Q: Why
is my relationship with my banker important to my new business?
A:
Most entrepreneurs don't give much thought to how to deal with
professional vendors (bankers, lawyers, accountants, etc.). They
just dive right into their business and don't think about how
they should treat these people, what their vendors can do for them,
and what their vendors in turn are looking for in a client. With a
little thought and effort, you can ensure that you get the most
from your vendor relationships.
Your banker, lawyer and accountant each have the ability to
drastically influence the success of your business. It is very
important that you develop long-term, personal relationships with
them--if you do that, when you hit the inevitable bumps in the
road, they'll be there to help you.
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While you often hire your lawyer and accountant by the hour or
job, your banker is another matter--he makes money off the fees
that your business generates. He is usually very happy to help you,
and can therefore be a great source of free consulting.
As I look back on my first banking relationship, I realize how
completely clueless my partners and I were--we had no idea what our
banker was looking for, or what factors influenced his decision to
loan us money. As a result of that ignorance, we became fairly
frustrated with the relationship over the next couple of years.
That frustration came from not understanding what bankers will and
will not do, and not understanding why we didn't always get
what we wanted.
The bottom line is, banks are very risk-averse businesses.
Bankers aren't in the business of betting on your dreams or
predictions; they are in the business of loaning secured
money--money that is backed by both your personal guarantee and
hard assets (not just your business assets, but also your house,
your bank CDs, etc.). Your banker has to answer to his boss and
explain why he loaned you money, how you are going to pay it back
and why you are a good risk.
The more your banker knows about your business, the more value
you are going to get from the relationship. Don't think of your
banker as an outsider and withhold information from him--do just
the opposite: Think of him as your partner. Get to know him
personally, take him to lunch (he'll usually pay!), and help
him understand your business and personal financial goals. You
should give him constant status reports and keep him in the loop as
your business grows. Keep this in mind when you are meeting your
banker for the first time. The meeting should be a two-way
interview. You should leave there asking "Is this person
genuinely interested in me? Is he trying to understand my business?
Does he understand my objectives?" If the answer to any of
these is no, then find another banker.
At one of my former companies, I used to create a weekly
state-of-the-company status report for our employees. I would talk
about new contracts, marketing and sales efforts, Web page hits,
cash flow, etc. When I would e-mail that to our employees each
week, I'd cc: our banker, who would put it in his file. He
later told me that he had better documentation on our company than
anyone else in his portfolio, and when we occasionally called him
with an emergency, it was easy for him to pull out that folder and
quickly make a decision.
Unfortunately, the way most people do this is to call their
banker with a request and then spend the next two weeks getting him
documentation and bringing him up-to-speed on the state of the
company. This can be time-consuming at best and devastating at
worst (if you really need the money but don't have the
financials to justify your request).
An additional benefit to keeping your banker informed is that
he'll help keep an eye on the financial side of your business
(more free consulting!), and if he starts to see any trends that
concern him, he can alert you and help you straighten them out
before they get out of hand. A very important point, which is hard
for new entrepreneurs to understand, is that it is always good to
have an outside set of eyes looking things over.
So remember, get to know your banker as a person, treat him as
an insider, teach him all about your business, and feed him regular
financial reports. Follow these steps, and you'll go a long way
toward increasing your chances of success.
| | Read
all the articles in our three-part series on professional
vendors.
|
| |
Keith Lowe is an experienced entrepreneur who is a founder
and investor in companies in several industries. Lowe also mentors
new entrepreneurs; serves as past chairman of the board for
Biztech, a
nonprofit high-tech business incubator; and is a co-founder and
officer for the Alabama Information Technology Association.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.