Warts and all: Why sharing bad news is a good idea

You hope the problem will be temporary, that it will go away, that you can handle it before it grows into a "real" issue. You tell yourself you'll just worry your partners unnecessarily, and perhaps even cause them to take some sort of action you really don't want.

Sometimes that works out just fine. And sometimes it doesn't. More importantly, there is a hidden opportunity lying within these challenges. By being proactive and transparent about your challenges, and how you are going to solve them, you earn patience and trust for another time when you really need it.

Sales are tapering off and the backlog looks thin? COGS has been creeping up and your margins are being squeezed? A key person is leaving your team and you'll have some temporary weakness in a key area?

We look at these problems in two ways. One, the little problems that could probably be solved without anyone from the outside knowing about it. And two, the bigger problems that will take longer and will be quite visible to the bank/investor at some point.

In the latter instance you want this news coming from you, way ahead of time. Trust me, the last thing investors and lenders like is discovering you knew about an unpleasant surprise the entire time. Instead get out in front of the issue, present it clearly, and demonstrate its possible impact. Then show how you're developing a clear and actionable plan to address the issue. Make it real, effective, and then follow through.

Your financial partners will be impressed with your transparent nature, and it will take away much of the "unknown" around the problem. Outside parties are much more likely to act unfavorably when the boogeyman they create in their head grows unchecked by real facts.

The former instance is a real opportunity to show both your resilience and adaptability. If your business can handle the challenge easily, take the opportunity to show off a bit. "Well our input materials have become more expensive over the past quarter, hurting out margins. So we've decided to broaden our supply network and have found less expensive suppliers who are also willing to give us better payment terms."

Problem presented, problem solved. Bingo, your lenders will love you.

This approach builds trust and faith in your business in the eyes of your financial partners. And more importantly it builds that same trust in you as a person. That way if you ever really need the bank (or your investors) to truly be patient, they're likely to play ball, allowing you the time you need to focus on what you do best running a successful business.

This post was written by the Business Finance team.