The overwhelming majority of successful small business own- ers I interviewed talked about the importance of banking rela- tionships. They didn’t simply talk about it in general terms—hav- ing a good banking partner to secure a loan, for instance—but in terms of the strong personal relationships with their banking representatives. In a very real sense, their bankers became their consultants, able to advise them about everything from business strategy to investments, from networking to customers. As the cliché goes, banks are often pillars of the community. Because of their stature, they know everyone and have earned great trust and respect from a wide range of individuals. Many bankers are also extremely astute about business issues, especially in terms of what constitutes a wise or unwise move from a fi nancial per- spective. Therefore, a good banking relationship often yields the following benefi ts:
Access to various human resources in the community, including prospective customers, various advisors (lawyers, accountants, consultants), and so on
Informed advice about local markets and companies
Money-saving or moneymaking suggestions about loans, investments, accounts, etc.
Brokering the sale of a business
Our banker has helped us in many ways, and sometimes this help has been unexpected. For instance, at one point we decided that we needed to buy equipment from Europe. Our banker
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69 Money in the Bank
offered us ways to pay for this equipment by hedging U.S. dollars against the euro, saving us a great deal of money because we were protected against fl uctuations occurring in exchange rates at the time. Wayne Brumfeld, the former owner of Muncy Equipment, found a buyer for his business through his banker. After a year of Wayne getting nowhere trying to sell the business on his own, his banker helped him fi nd just the right buyer.
These benefi ts, however, don’t accrue for everyone. To estab- lish a good relationship with a banker requires an investment of time and effort (and, of course, some money) on your part. Spe- cifi cally, I would suggest the following.
Take your banker out to lunch at least once every other month. You’re not going to establish much of a relationship if you just stop by your banker’s offi ce and focus exclusively on your accounts or your loans. You need to get to know your banker and let your banker get to know you. In this way, you cease to be just another account number and become an individual in your banker’s eyes. A banker is much more likely to go out of the way to help you with tasks beyond setting up a new account if the banker likes and understands you.
Be open and honest about your business. A number of small business owners I know refuse to disclose much information about their business to their bankers beyond the raw numbers. They believe that telling their banker too much can turn the banker against them. One CEO told me he never tells his banker any bad news about his business, for fear that he’ll never loan them a dime again. If your banker would respond this way to the fi rst piece of bad news you share, then that person shouldn’t be your banker.
The more your banker knows about what makes your business tick, the better advice you’ll be given. Let your banker understand your fears as well as your hopes and dreams for the business; provide a sense of its history and how it’s evolved. Explain what you’re using
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a loan for and how you believe it will increase revenues and make the business more profi table. With this knowledge, your banker can then offer relevant, useful analysis and suggestions. As one business owner told me, when he leveled with his banker about a need for a sizable loan, the banker walked him through the fi nan- cials and then suggested that he should request an even larger loan to better help him meet his goals.
Don’t dismiss your banker just because the banker tells you something you don’t want to hear. Some small business owners view bankers with a skeptical eye. They believe they’re too conser- vative or too self-interested to be good business advisors. If you like and trust your banker, however, give the benefi t of the doubt.
A good, professional banker will tell you what makes fi nancial sense, not what you want to hear. Part of a banker’s job is to tell you when a venture is too risky for the bank to invest money in it.
This banker should also back up this belief with numbers, dem- onstrating the logic of the bank’s conclusion. Maybe the banker can demonstrate that this additional debt constrains your cash fl ow too much during the down cycles of your business. Keep in mind that the banking industry is competitive, just like any other type of business, and banks don’t like to turn business away. If the bank does turn down your request for a loan, the odds are that it’s based on a real concern rather than an overly conservative investment philosophy. Your banker might even be able to suggest alternatives to secure the fi nancing you require, perhaps putting you in touch with a venture capital fi rm that does business at their bank or suggesting a partnership with another bank client so you can share the risk. Your banker will not suggest these alternatives, though, unless you keep an open mind about your relationship and the banker’s motivations.
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71 Money in the Bank