That’s My Opinion By Ron Sturgeon
rons@rdsinvestments.com
Tools for Success: Banking Smart and Financial Statements
n building long-term banking relation- ships, no matter what anyone else tells you, ALWAYS have and use two banks. Have a business bank and a personal bank, or mix it up. No matter how you do it, you must have loans at two banks to keep your bankers on their toes. What kind of banks should you work with? Don’t choose a large national bank. Instead, find a local community bank. Every area has at least two and most areas have several strong community banks. These banks typically have less than 500- million in assets, but the very largest com- munity banks may have as much as one billion.
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Open a checking account to begin your relationship with the bank. You need to have a separate business account in any case. Ask your banker what the bank’s loan-to-deposit ratio is. He or she will be thrilled that you are informed enough to want to know. Here’s why you need to know. As a prac- tical matter, banks don’t loan more than 80% of the value of their deposits. That means a bank with $100-million in deposits and 75- to 80-million in loans isn’t going to approve your loan period. On the other hand, a bank with a loan- to-deposit ratio of 60% is likely to wel- come your loan application.
Do you see why having two banks is so important? If you have only one banking relationship, you may need money when your bank isn’t inclined to lend because of its loan-to-deposit ratio. The loan mix in a bank’s portfolio can also affect your likelihood of getting a loan. Banks love to do loans for owner- occupied residential real estate, but they may be less open to a particular kind of loan if they feel that have too much den- sity in that kind of loan at the time you’re asking. If you have the right relationship, your banker should be willing to tell when loan density is affecting decisions. When you are applying for a loan, never
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allow a banker to check your credit until you are ready. Instead, bring your banker a credit report with tri-bureau scores when you discuss the loan. If you decide to go ahead, your banker can pull a report to approve your loan. In the meantime, however, you won’t damage your score with too many inquiries. In addition, if you have to go to a different bank, your second bank will not immediately see that you were just across the street trying to get a loan. Protect your credit score and your priva- cy by being smart about when you let a banker run your credit. Next, let’s look at another piece: finan- cial statements.
I can hear the groaning. I know you hate the financial statements, but they are unavoidable. I will give you one escape hatch: If you have enough employees, you can delegate preparing them to a trusted employee. If your business is small and you can’t delegate, then buck up. You must have monthly financial state- ments by the 10th of the month regard- less of whether you do them or someone else does. I don’t expect you to under- stand every single line item, but I do want you to dig into your P&L by the 10th. Make sure that your P&L shows the prior 13 periods so that you can see how you were doing in the same month last year and in all the months in between. For the moment, let’s shine a light on the expenses. Know that wherever you shine your light, you will improve. Once you shine the light on expenses, you don’t have to be a college graduate to see which ones have gone up and which ones have stayed the same or gone down since last year. Make sure your financials show per- centage of sales also so that you can see actual dollars in addition to percentages. You will figure out very quickly which of the expenses need your attention. If you make poring over your financials a monthly habit, you will get better at see-
Know that wherever you shine your light, you will improve.
ing where you need to make improve- ments and better at seeing whether the changes you are making are affecting your results the way you expect. That last point is why you need those financials on your desk by the 10th. You need to get them analyzed in time to make a change so that you can see results when you look at the next set of financials next month. Like every other owner, you get 12 opportunities to review your monthly financials. If you don’t get them until late in the month, you can’t make the need- ed changes at the pace you should. As I see it, if your financials aren’t on the desk by the 10th, you are giving away 6 of your 12 opportunities and will solve problems half as fast as a competitor who gets time- ly financials and acts on them with an effective program. Why wait one month to start working on a problem? Remember also that the advantage of timely financial analysis and action is cumulative. How much farther along could you be if you used every month to solve issues revealed by your financials? Once you see problems and start working on them, you will see results and get excit- ed about making your business all that it can be.
Remember only you can make business great!
Ron Sturgeon, an author and founder of Mr. Mission Possible small business consulting,
www.autosalvageconsultant.com, combines over 35 years of entrepreneurship with exten- sive experience in consulting, speaking, and
business writing. Ron shares his expertise in strategic plan- ning, capitalization, compensation, growing market share providing field-proven, high-profit best practices.
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