Ideas for better business
solutions
In our mission to advise, inform and inspire
business owners and managers we offer these ideas for your consideration.
Make your bank a welcome
and willing partner in your business
Many business owners do not consider their banks as welcome and willing
partners in their business. Yet it is an important relationship
that will often affect your ability to grow and
to survive periods of financial stress. You
want to treat your bank like your best customer, not your worst
supplier.
Working with an unwilling and unwelcome partner
is obviously not a very constructive relationship. A more
effective partnership with your bank can be built on some of the
following ideas:
1. They will
not get it.
Start by
accepting that your bankers will never fully understand what you
do for a living - your motivation, your interests or your
circumstances. But you do have to try to get them to
understand enough about you and your business plans so that they
can be confident that working with you will be good for them.
Remember the
bank's primary role is not to lend you money, it's to earn a
return on the investments of shareholders and depositors while
protecting their money.
2. It's only
the money.
You will need
to prove that the money is all you need. You have everything
else looked after. The banker will not have to worry about
your customers, your management team, your sales and marketing
efforts, your operating efficiencies, your health, your marriage
or anything else except the financial services you need.
3. They have a
checklist.
When you meet
and fill in the forms, remember the banker wants to be satisfied
on four criteria:
-
Character
- do you have a reputation of integrity and responsibility on
prior financial obligations?
-
Capital
- do you have enough personally at risk in your business?
-
Capacity
- do you have the skills and resources to deliver the planned
results?
-
Collateral
- if you cannot repay your loans, what assets are
available to cover them?
Good answers on
these points will provide the start to a relationship with a
willing partner instead of a reluctant one.
4. Reduce the
risk.
You may be
stimulated by risk and reward, your banker is not. It is a
very conservative career choice. Regardless of
how good you and your plans are, the banker will still want
personal guarantees. That means he gets your house
if you fail. (And I have never met a banker who found it
amusing to suggest that you should get his house if you succeed.)
5. Think big.
The more you need, the more interested
they'll be and
you'll likely get better terms. (The only time I had no personal
guarantees was when our loans were at $4.5 million.) If
you're starting small then describe your growth plans and your
intention to build a strong, long term banking relationship.
6. Get a second opinion.Bankers love to win business away from
other banks. (That's good for their career plans.) So
check out the competition anytime you need new financing or if
your current bank is not serving you well. Just be sincere and ready to
change. One banker asked me directly, "If I meet all
your requests will you move to my bank?" I said, "Yes".
He delivered and so did we.
7. It's not a people business.
It's a numbers business and you cannot negotiate with a computer.
That friendly, understanding person you're talking to does not
make the decisions. Your numbers get fed into some
obscure computer program and the answers (or more questions) pop
out. They are not negotiable. A good banking relationship
means that you will be told what numbers are required to get
favourable answers.
8. Manage your numbers
Make sure your business plan computes and
gives results that are attractive to investors and to lenders.
Then manage the numbers to deliver the results and stay within the
limits set by the bank. Read the fine print to be sure you don't
miss any requirements to maintain financial ratios or any
restrictions on payments to shareholders. Deliver financial
reports as required, but also be sure to provide your own analysis
and explanations before someone else does. You don't want
that computer to set off alarms.
9. No surprises, please.
Bad news is never well received, but the reaction will be much
worse if it's also a surprise. And no news will only make
them worry.
Keep your bankers aware of what might go
wrong and what you plan to do about it. Then keep them
current as things evolve so they get used to your ever-changing
circumstances and how you are handling them. (Hopefully, well.)
Avoid going back with a new plan too soon or too often. And try to
plan well ahead of any request for more financing.
10. People still matter.
The personal connection is still a very
important part of a good relationship with your bank. Part
of managing that relationship is to be sure that you are not
entirely dependent on just one contact. If it lasts, the contact
will change and you need to know someone else to maintain
continuity of the relationship. Stay connected at several levels.
Your banking relationship needs to be strong
to withstand the inevitable hard times that hit any business.
A welcome and willing partner should help you weather those
occasional storms.
With thanks to the bankers I've known and
the advisors I've used, Happy Banking!
Del Chatterson
For creative, practical solutions
that apply to the specifics of your business,
please call us at DirectTech Solutions.
