing and human relations. The team was able to identify a niche in agribusiness. This strategy enhancement resulted in continued growth. In fact, revenue quadrupled to $3.5 million, and the firm now employs 40 people. Needless to say, Van Sickle, Allen & Associates continues to listen closely to their advisor in planning for further growth.

Van Sickle, Allen & Associates, Inc. considers its bank, Riverside Bank, a part of its team as well. Continuing to demonstrate its strong planning efforts, Van Sickle meets with its banker each October to plan for the financing needs of the upcoming year. This planning, along with monthly reports, promotes an open, sincere trusting relationship. The bank also contributes to the decision-making process in such ways as providing purchase/lease analysis in a recent facilities decision.

Build a network and consult outsiders for advice recommends Burke (a seasoned lender and manager of the Small Business Administration loan programs at Norwest). The ego that says a business owner can "do it on their own" is not productive. Bouncing ideas off of others in the same industry, who have been around longer, can enhance the idea-building process. According to Burke, small businesses are willing to share information since they understand that this will "strengthen the fabric of the business community, " and serve to everyone's benefit.

Since information is power, the more information obtained from the network the better. Involvement in the local chamber of commerce is a good addition to the network. The Minnesota Chamber of Commerce lobbies on the behalf of business owners, and updates members with a newsletter detailing legislative activities. Other resources include the Small Business Development Centers, SCORE, Community Development Corporations, Minnesota Planning Economic Development Agency and the University of St. Thomas and Normandale.

Identifying issues as soon as possible in the curve is critical, says Burke. Early identification allows the business owner, the banker and other members of the team to sit down and think out loud to talk through issues. Keeping the channels of communication open is essential, since early knowledge enables planning. The banker can identify solutions such as loan restructuring, payment deferral or interest-only payments during the planned stages of recover.

Siri Patterson of Expert Masonry Inc. credits upfront and honest communication with his bank, whose assistance was significant in moving his business beyond a huge hurdle. Expert Masonry has a strong reputation within the Minneapolis/St. Paul area, and Burke understood the value of this reputation, as well as the workings of the business. This understanding enabled Burke to work with Patterson when Expert Masonry was experiencing financial difficulty.

Some years back, a franchise acquired to perform repair work put a financial strain on the company. In response, Patterson took measures to go back to the basics, including reducing their work force and moving the business back into the home from the office/warehouse space. Demonstrating a willingness to do whatever it took to survive proved rewarding for him.

Now, with no lack of leads, he is careful to choose only profitable jobs. He is careful to get his money's worth and holds the purse strings tightly. Patterson is also careful to point to the value of his key asset, which he says are his honest and dedicated employees. He wants each of them to prosper. He works to assure his apprentices feel they have a future with Expert Masonry. By teaming up with his banker and appropriately deploying his resources, Patterson has put Expert Masonry in an expansion mode.

Often, companies in a growth mode experience difficulties because sales growth outdistances the growth in systems, controls and management. "Controlled growth is the mantra," says Brian Van Nevel, a vice president at Spectrum Financial Services. Outside resources can be brought in to assist in these areas to assure the growth can be handled. An eye on the subsystems must be maintained to prevent difficulties.

Other ways to limit or prepare for obstacles include the diversification of sales in both products and customers. Putting all the eggs in one basket by concentrating on only a few products, or a few customers, can lead to difficulties. The effect of relying on too few customers can only multiply in an economic downturn. Those few customers may switch to a cheaper or lower-quality alternative, creating a severe fall-off in sales.

Van Nevel adds that keeping the lines of communication open is also critical. The nonbank source of financing will be able to complement the banks to provide bridge financing for companies with proven management demonstrating controlled growth.

Another critical factor to maintaining financing is to keep up on taxes. Taxing authorities possess a higher standing than any Uniform Commercial Code creditor. The ability of a financial institution to negotiate financing is limited when a tax debt is outstanding.

Nonbank financing will be ready to supplement traditional bank financing if an economic downturn does occur. With the vast amounts of capital currently seeking financing opportunities, even an economic downturn will not cause an immediate drying up of these resources. Van Nevel suggests that the initial impact will be felt on the east and west coasts, with the Midwest following. He suggests, however, that businesses monitor the building of excess capacity in the current environment.

Tom Hoblit, CPA, a turnaround specialist, suggests the number one mistake businesses make is that they do not talk to their banker when times are good. The business owner should invite the banker to the business for a tour and an opportunity to meet the people who work there. Frequent contact can be maintained by such things as hand-carrying in a deposit and stopping in to say hello, he says.

If a bad month does occur, the business owner can maintain creditability with the banker by delivering the monthly financials on time and in person. This way, the business owner does not surprise the banker. The business owner can also show the banker what actions are in place to correct the course.

Hoblit suggests more than one banker should be invited to be involved in the relationship. This helps to minimize the re-education process and frustration when turnover occurs. According to Hoblit, many businesses find it helpful to work with a bank of a similar size to its business. This way, the banker is less likely to "throw out the baby with the bath water", he says.

Business owners also need to recognize the value of a strong business plan. The business plan helps the owner pursue profitable strategies. In addition, the plan communicates how well the owner understands their business to other key stakeholders, such as the banker. Part of this business plan should be contingency plans. By identifying actions that will be taken if the environment changes, the business can be proactive in revising strategies and consequently eliminating any surprises for their banker.