In my role as a consultant, I have been privileged to work with many startup and emerging young companies. It’s exciting to watch them build their organization with sales and staff that can help them on their road to further success.
On the other hand, I have seen several companies that have had to pass up golden opportunities because they didn’t have the personal funds to finance their growth and had not taken the time or done the legwork to find a banker and accountant to work with. Trust me, this is a critical step in successfully growing your company.
One of the major points I always cover with young and emerging companies is to establish a strong banking and accounting relationship early on to assist with the growth that is coming in the future. When you are starting out, you may be in the same boat I was, in that you just have to find a bank that is willing to work with you. I found a small-town bank 50 miles from my office to help me in the beginning. It wasn’t an ideal arrangement, but it got me where I needed to be, so I could take the next step.
Finance is even more complicated these days, and banks are more cautious than ever, but it’s an extremely important step to take if you want to grow your business. Banks today are enforcing rules and regulations they were supposed to be enforcing all along, so you may have to jump through a few more hoops.
Here are a couple of important questions you should ask the banker to help determine if they are right for you:
What is the bank’s focus? Small business, retail, service-oriented companies, large corporations? This helps to determine how much attention they will pay to your needs.
How much “desk authority” does the bank employee assigned to you have, and how long has he or she been with the bank? In other words, how much money can they loan without having to go to the loan committee? The length of time they have been with the bank will many times dictate their level of authority. The more desk authority they have, the better it usually is for you.
Rules to Bank On
While it is important to interview different banks, in your first few years of business you may not have many choices as to which bank you do business with. That said, things can change overnight, as the winds of the business climate frequently switch directions. Nevertheless, there are some basic rules I followed with the banking community that served me well.
In fact, sometimes banks loaned me money at times when I wouldn’t have loaned me money. However, by staying true to the rules below, my company built tremendous trust with our bank. I remember my banker telling me after a few years into our relationship that he didn’t worry about me repaying the loans because he felt I was worrying enough for both of us—and he was right. I worried every day I owed him money, but it helped keep me focused.
Rule #1: Establish a banking relationship before you need to borrow
I started to borrow small amounts early on, even though I didn’t need the funds. Then, I would pay the money back early to establish a solid credit record, which is very important. Remember, many banking regulations that weren’t being consistently enforced before are now being enforced, so be thorough in your preparation of financial information for the bank.
Bankers don’t like surprises, and just because you have chosen a particular bank to do business with doesn’t mean they will provide unlimited funds whenever you need or want them. Start small, build up from there, and they will be more comfortable when the big need arises.
Rule #2: Meet with your banker regularly
Let me suggest that you treat your banker just as you would a key customer or prospect. It is important to “keep them in the loop” as to what is happening, but also don’t hide bad or negative things. They will eventually find the negatives, especially in today’s business climate, so there’s no use hiding them. It will only make things worse for you.
I scheduled regular appointments to formally meet with my banker just as I did with good customers and prospects. I suggest you do the same. When meeting with bankers, I always tried to get them away from their office if possible, usually for lunch. I invited them to come by our office and see what was going on, and then we would go to lunch. And yes, I even paid for the meal some of the time.
Rule #3: Provide current, professionally prepared financial statements
Early on in your business, be sure to get established with an accounting firm that can prepare your financial statements. Your banker wants to see professional data, not a cigar box filled with receipts that you take to a tax person at the end of the year. Using a professional accountant is one of the most important investments you can make when starting out your company.
Once you have an accountant, provide regular monthly or quarterly statements to the banker, even if you don’t need money. That way, when you do need major funding, he or she already has up-to-date information that will speed up the process of a loan approval.
While we are on the subject, let me suggest some do’s and don’ts in finding and working with a professional accountant. Many of the people doing accounting work today for outside companies use “off-the-shelf” software that is often not designed for our type of business.
They use terms like “cost of goods sold” and “merchandise sold this month.” Ours is a labor business, so we deal in payroll, and sometimes it is hard to get that message across to accounting professionals. They want us to change our business to adapt to their software, instead of them adapting to our business. Don’t let them talk you into changing your software.
Additionally, when interviewing a potential accountant, it is important to have them answer the following questions:
Do they have experience with service-oriented companies like contract cleaning?
Are they willing to work with a chart of accounts consistent with our industry, not a standard “off-the-shelf” one?
Will they willingly provide percentages on the statements, year-to-date numbers, and comparisons to last year’s numbers? (Notice I said willingly)
How soon can they produce your monthly statement? You should have them no later than seven business days after you provide them the needed information. My message to them was, tell me what you can do and then do it, and that includes tax season. I want my statements on the same schedule during the busy tax season as we have the rest of the year.
Will they file all quarterly state, local, and federal government reports and year-end W-2s etc.?
Are they willing to review the statements with you each month and “provide an education” on what the statements mean?
A qualified professional accountant working in conjunction with your banker can be a valuable asset to you in growing your business profitably. Find that qualified accountant early in your business life. It will pay big dividends.
Rule #4: Keep the banker informed
Chances are at sometime during the life of your business, cash flow is not going to go as planned (how about right now?). When this occurs, meet with the banker and tell him or her the situation before it becomes painfully apparent. Believe me, I did just that on several occasions during the nearly 35 years I owned and managed my own company. If you developed your relationship as we have been discussing, your chances of them understanding and being cooperative with an alternative payment plan on notes due are excellent. Be ready to answer questions as to what when wrong and why things didn’t work out. Remember to present them with facts, not guesses.
It is also important to remember that while you need the banker to help you grow your business, they also need you as a customer to grow their portfolio. Banks have money to rent—that is their business. What you are doing is asking to rent a certain amount for a specified time at a specified rate. While the banking climate can be very tough, it is incumbent on you to negotiate the best interest rate you can, just as your customers negotiate the best rate they can with you.
A prosperous relationship
As you grow your business and mature into a “major player” in your marketplace, how you develop your banking relationship can have a major impact on whether you become successful or whether you become one of those 33 percent of contract cleaners that go out of business every year. I’m betting you are going to stay in business and prosper.
Richard (Dick) Ollek CBSE, RGC, is the senior partner with Consultants In Cleaning, LLC, where he provides consulting services to Building Service Contractors. Prior to forming this company in 2005, he owned and operated his own cleaning and facility service company or 34 years after managing another company for nine years. He has written four books for the industry on selling, human resources, operations and the do’s and don’ts of contract cleaning. He also writes a weekly blog that can be accessed through linked in or his web site at www.consultantsincleaning.com.
Ollek is also a partner in Tripod Learning Associates, which produces an every Monday morning FREE pod cast at www.tripodcast.com. In addition, Dick produces CD’s and DVD’s for the industry on a variety of subjects which can also be accessed on the Consultants In Cleaning website. Dick can be reached at 573.374.1111 or through his website.