This is the first in a continuing series of articles from Ron’s newest book, Getting To Yes With Your Banker which includes 93 secrets you likely didn’t know about dealing with your banker. In a click and clack format, from an entrepreneur and a lenders perspective. It’s co-authored by Ron Sturgeon, a serial entrepreneur, and Greg Morse, Founder and president of Worthington National Bank with 4 locations in Tarrant County.
The book is packed with tips and advice on how to choose and get along with a banker, what they want to see, a must have guide for both start ups and existing business persons, featuring perspectives from both the banker and entrepreneur’s.
All I Need is Money
If you ask most people what their greatest business need is, they’ll answer “money.” Whether that business has been around for a few years, is a start-up venture or is still a plan written on a scrap of paper, many entrepreneurs believe that the only thing holding them back is a bigger supply of money.
That’s probably the furthest thing from the truth. If you give a struggling business more money, chances are good that all it’s going to do is lose more money. Why? Because that business hasn’t figured out what its true business issues are. The owner hasn’t taken the time to address the genuine problems facing his or her business — so more money is only going to feed those problems.
The truth is, there is plenty of money in the world today. Banks are sitting on money, investors are sitting on money and individuals are sitting on money, all waiting for the right opportunity to put that money to work. And while there are millions of ideas for businesses out there, very few people can take those ideas, connect them with the money and turn them into successful ventures.
Lesson No. 1: Know What You Need – And Why You Need It.
Greg: As a banker, I constantly see people who think all they need is more money. For example, I had a prospect who came into the bank who owned an ice cream store. He and his buddy had gone into business together and each of them had put in $100,000, and now they’re both broke and don’t know what to do. They were delinquent on payroll, owed back taxes and had no business plan. A business plan needs to be clearly articulated, to include directions how one will reach their vision. Dreams don’t have directions.
What he did have was a big pile of receipts — a pretty good sign that he didn’t know where he had been or where he was going. He was completely blind. He thought they had a competitive advantage with this ice cream they were selling, but he hadn’t even thought about how many scoops of ice cream he had to sell just to pay to finish out his building! If you can’t put your competitive advantage into numbers, is it really a competitive advantage?
You have to know how much money you need now. You have to know why you need it. And you have to know how much you’re going to need going forward.
Ron: So, he hadn’t figured out what his metrics were? Metrics are the numerical measurements of performance for a business. The simplest might be sales per month, but many more are needed to understand your business, such as more complex ones like average client acquisition cost. (For more information on client acquisition cost, visit Ron’s web site and blog, www.MrMissionPossible.com.) Money was the last thing he needed! He needed to find out how he got that tax lien — and what he was going to do differently if they ran short of money.
In [my book] Green Weenies, we had a question: “How big is the hole and how are we going to fill it?” In other words, how big is the deficit, and what plan can we devise to erase it? It’s an estimate of how much sales or income you’ll need to solve the problem. A lot of people just don’t spend enough time — especially when they’re in trouble and even when they’re just starting out — trying to understand how big the hole is and how they are going to fill it.
Greg: That’s a good point. I asked this prospect, “How much money are you going to lose every month?” and he said, “I don’t know that we do lose money every month.” He had no idea what his financial statements said.
Ron: Customers who are heading to the bank looking for a loan need to look over their financial statements and meet with their accountant to make sure they understand what all the numbers mean. And if you don’t understand them, you need to bring someone to the bank with you who does!
If a banker gets a sense that you don’t understand the financials, then the banker wants to know that you have someone credible working for or with you who does understand them and can give you that information. But to go into a bank and not understand what’s going on with your financial statements is a critical mistake.
It’s kind of like the guy who comes in and says he wants to buy a Ferrari, but all he’s ever driven is a Volkswagen. He doesn’t know what a Ferrari can do; he just likes the idea of owning one.
Greg: A lot of people like the idea of having a corner office, a company car and an expense account, but they don’t do the work to get there. Many business owners want to improve their circumstances, but they are unwilling to improve themselves.
Getting There Is Half the Fun
Doing the work to get there means taking the idea from your head and putting it into a solid plan. It means creating a business plan that is honest and viable and defines your objectives, possible pitfalls and your action plan for making it happen. What else does it take to create a business plan that will gain your banker’s trust and help you get the funding you need?
There are plenty of software programs and books to advise you on what bells and whistles need to be included in your business plan. But when you strip all those away, what is going to make your plan strong enough to succeed?
In the next article we’ll move on to business plans, managing your credit, the optics of presenting your loan, and much more that you may not have known about how banks work, from the credit approval process to some big traps to avoid.
Ron Sturgeon, founder of Mr. Mission Possible small business consulting, combines over 35 years of entrepreneurship with an extensive resume in consulting, speaking, and business writing, with 3 books published and 2 more expected in 2010.
A business owner since age 17, Ron sold his chain of salvage yards to Ford Motor Company in 1999, and his innovations in database-driven direct marketing have been profiled in Inc. Magazine. After the repurchase of Greenleaf Auto Recyclers from Ford and sale to Schnitzer Industries, Ron is now owner of the DFW Elite Auto suite of businesses and a successful real estate investor.
As a consultant and peer benchmarking leader, Ron shares his expertise in strategic planning, capitalization, compensation, growing market share, and more in his signature plain-spoken style, providing field-proven, high-profit best practices well ahead of the business news curve.
To inquire about peer benchmarking, consultations, expanding your business on the web or keynote speaking, contact Ron by calling 817-834-3625, by emailing rons@MrMissionPossible.com, by mailing 5940 Eden, Haltom City, TX 76117, or online at Mr. Mission Possible.