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Off to meet the banker: Be yourself, be prepared, be realistic

Are we having fun yet? John Wilson, CEO of Ace Business Stuff, wondered as he reflected on the past few months. He’d been around the horn more than once, needing to borrow money, couldn’t borrow enough, needed an investor, didn’t like the valuation, still needed money, then more money to support a special promotional program.

He worked with his controller, Tom Sampson, to put together the company’s first financial forecast and got a quick lesson in working-capital management.

With his first bank meeting right around the corner, John still wasn’t clear about what a banker would be looking for. He called Lary Columnist to set up a time to get together.

“Lary, I’m struggling with what kind of presentation the bank is expecting. Are there some things that are more important than others?”

“John, in my mind, there are three critical ingredients to launching a new banking relationship – and to preserving one, for that matter. At the top of the list is to be yourself. No airs, no artifices, just you. The banker you’re meeting with, Morey Greenbacks, like most bankers, is a solid guy who’ll try to find a way to help you, but he can tell when you’re faking it.

“Make sure he understands your vision for the business. What are you trying to accomplish and what strategy have you adopted to do that? You want a trusted adviser, and they want a client they can trust – so play it straight with them.”

“They’re all the same, though, aren’t they, Lary?”

“They’re not all the same, John, you can be sure of that. Proprietary underwriting standards, unique industry focus and different cultures shape their various approaches. Larger banks usually have a different approach than smaller community banks but also may have more products to choose from. Some banks invest in the construction industry; other banks avoid it. Some like manufacturing or auto dealers, others prefer niches like wine or real estate.”

“Sounds like I should meet with more than one.”

“I think it’s a good idea, John. They each have different experiences that color their approach, just like all of us do. Some lenders underwrite fixed assets, others prefer to lend against short-term assets like inventory and receivables. Some banks don’t know much about machinery and equipment values or real estate and shy away from those loans.

“So, be yourself is first. Secondly, you need to be realistic. A good banker wants to know that you’re prepared to share your concerns with them, let them know what keeps you up at night. They want to understand how you assess risk and whether you’re realistic in your assessments.”

“But if I tell them all that, they may not loan me any money.”

“Might be, John, but you’re not just looking to borrow money. You’re looking for a financial partner, and over a period of time, unexpected and unpleasant things can happen. A bank wants a relationship with a client that will hang in there when the going gets tough, who demonstrates his/her willingness to be forthright.”

“I got it, Lary,” John laughed. “Be myself and spill my guts sounds like the first two. What’s the third one?”

“It’s not as bad as all that, John, but the third one is probably obvious – be prepared. Tell them about your timely financial reporting process and the financial forecast you’ve developed to help you understand the cash needs of your business, both now and in the foreseeable future. Describe your relevant experience in the industry, and talk about your executive team to develop the bank’s confidence that there’s a solid team behind you.”

“What should I bring with me?” John asked.

“Since you’re looking for a new relationship, you can bring some basic product and marketing materials to help them understand what Ace Business Stuff does. Some bankers would disagree with me, but you don’t need to bring your financial statements or your forecast with you to the first meeting.”

“After all that work, I don’t need the forecast?”

“Not in the first meeting, John. Remember that you prepared that forecast, first and foremost, to help you understand your cash needs. You’ll have plenty of opportunity to send it to them later. In the meantime, you’ll learn more about their requirements and be able to tailor your presentation accordingly.”

“So we should change the forecast once we know what they’re looking for?”

“Don’t ever do that, John. I meant that different bankers will apply different criteria to your business plan, and the more you understand their perspective, the more you can provide relevant and specific information to address their concerns.

“Remember these three key things, John. Be yourself. Be realistic. Be prepared. Let’s reconvene after a few of those meetings and talk about what you’ve learned and discuss the appropriate next steps.”

•••

Lary Kirchenbauer is the president of Exkalibur Advisors Inc., providing practical business strategies for family and other privately owned businesses in the middle market. Please visit his Web site at www.exkalibur.com for supplemental materials and to learn about how you can participate in the CEO Round Table.