- Written by Bill
This is the third 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.
Putting the Planning Back into Your Business Plan
Having a completed business plan doesn’t necessarily make you ready to meet your banker any more than filling out a dating profile on eHarmony.com makes you ready to get married. There are still several steps that need to be taken before you sit down with your banker. Like a first date, these things require time and preparation.
The first step is making sure that your plan isn’t just done, but that it’s done well. It’s vital to know that it can stand up to the scrutiny and questioning it’s going to receive at the bank. You don’t want to find out that your math is flawed after you’ve given the plan to your banker; this is the time to slow down, kick the tires and make sure your plan is ready to hit the road.
Taking Your Plan for a Test Drive
Greg: People don’t understand that one of the most important things they need to do is to take their business plan to someone else before they take it to the bank and try to get money. Nine times out of 10, someone else is going to find mistakes, or omissions, and ask appropriate hard questions.
That’s the kind of thing they want to hear from someone else, not from the banker that they’re trying to get money from!
Ron: I think it’s imperative to have someone else review a business plan before you take it to the bank. Have two other people go over it, because they might see different things.
But when you give the plan to someone else to review, don’t prejudice them. Just give it to them, no explanation, and ask, “What do you think?”
Greg: And whom you give it to is important. It has to be a real friend or a trusted colleague who will tell you what you need to hear, not just what you want to hear. It needs to be someone who’ll say, “Are you crazy? Why would you even put that in here?!” Of course, that person needs to be qualified to opine on the plan.
Ron: One of the problems that I think many people are guilty of when making a business plan is that they start breathing their own exhaust too much. They start listening to themselves and thinking about what a great idea they have — and what they need is somebody who will tell them what they really think about that idea.
Unfortunately, there aren’t that many people out there who are either willing or qualified to do that. I see a lot of people who say they can help raise money for businesses, and there are people who would be glad to take someone’s check, say, for $25,000 in return for some type of proposed stock offering document, but the investor (if one or more can be found) is never going to see any money back from such an investment. Because those people are just telling business persons what they want to hear and helping them breathe their own exhaust so that they can take their money to help with an offering that never happens. If a person has a history of success, and a viable concept, they will attract money, either debt or equity.
Greg: That’s one of the reasons it’s so important that the person who delivers the business plan be the person who wrote it. Don’t have some college kid draw it up; be behind it and know what’s in it. It becomes pretty clear pretty quickly if someone has had someone else draw up his or her business plan, because those are the people who can’t answer the banker’s questions. Also, to make your first meeting more productive, send the plan and a copy of your tri-bureau credit report at least a few days before your proposed meeting. Cut though the crap and get right into reviewing it on your first visit. (More on credit reports later.)
It’s important that the person sitting in front of the banker can answer all of his questions about the business plan.
Ron: One way to make sure you can do this — and I’m not sure that bankers will like this idea, but it works — is for the people seeking the loan to take that business plan to a bank that they know isn’t going to give them the loan. Or they can take it to a bank that they know they don’t want to do business with. The bankers will tell him everything that is wrong with his business plan. Then he can go back and fix all those things, because I can guarantee you that the bank they do want to do business with will have those same concerns. But don’t let them pull a credit report on you; that lowers your credit score and lets other lenders know that you may have been turned down by another bank.
So now they’ve improved their plan, they can take it to the bank they want to do business with and have a better chance of getting a loan.
Greg: Yeah, and here’s another way to do that: They should find someone who’s in the same industry, but not necessarily in direct competition. They might be across the country and the person needing the help is never going to run into them or compete directly with them.
That’s the kind of person to take the business plan to and say, “Here’s the package that I’m going to take to the bank. Can you tell me what you think of it?” The other person might have a bigger business, might be smaller; maybe they’ve been a mentor for a while. The bottom line is that it’s not going to cost anything, and because it’s not a direct competitor, the businessperson isn’t going to lose any kind of competitive advantage by turning it over to the other person.
Ron: I do a lot of small-business consulting, and much of that involves people who are trying to start a business. Normally, I’ll charge them about $5,000 to work through their plans and processes and help them with all of that. Obviously, the scope can grow a lot bigger and become more expensive, or sometimes it ends up costing less because, once we get into it, they realize this is something they shouldn’t even consider doing.
It’s important to have someone else’s help. There are plenty of consultants out there — and no, I’m not talking about somebody who is just going to help raise money. I mean a true business consultant, who for a few thousand dollars will go through the plan and find all the stuff that doesn’t make sense. These are the people who may not necessarily be smarter than you on the math, but who have seen lots of business plans. They understand them. I use a lot of consultants to help me, and the cost up front is well worth it. Most of the time, the person says, or thinks, that they can’t afford that help, which is a huge mistake. They can’t afford to not get that help.
Whenever people create a business plan, I tell them to figure that it’s going to take twice as long, be twice as expensive and, in the end, they’ll end up being about half right. They need to find someone who can work with them to help them figure that all out.
When Bad Plans Happen to Good People, Part 1
Even the best business ideas can be sidelined by a bad business plan. Knowing what a banker is looking for is one of the best ways to keep it from going straight into the trash. But it also needs to be solid and realistic. It needs to be thorough enough for the banker to be able to write a loan package from its details.
That means including why you need the money — and how you plan to pay it back. Keep in mind that banks lend money because they expect to get a return on it, so establishing a plan for paying it back is paramount.
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.