One of the major points I always cover with young and emerging companies is to establish a strong banking relationship early to assist in the growth that is coming. When you are starting out, you may be in the same boat I was and that is to just find a bank that is interested in working with you. Finance is complicated today and banks are more cautious than ever but it is an extremely important step to take if you want to grow your business. Banks today are enforcing rules that they were supposed to be enforcing all along which means you may have a few more hoops to jump through.
I found a small town bank 50 miles from my office to help me in the beginning. It wasn't the ideal arrangement but it got me where I needed to be so I could take the next step.
Let me offer some questions you can ask the bank to help determine if they are right for you.
--What is the bank's focus? Small business, retail, service related companies, large corporations? This helps you determine how much attention they will pay to your needs.
--How much "desk authority" does your personal banker have and how long has he or she been with the bank? In other words, how much money can they loan you without having to go to the loan committee. The length of time they have been with the bank many times will dictate how much authority they have. The higher their desk authority the better it usually is for you.
While it is important to interview the banker in the early years you may not have many choices as to which bank to do business with. That being said, that can change overnight as the winds of the business climate change. Nevertheless, here are some rules I followed with the banking community that served me well. In fact, sometimes they loaned me money when I wouldn't have loaned me money but by following the policies that follow, we built tremendous trust with our bank.
ESTBLISH A RELATIONSHIP BEFORE YOU NEED TO BORROW
I started to borrow small amounts early on even when I didn't need them so I could pay back early and establish that track record. I remind you that rules are now being enforced by banks that weren't being enforced before and so you need to be thorough in your preparation of information to the bank.
Bankers don't like surprises and just because you have chosen a particular bank to do business with doesn't mean they will provide unlimited funds whenever you need them. Start small, build up, and they will be more comfortable when the big need arises.
MEET WITH YOUR BANKER REGULARLY
Let me suggest that you treat your banker just as you would a key customer or prospect. It is important to "keep them in the loop" as to what is happening but also don't hide bad or negative things. They will eventually find the negatives, especially in today's business climate so no use hiding them.
My banker was on my appointment calendar to formally visit just as my good customers and prospects were. I suggest you do the same. I tried to always get them away from their office if at all possible, usually for lunch. I invited them to come by our office and see what was going on with us and then we would go to lunch, and yes, I even bought some of the time.
PROVIDE PROFESSIONALLY PREPARED CURRENT FINANCIAL STATEMENTS
Early in your business be sure to get established with an accounting firm that can prepare these statements. Your banker wants to see professional data and not a cigar box arrangement that you take to a tax person at the end of the year. Using a professional acccountant is one of the most important investments you can make early on.
Then, provide regular monthly or quarterly statements to the banker even if you don't need money so when the time comes that you do need major money, he or she has up to date information that will speed the process of a loan approval.
KEEP THE BANKER INFORMED
Chances are that at sometime during the life of your business, cash flow is not going to go as planned (how about right now?). When that occurs, meet with the banker and tell him or her the situation before it becomes painfully apparent. Believe me, I had the opportunity (?) on several occasions during the nearly 35 years I owned and managed my own company. If you have developed your relationship as we have been discussing, your chances of them understanding and being cooperative with an alternate repayment plan on notes due are excellent.
Be ready to answer questions as to what went wrong with the last plan and what the reasons are that made it not work. Remember, PRESENT FACTS, NOT THINKS.
It is also important to remember that while you need the banker to help you grow your business, they also need you as a customer to grow their portfolio. Banks have money for rent, that is their business. What you are doing is asking to rent a certain amount for a specified period of time at a specified rate. While the banking climate can be very tough, it is incumbent on you to negotiate the best interest rate you can, just as your customers negotiate the best rate they can.
As you grow your business and mature into a sizable "major player" in your marketplace, how you develop your banking relationship will have a major impact on whether you become successful or whether you become one of those 33% of contract cleaners that go out of business every year. I'm betting you are going to stay in business.
As a reminder, I hope you will check out our new DVDs in the DVD section of our web site. And don't forget our weekly FREE pod cast at www.tripodcast.com.
Till next time.
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