Keep Your Banker Informed
Here's how to establish a good working relationship with your banker from the start.
Q: Why is my relationship with my banker important to my new business?
A: Most entrepreneurs don't give much thought to how to deal with professional vendors (bankers, lawyers, accountants, etc.). They just dive right into their business and don't think about how they should treat these people, what their vendors can do for them, and what their vendors in turn are looking for in a client. With a little thought and effort, you can ensure that you get the most from your vendor relationships.
Your banker, lawyer and accountant each have the ability to drastically influence the success of your business. It is very important that you develop long-term, personal relationships with them--if you do that, when you hit the inevitable bumps in the road, they'll be there to help you.
While you often hire your lawyer and accountant by the hour or job, your banker is another matter--he makes money off the fees that your business generates. He is usually very happy to help you, and can therefore be a great source of free consulting.
As I look back on my first banking relationship, I realize how completely clueless my partners and I were--we had no idea what our banker was looking for, or what factors influenced his decision to loan us money. As a result of that ignorance, we became fairly frustrated with the relationship over the next couple of years. That frustration came from not understanding what bankers will and will not do, and not understanding why we didn't always get what we wanted.
The bottom line is, banks are very risk-averse businesses. Bankers aren't in the business of betting on your dreams or predictions; they are in the business of loaning secured money--money that is backed by both your personal guarantee and hard assets (not just your business assets, but also your house, your bank CDs, etc.). Your banker has to answer to his boss and explain why he loaned you money, how you are going to pay it back and why you are a good risk.
The more your banker knows about your business, the more value you are going to get from the relationship. Don't think of your banker as an outsider and withhold information from him--do just the opposite: Think of him as your partner. Get to know him personally, take him to lunch (he'll usually pay!), and help him understand your business and personal financial goals. You should give him constant status reports and keep him in the loop as your business grows. Keep this in mind when you are meeting your banker for the first time. The meeting should be a two-way interview. You should leave there asking "Is this person genuinely interested in me? Is he trying to understand my business? Does he understand my objectives?" If the answer to any of these is no, then find another banker.
At one of my former companies, I used to create a weekly state-of-the-company status report for our employees. I would talk about new contracts, marketing and sales efforts, Web page hits, cash flow, etc. When I would e-mail that to our employees each week, I'd cc: our banker, who would put it in his file. He later told me that he had better documentation on our company than anyone else in his portfolio, and when we occasionally called him with an emergency, it was easy for him to pull out that folder and quickly make a decision.
Unfortunately, the way most people do this is to call their banker with a request and then spend the next two weeks getting him documentation and bringing him up-to-speed on the state of the company. This can be time-consuming at best and devastating at worst (if you really need the money but don't have the financials to justify your request).
An additional benefit to keeping your banker informed is that he'll help keep an eye on the financial side of your business (more free consulting!), and if he starts to see any trends that concern him, he can alert you and help you straighten them out before they get out of hand. A very important point, which is hard for new entrepreneurs to understand, is that it is always good to have an outside set of eyes looking things over.
So remember, get to know your banker as a person, treat him as an insider, teach him all about your business, and feed him regular financial reports. Follow these steps, and you'll go a long way toward increasing your chances of success.
Keith Lowe is an experienced entrepreneur who is a founder and investor in companies in several industries. Lowe also mentors new entrepreneurs; serves as past chairman of the board for Biztech, a nonprofit high-tech business incubator; and is a co-founder and officer for the Alabama Information Technology Association.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.