Topics >   > 

What Your Banker Forgot To Tell You

A CFO explains the benefits of examining your banking services, plus a complete banking makeover.

When was the last time you checked on what services you're getting from your bank, what they cost, and how useful they are in running your business? One company's banking makeover

It all started on a tennis court.

Sam Kitchell, the founder and chairman of Kitchell Contractors Inc. of Arizona, a privately held construction company in Phoenix, learned from a tennis partner about a group of former bankers who had set up shop as consultants to the local business community. They had yet to see a company -- so they said -- whose banking costs were not excessively high, thanks to unnecessary services, overlapping accounts, or bank fees that were just too pricey.

Kitchell, convinced that his own company was doing a great job of managing its banking relationship, rose to the challenge. "Sam hired the ex-bankers mainly to prove that we were doing everything right," recalls Joe Quigley, Kitchell's vice-president of finance. He acknowledges, "I was also pretty skeptical about their ability to find anything to improve."

How wrong they were. One banking makeover and $20,000 in saved costs and increased income later, Kitchell's managers have learned an important lesson: You have to plan, monitor, and control your banking relationships with the same rigor and commitment you apply to the rest of your operations. When those relationships are mismanaged or unmanaged, the consequences to your cash flow can be damaging -- both in unnecessary costs and in inefficiencies in the movement of working capital.

What kinds of companies are most vulnerable on the banking front? Size has little to do with it (although the smaller your financial resources, the less likely you are to monitor your bank services regularly).

You are most vulnerable, whether you are small or large, if you are growing rapidly. You tend to sign up for new banking services or accounts as additional sources of revenue develop, but seldom step back to analyze the overall cost and value of each piece of your banking network. The unnecessary costs accumulate and are, of course, irrecoverable.

The odds are pretty strong that you could benefit from a bank checkup every two years if your company is growing rapidly, is more than a few years old, or currently operates more than a few bank accounts. You need to answer such questions as these:

Does every one of your bank accounts generate a value that justifies the fees you pay?

Are you paying for unnecessary or outmoded reports and services?

Do company funds flow as efficiently as possible among accounts, or can you streamline the process?

The checkup that $100-million Kitchell Contractors performed on its dozen or so bank accounts last year offers a useful guide for other growth- company managers. The results were impressive: Starting out with annual bank service charges of $30,000 to $33,000, Kitchell cut its costs by about $13,000 and generated additional income of about $7,000. Best of all, though Kitchell got help from the ex-bankers, everything it did can be handled internally -- with a little time and legwork -- by most growing companies.

* * *

Step One: Collect detailed bank records going back at least one year. Before Kitchell's bank checkup, Quigley says, he had always been satisfied with just "looking at our bank statements each month to check bottom-line costs and making certain we kept enough on deposit to save any service fees." He shared daily banking responsibilities, such as the handling of accounts payable and receivable, with two financial clerks. "None of us had any special training in banking," he notes.

But Quigley learned that to truly evaluate Kitchell's banking costs, he needed to analyze longer-term trends and also to compare monthly bills. Under the direction of Dennis Suchocki, president of BCS & Associates, the former bankers' consulting firm, Quigley collected the construction company's banking records -- which included balance reconciliations, monthly statements, and credit-card statements -- for the entire previous year.

Or at least, he tried. "Some monthly records were missing from Kitchell's files, and others were not as comprehensive as we needed them to be," Suchocki says.

Quigley hadn't realized that banks offer an alternative to the brief monthly statements he received. "Most banks send out consolidated, as opposed to detailed, bank statements to their corporate customers," Suchocki explains. "We tell people to look at their bank statements as if they were invoices and to request a complete breakdown of every single bank service they're receiving." Once you have those records, you can begin to analyze monthly trends and determine whether each account and service is really worth paying for.

Lesson: Request comprehensive monthly bank statements, going back at least one year. If your bank won't provide those (or charges exorbitant fees for the information), you may want to examine your entire relationship to be sure you're doing business with the bank that is the best for your company.

Beginner's tip: Don't be intimidated if you don't understand the banking jargon on your bill. It's simple to read once you learn the terminology. For a quick translation, either ask your banker or invest $9.95 in a useful resource prepared by BCS's ex-bankers, Banking Smarter: How to Save Money in Your Business Banking Relationship (to order, call 800-644-8384).

* * *

Step two: Map out each account and the services it provides. "The biggest thing we learned from our checkup," Quigley says, "was that when you initially set up your bank accounts, your plan makes sense -- at least on the day you do it. But as your company grows and changes, some accounts and services stop making sense and you don't even know it."

Case in point: The checkup revealed that Kitchell's banking network had evolved, willy-nilly, into a system in which funds were transferred from one account into a second and then into a third from which check payments were disbursed. "Seeing everything mapped out helped me realize that there wasn't any need for that middle account, no matter what the original justification for it was," says Quigley.

He couldn't blame Bank One Arizona, Kitchell's banker for the past four years, for the account overload. After all, it, like all banks, is in the business of selling its services. The problem was that no one -- either at the bank or at Kitchell -- was monitoring account-usage patterns.

And the list went on. "There was also an account that was being charged a maintenance fee to receive wire transfers, even though we could tell -- by looking back over the past year's transaction patterns -- that wire transfers were no longer being made," Suchocki says. Another account to close.

Kitchell cut its annual banking costs by $2,000 just by closing unnecessary accounts, bringing its current number below 10.

Lesson: It's deceptively easy for overlapping and unnecessary services to creep into your banking network unless you remain on the lookout for excesses.

Sign-up for our Innovation Newsletter

Email Address: