This is the second 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’s and a lender’s perspective, the book is co-authored by Ron Sturgeon, a serial entrepreneur, and Greg Morse, founder and president of Worthington National Bank, a community bank with four locations throughout Tarrant County.
The book is packed with tips and advice about how to choose and get along with a banker, what your banker wants to see, and other valuable tips for both start ups and existing business persons from a banker’s and entrepreneur’s perspective. Today’s article continues our discussion about what elements should be in the business plan presented to your banker.
Giving Your Banker What They Want
Ron: I always tell entrepreneurs that they have to be prepared to lift the kimono a little bit, which means letting the banker look in. They need to be prepared to explain to [the banker] what’s under there.
Greg: Entrepreneurs get concerned about doing that, but banks have rules that prohibit them from telling others what they have seen under your kimono. Bankers can be fired very easily for having loose lips.
Ron: The banker doesn’t want to hear SWAGs or WAGs. A SWAG is a Scientific Wild-Ass Guess and a WAG is a Wild-Ass Guess.
The banker doesn’t want to hear that someone needs a loan because the economy is bad or they’re getting a divorce or the weather’s been bad. The banker needs to hear legitimate reasons why business is down or off; along with solutions.
In a declining market, the businessperson has to figure out how to work harder or smarter to keep the business going. Most business owners keep doing what they’ve been doing, so they keep getting what they’ve been getting or worse.
Greg: That’s a good point. Do not go into a bank whining about the economy. A banker should know if the economy is bad; but when a customer comes in and is all gloom and doom, the banker doesn’t want to hear it. If there’s a problem, I want to know about it, but don’t come in just to tell me how bad the economy is.
I also want to know that customers are beating the street. I want them to have an air of confidence about their plans. That’s going to go a long way. And don’t confuse confidence with arrogance.
Ron: You want them to come in with solutions, not problems! My old boss at Ford Motor Co., Dixon Thayer, liked to say he was positively dissatisfied with the results. He was all about positive energy, but knew we could do more.
Greg: Exactly. Show me the baby, not the labor pains. That’s what I want to see.
Ron: The banker also likes to see business owners who surround themselves with people who are smarter or better than the business owner is. The smart people on your team are there to do things that you can’t, won’t, or shouldn’t be doing. If you aren’t good at financials, get help from someone that is. It’s important to show that there are good people on your team. I can not emphasize the importance of this enough!
For example, there was a time when I realized (after much hand wringing, as I was so frugal) I should quit paying a bookkeeper and spend the extra money to hire a controller. I went from paying a bookkeeper $40,000 a year to paying a controller $75,000 a year, but our company made the entire $35,000 back in less than 60 days because he isolated and identified expenses we could cut.
Every Good Business Plan Should Include:
- Name of Business
- Executive summary
- Ownership information/Brief history of the business/Target markets
- Information on the product/services
- Financial summary for three years and the latest quarter
- Budgets or pro formas
- Metrics highlights
- Information on the owners and operators, including their track records
What’s a pro forma financial statement?
It’s a hypothetical or projected, or recast financial statement based on forecasted or estimated numbers. Forecasting can be so hard. Ron says that if you figure in twice as much time and twice as much money as you think you will need, you might be safe. But entrepreneurs seem to always “breathe their own exhaust”, and they become infatuated with their own ideas. That’s why it’s so important to have someone else that is capable and objective to review your plans. You need someone who is willing to tell you how it is (and not what you want to hear).
Ron Sturgeon, business owner, consultant and peer bench marketing leader, combines over 35 years of entrepreneurship with an extensive resume in consulting, speaking and business writing. Ron can be reached at 5940 Eden, Haltom City, TX 76117, 817-834-3625 or by email at rons@MrMissonPossible.com.