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Enhancing Your Relationship With Your Banker - Part 1
BUSINESS TIPS FROM THE EDITOR
January 2024
Richard T. Hendee, Editor
The Silver Fox Advisor
Enhancing Your Relationship with Your Banker - Part 1
As the 2025 Year begins, I thought it would be a good idea if I offer up some tips to our readers about how to enhance their relationship with their banker. Being on the banker side of the desk for more than forty years, I think I have experiences to share that just may be helpful.
This is a two-part series, and I will lead off with Part 1 in the January 2025 edition and Part
ENHANCING YOUR RELATIONSHIP WITH YOUR BANKER– PART 1
- The individual banker(s) make the difference.
- As a business owner you want to make sure you are dealing with an experienced banker who has decision-making power.
- When you are seeking financing for your business, you need to understand the sources of financing.
- Banks, unlike investors or equity partners, are generally averse to taking on high risks (primarily because their rates of return are much lower and to a certain extent, they are loaning you other people’s money).
- Thus, banks seek collateral that can easily be converted to cash to protect their interest in the event of a meltdown.
- Bankers want a business relationship, not a single loan transaction.
- Banks also do not want to be your business partner.
- Nor do banks want to own or operate your business.
- Bank loan rates are typically much less that the return expected by an investor or an equity partner.
- Bankers still use the “Four C’s” of credit when they analyze a loan request.
- Character – Your past credit history (looking for a 650 plus score).
- Capacity - Your ability to repay “ALL” your debt (by at least 1.25 times the total annual principal and interest payments).
- Collateral – If you default, a way to get their money back [some percentage (always less than 100.0%) of the of the value of the collateral].
- Capital – How much of your own money do you have in the deal (typically a 3 to 1 ratio – loan 3 dollars for 1 dollar of total funds needed).
- Any loan request should be presented in the form of a fully developed, well-written business plan with all of the required documents attached.
- NEVER ask a banker “How much can I borrow”. That is a huge red flag that shows you have no idea about your business’ financial condition or position.
- Invite your banker to your place of business for a tour of your operation and answer any questions that he/she may have (one of best invitations that you will ever make).
- Your banker will be your voice at the loan committee so you want him or her armed with all the correct information and details about your business.
In Part 2 of this series I will detail the “Top 10 List” for dealing with your Bank/Banker.
If you need help with dealing with your bank or banker, I would recommend you seek an experienced business advisor, coach, consultant or mentor with a financial or business background for your Company: Contact a Silver Fox Advisor. Remember, having experience on your side always helps.
We encourage you to visit our Website at www.silverfox.org or www.silverfoxadvisors.com to select a Silver Fox Advisor and also to learn more about the Silver Fox Advisors and their businesses, as well as our great programs and community outreach endeavors.
Thinking About Selling or Transitioning Your Business in the Future?
Rich Hall
Silver Fox Advisor
December 2024
There’s one fact that we can all agree on…we’re all going to “exit” our business one day. Either through death, disability, divorce, distress, or disagreement. We call that the 5 D’s.
What most business owners do not understand is that roughly 70% of businesses marketed for sale today do NOT sell. Even worse, only 20% or less that transition to the 2nd generation survive long-term. The numbers are not on the side of business owners and their families.
Why is that?
Most businesses today are operated as an “income” based business rather than a “value” based business. Just because a business generates a great income doesn’t mean it’s valuable to a buyer, a banker, or anyone else outside the business.
Here’s an example:
Let’s say your business generates a monthly profit of $100k (or whatever is the right number for your business). That’s sounds great, right? What if you as the owner are responsible for all the Sales in the business? What if you work 80 hours per week and can never take a vacation? Perhaps you have a few customers that generate most of the revenue or a few suppliers that you played golf with that are very loyal to you.
These are just a few examples that would make the business much less valuable to an outside buyer. If the business is so heavily dependent upon the owner, a few key employees, a few large customers, or suppliers, it is not very attractive at all. It may not even be sellable.
A valuable business is one that can transfer to another owner, or the next generation, with little impact to the operations and decision-making. A buyer can come in and be successful in a very short time. That’s a valuable business.
There are also many options available to a business owner besides just selling. You can sell a piece of the business and “take chips off the table” to secure your retirement. You can take out a loan to get much-needed investment capital to grow. You can sell some or all to your management team or employees.
The important takeaway is the following:
- Understand what it means to run a valuable business
- Plan ahead – typically 2-3 years is best
- Engage appropriate advisors to assist with planning, taxes, investments, and more
If you would like to investigate further, there are quite a few Silver Fox Advisors that have sold their businesses successfully (silverfox.org). You can also review my website for a copy of the Exit Planning Journey that outlines what you should do and when (www.richhallgroup.com).
There’s also a group in Houston called The Exit Planning Exchange. They have a Summit in February specifically designed for business owners looking for additional information (I’ll be speaking at the event). If you have an interest in attending as a business owner or participating as a sponsor, let me know at [email protected].
