Learning to Live with (or Without) Your Banker

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5. Does Your Banker Know Your Business?
To judge by the TEC survey, the answer to this question for too many company owners is a resounding no. "Didn't understand my business" is among the top reasons cited by TEC respondents who have switched banks in the past five years. Ironically, the fault may lie with company owners themselves. "Requests monthly reports on your business" ranked dead last in the respondents' list of important characteristics in a banking relationship. For those of you who think monthly reports are overkill, consider the fact that one of the banks Daniel Meloro is in discussions with asks not only for monthly financials but also for monthly reports on the company's accounts receivable, accounts payable, and inventory balances -- "all the while saying we're the most desirable customer it could have, with a spectacular balance sheet, healthy profits, and long history," says a still-stunned Meloro. "It knows more about my business than I do, and I know a lot," he adds.

Regardless of how tedious it might be, educating your banker about your business is critical to a successful relationship. Ideally, you and your banker should share responsibility for that education, but the onus is still on you to keep the bank's pipeline full of information about your company. And don't airbrush the warts. Mac Busby, CEO of Sun Protective, in San Diego, says the key to his relationship with his banker is alerting the banker to any "adverse situations" that arise in Busby's $13-million window-film-distribution company. A little over a year ago, when a bad run of product from a manufacturer caused a negative financial blip in his sales and some extra warranty cleanup costs, Busby notified his banker, and the banker was understanding. "I think many people are petrified of their bankers, but bankers are quite capable of handling bad news -- especially if there's a plan to get out of it and if you've been credible with them all along," he says. Busby's banker has raised Sun Protective's line of credit by $900,000 in the past three months, even though the company showed a loss for 1994. Busby credits that to the fact that "I've leveled with him all along."

Jane Sturgeon, finance vice-president of regional Entrepreneur of the Year winner Barr-Nunn Transportation, in Granger, Iowa, echoes Busby. The key to her successful banking relationship, she says, is a "no-surprises approach." When she was assigned a new loan officer three years ago, she sat down and wrote a lengthy letter introducing him to her business. Today the banker understands that the $29-million trucking company "goes through periods when we have excessive demands on cash" -- when it spends $400,000 in one month to license 260 trucks, for example. Thanks to the strength of the relationship, says Sturgeon, the bank improved Barr-Nunn's terms significantly, reducing its interest rate by two points, more than tripling its credit line, increasing the advance rate from 80% to 85% of its total accounts receivable, and allowing the company to hedge fuel costs by purchasing contracts that lock in a price. Her bank previously had a covenant preventing Barr-Nunn from hedging fuel costs; now it understands the value of being able to fix the company's second-highest cost.

Bob Kochman, who runs Houston Mack/Isuzu, in Houston, wishes his banker had exhibited a similar understanding of the business of selling trucks. Like all car and truck dealers, Kochman has to take possession of trucks before he sells them. In a good month he sells 100 trucks, but until he collects the money, those sales show up as a $7-million liability on his books. When his banker took a look at those books, he computed Kochman's debt-to-net-worth ratio and called him in a panic, telling him he was going broke. "I told him next month would be lousy and my debt-to-net-worth ratio would be back down, and he said, 'Good," says Kochman, chuckling. Unhappy with that communication gap, Kochman turned to a professional truck-financing company, Associates Commercial Corp., an original-equipment-manufacturer financing arm of Ford Motor Co. Associates Commercial is thrilled with Kochman's books and also gives him a portion of the interest on every truck his customers finance through Associates Commercial -- adding an extra $10,000 to $15,000 a month to Kochman's bottom line. In five years Houston Mack/Isuzu Truck's revenues have climbed from $15 million to $42 million. Says Kochman, "My old banker obviously wasn't interested in learning about my business; he was stuck in the old, traditional ratios."

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