Make Your Bank A Partner In Profits - Financial Management
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SECTION: Financial Management

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Make Your Bank A Partner In Profits

Written By Phillip M. Perry

Article Date: 10-01-2005
Copyright (C) 2005 Associated Equipment Distributors. All Rights Reserved.

Cultivating a personal banker pays dividends.

Say the word “bank” and most of us picture an imposing building with a bunch of faceless tellers. For a successful business, however, a bank is more than a place to deposit receipts and cash checks. Indeed, if money is the lifeblood of your organization, your bank is the beating heart that will keep you healthy and vigorous in good times and bad. “Banking today goes far beyond its traditional role as a source of loans,” says Marilyn J. Holt, principal of Holt Capital, a Seattle-based investment advisory firm. “A good banker is involved with all the movements of your money and will guide you into the best financial programs so you get the most return on your funds.”

Even more, says Holt, “Good bankers will save you money in service fees, assess the credit worthiness of your prospective customers, and advise you on your business health based on your cash flow, balance sheets, assets, receivables and payables.

They will also be able to facilitate transactions critical to your success. For example, they can arrange fast wire transfers to fund serendipitous buys. At a higher level, they can finance your purchase of a competitor when the opportunity arises.”

Finally, bankers can enhance your business opportunities by capitalizing on their personal contacts.

“Bankers are plugged into the community – whether that be the business or geographic kind,” says Mary Adams, principal of Trek Consulting, Winchester, Mass. “They can be great sources of contacts.” Get Personal

So bankers are great. All you have to do is call them and ask for the service you want. Right?

Wrong. To get the job done, you need to lay the groundwork by cultivating a personal relationship with your banker, who needs to know and trust you before offering services.

“Banking is a people thing,” says Holt. “Like so many other aspects of business, it thrives on human interaction.”

Of course, getting up-close and personal with your banker takes some work. Remember that a banker has hundreds of customers; don’t wait for your banker to call you.

“It’s important to be proactive,” says John McQuaig, managing partner of McQuaig & Welk, a Wenatchee, Wash., based management consulting firm. “That alone will put you ahead of 90 percent of the banker’s customers.”

Make a real effort to heighten your profile by presenting your banker with a clear vision and a business plan, as well as updates on your financial status and changes in your business and industry.

Choose Your Partner

What bank should you pick?

“It’s not so much the size of the bank that’s important, but rather the size and nature of the clients it targets,” says Holt. “First, you want to pick a bank that specializes in business. Second, you want one familiar with your industry. Finally, you want to be sure to get the services you need.”

It can be advantageous to bundle as many services into one financial institution as possible. This will save overhead because you won’t have to juggle reports from various sources. And a bank will value you as a customer more highly if you are utilizing their services in addition to their low margin lending activity.

Make a short list of likely prospects by chatting with other business owners. What banks are they using and how do they feel about the services provided? You can also get leads from bank representatives who attend your area’s business networking events.

Once you have two or three likely candidates visit the small business banking department of each and assess the quality of their operations and the services they offer. Consider:

  • Client profile – Every bank has a favored business customer profile, both in terms of size and nature. Some cater to large corporations and avoid smaller companies. Others have vigorous, enthusiastic small business departments that may target manufacturing, distribution or retail clients. “For a good relationship, you need to conform to your bank’s management philosophy,” says Adams. “Sometimes people call this ‘sitting inside the box.’ The idea is that you have to sit inside the box or the bank won’t like you. That is a reality.”

  • Appearance – How well is the bank maintained physically? “If the small business department looks as if they fired everyone and it has empty chairs and desks, ask what happened,” says Holt. “The disarray may indicate the section is on the way out.”

  • Enthusiasm – Representatives should be eager to convince you they want your business and should give you their direct telephone numbers.
  • Stability – Find out how long your representative has been at the bank – and in the small business department? While you’re at it, ask about the longevity of the other representatives. If the bank is changing people every three months, that’s a red flag. On the other hand some degree of turnover is likely so you want to make sure the bank has an organized way of transferring clients to new representatives.

