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Say the word "bank" and most of us picture an imposing building with a bunch of faceless tellers. For a successful business, though, 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 of 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, Holt says: Good bankers will save you money in service fees, assess the credit-worthiness of your prospective customers and advise you on your business' health by analyzing cash flow, balance sheets, assets, receivables and payables. They will also be the knights in shining armor that facilitate transactions critical to your success. For example, they can arrange for 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 of 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," Holt says. "Like so many other aspects of business, it thrives on human interaction. Companies start treading in the wrong direction when they think all they have to do is sell product and not talk to anybody."
Of course, getting up close and personal with your banker takes some work. Remember that a banker has hundreds of customers, so 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 of90 percent of the banker's customers." Make a real effort to heighten your profile by presenting your banker with a clear vision and business plan, as well as updates on your financial status and changes in your business and industry.
Be Choosey
But, wait … Which bank do you pick? How about that huge national corporate bank in the big building downtown? After all, it has a small business department. Or, maybe that community bank with a corner branch would fit the bill. Those people must know your town pretty well.
The fact is, either bank might do the job. "It's not so much the size of the bank that's important, but rather the size and nature of the client it targets,"says Holt. "First, you want to pick a bank that specializes in small business. Second, you want one familiar with your industry. Finally, you want to be sure to get the basket of services you need."
It can be advantageous to bundle as many services into one financial institution as possible. This will save you overhead, since you will not have to juggle reports from various sources. And, a bank likely will value you as a customer more highly if you are utilizing their services in addition to their low-margin lending activity.
Draw up a short list of likely prospects by chatting with other business owners. Ask them which banks are they using and how they feel about the services provided. You can also get leads from bank representatives who attend your area's business round tables and 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 package of services they offer. Look at these areas:
• Client profile. Every bank has a favored business customer profile in terms of size and nature. "For a good relationship, you need to conform to your bank's management philosophy," Adams says. "Sometimes, people call this 'sitting inside the box.' The idea is that you have to sit inside the box or the bank doesn't like you. This is reality."
Some banks cater to large corporations and shunt aside smaller operations. Others have vigorous, enthusiastic small business departments, which may target manufacturing, distribution or retail clients. Is there a spot for you in the bank's target picture?
• Appearance. How well is the bank physically maintained? "If the small business department looks as if they fired everyone and has empty chairs and empty desks, ask what happened," Holt suggests. "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. How long has your representative 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 suggests asking "If you leave, what happens?" Then, see how self assured they are as they describe the process.
• Clues about future direction. Caution! Banks often undergo changes in terms of their favored client categories. Be alert for statements that the bank is reassessing its customer base or undergoing a merger. Either event can result in some clients being cold-shouldered or having credit lines frozen.
The Right Partner
Choosing the right bank is not enough. You also must be proactive in interviewing and selecting a personal banker. "You need to realize that the teller is not your banker," Holt says. "Don't be fooled by the 'merchant teller' sign over the window—that's not their business banking section. That is just someone who can use a coin counter and process credit card receipts."
In contrast, a personal banker takes a real interest in your business and knows your operation inside and out. This can translate into real benefits. First, when it comes time to borrow money, you will get the red carpet treatment. Second,you will benefit from ongoing analysis of your cash flows and asset levels.
Finally, a personal banker should give you a "heads up"when changes are afoot. For example, you should get an advance warning when your banker is about to leave. This often happens in many small business banking departments where representatives are transient. "These departments are often filled with younger people earning their MBAs," Holt says. "After doing back office work, they have moved into this area for two or three years. Other times, these individuals are bankers who are spending the last few years of their career, and they really love small business."
In either case, Holt says, you want to make sure you are told when your banker is about to leave, and you want a warm hand-off to the replacement. Without this comfortable transition,your carefully built relationship could collapse like a house of cards. This can be dangerous when a new personal banker does not understand your business and restricts your credit at a time when you may need it most.
Building Communication
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, and therefore misunderstanding, between banker and client,"McQuaig says. "You want to be upfront and candid with your banker. 'Transparency' would be a good word. Remember that your banker is not someone to be scared of."
Develop a clear vision and a fairly simple business plan, then talk about them with your banker. "If you want to triple sales in the next five years, your banker should know that," McQuaig says. "Then, you can determine what your financing will need to be."
Good communication takes several forms. First is your business information packet, with financial reports in whatever form the bank wants, delivered monthly or quarterly. Ask what a good report looks like and what your banker expects in terms of details. Second is the conversation about your individual business goals and how they fit into the larger picture of changes underway in your industry. Third is early notice of the inevitable "hiccups"that occur and can affect your financials and your bank relationship.
That last item is particularly important. "When a problem arises, you typically have two conflicting goals,"Adams says. "You probably want to inform your banker as quickly as possible so you are not bringing old news. However, you do not want to arrive with a problem absent a solution." You don't want to leave it up to the banker to develop a solution and take it to management. "This can be bad for two reasons," Adams says. "First, the solution may not be the right one for your business. Second, the fact they have to think through the problem will make you look like a less-worthy borrower."
Bad things, of course, do happen to good businesses. While from time to time you will need to present an unexpected problem and suggested solution to your banker, for the most part,you should avoid surprises.
"Any surprise is bad for a banker,"Adams says. "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."
Listening for Changes
Keep your ear to the ground by reading regional business papers for news of your bank. Are new executives being installed? Are there any merger rumors flying? If your answer is "yes"to either, your business risk is substantially increased. Try to find out if the new executives are bringing along a new set of priorities and a new philosophy in terms of favored customer size and specialty. If they can't see you in their picture, you may find yourself gradually eased out and ignored in terms of services and favorable pricing.
If a merger is in the works, you should be even more alarmed. "If you get word that your bank is being bought, make sure you are not drawn down on your revolving line of credit,and be careful to understand your draw-down cycles," Holt warns. "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."
Taking Action
It's risky to let your bank relationship slide. Just having a "go-to" person for your money is reason enough to attend to your banking relationship. "Money is the blood in the veins of your business," Holt says. "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," McQuaig says. "If you don't take care of them,they won't be there when you need them … and, you never quite know when that will be."
Get That Loan
So, you need some money to carry you through a rough patch. Getting nervous? Most of us do when we are approaching a banker, hat in hand.
A good banking relationship, fortunately, can reduce the jitters tremendously. You are much more likely to get your loan if you have laid the groundwork over the years by constantly cultivating a good relationship with your banker.
When you do arrive for your interview, have the necessary information for the banker to make a decision. Just what is that? Mary Adams, principal of Trek Consulting, Winchester, Mass., suggests having answers to these three questions: First, what do you want to use the money for? Second, how will you pay it back? Third, if that doesn’t work, how would you pay it back then?
“That’s the way bankers think.” advises Adams. “There is always a plan B.”