    Holt says you should ask, “If you leave, what happens?” Then see how confident they are as they describe the process.

  • Clues about future direction – Caution! Banks often undergo changes in client categories. Be alert for statements that the bank is reassessing its customer base or undergoing a merger. Either can result in some clients being ignored or having credit lines frozen.
Choose Your Partner Choosing a bank isn’t enough. You also should be proactive in interviewing and selecting a personal banker.

“You need to realize that the teller is not your banker,” says Holt. “Don’t be fooled by the ‘merchant teller’ sign over the window. That’s not the business banking section; it’s just someone who can use a coin counter and process credit card receipts.”

In contrast, a personal banker will take a real interest in your business and know your operation inside and out. That can translate into real benefits.

When it comes time to borrow money, you’ll get the red carpet treatment. You’ll benefit from ongoing analysis of your cash flow and asset levels. And, a personal banker will give you a “heads up” when changes are afoot. For example, you’ll get an advance warning when your banker is about to leave, something that happens often in small business banking departments where representatives are transient.

“These departments are often filled with younger people earning their MBAs,” says Holt. “Other times they are bankers during the last few years of their careers and they really love small business.” In either case, says Holt, make sure you’re told when your banker is about to leave and get a warm hand off to the replacement.

Without this comfortable transition, your carefully built relationship can collapse like a house of cards. That can be dangerous when a new personal banker that doesn’t understand your business restricts your credit at a time when you need it most.

Communicate Well

As with any good relationship, you want to share your thoughts with your banking partner.

"Trouble arises when there is a lack of forthright communication between banker and client," says McQuaig. "You want to be candid with your banker, even transparent. Your banker is not someone to be scared of."

Develop a clear vision and a simple business plan, and then discuss them with your banker.

"If you want to triple sales in the next five years, your banker should know it," says McQuaig. "Then you can determine what your financing needs are."

Good communication takes several forms. First, have your business information and financial reports - in the form the bank wants - delivered monthly or quarterly. Second, have a conversation about your individual business goals and how they fit into the larger picture of changes under way in the equipment distribution industry. Third, provide early notice of the inevitable "hiccups" that occur and can affect your financials and your bank relationship. That is particularly important.

"When a problem arises you typically have conflicting goals," says Adams. "Inform your banker as quickly as possible so you're not bringing old news. However, you don't want to arrive with a problem absent a solution."

You don't want to leave it to the banker to develop a solution and take it to management.

"This can be bad for two reasons," says Adams. "The solution may not be the right one for your business, and the fact that they had to think through the problem will make you look like a less desirable borrower."

Bad things, of course, do happen to good businesses. While from time to time you'll need to present an unexpected problem and suggested solutions to your banker, for the most part you should avoid surprises.

"Any surprise is bad for a banker," says Adams, "even if it's a good surprise. Bankers worry that if they were surprised by something good they could be surprised next time by something bad."

Listen for Changes

Keep your ear to the ground by reading the regional business papers for news of your bank. Are new executives being installed? Any merger rumors? If the answer is "yes" to either, your business risk is increased substantially.

Try to find out if the new executives are bringing a new set of priorities and a new philosophy on favored customer size and specialty. If they can't see you in their picture, you may find yourself eased out. If a merger is in the works you should be even more alarmed.

"If you get word your bank is being bought, make sure you're not drawn down on your revolving line of credit and be careful you understand your draw down cycles," says Holt. "If you look like an undesirable client in the eyes of the new bankers, you can be put into bankruptcy when they freeze your credit."

Take Action

It's risky to let your banking relationship slide. Just having a "go to" person for your money is reason enough to attend to that relationship.

"Money is the blood in the veins of your business," says Holt. "If you don't have someone watching what is going on and working with you, you can get into trouble quickly."

Above all, recognize that your banker is your ally, friend and partner.

"Bankers are very much like pets that require care and feeding," says McQuaig. "If you don't take care of them, they won't be there when you need them."


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Article Categories:  Financial  »  Management