Keep Your Banker Informed
Here's how to establish a good working relationship with your banker from the start.
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Q: Whyis my relationship with my banker important to my new business?
A:Most entrepreneurs don't give much thought to how to deal withprofessional vendors (bankers, lawyers, accountants, etc.). Theyjust dive right into their business and don't think about howthey should treat these people, what their vendors can do for them,and what their vendors in turn are looking for in a client. With alittle thought and effort, you can ensure that you get the mostfrom your vendor relationships.
Your banker, lawyer and accountant each have the ability todrastically influence the success of your business. It is veryimportant that you develop long-term, personal relationships withthem--if you do that, when you hit the inevitable bumps in theroad, they'll be there to help you.
While you often hire your lawyer and accountant by the hour orjob, your banker is another matter--he makes money off the feesthat 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 howcompletely clueless my partners and I were--we had no idea what ourbanker was looking for, or what factors influenced his decision toloan us money. As a result of that ignorance, we became fairlyfrustrated with the relationship over the next couple of years.That frustration came from not understanding what bankers will andwill not do, and not understanding why we didn't always getwhat we wanted.
The bottom line is, banks are very risk-averse businesses.Bankers aren't in the business of betting on your dreams orpredictions; they are in the business of loaning securedmoney--money that is backed by both your personal guarantee andhard assets (not just your business assets, but also your house,your bank CDs, etc.). Your banker has to answer to his boss andexplain why he loaned you money, how you are going to pay it backand why you are a good risk.
The more your banker knows about your business, the more valueyou are going to get from the relationship. Don't think of yourbanker as an outsider and withhold information from him--do justthe opposite: Think of him as your partner. Get to know himpersonally, take him to lunch (he'll usually pay!), and helphim understand your business and personal financial goals. Youshould give him constant status reports and keep him in the loop asyour business grows. Keep this in mind when you are meeting yourbanker for the first time. The meeting should be a two-wayinterview. You should leave there asking "Is this persongenuinely interested in me? Is he trying to understand my business?Does he understand my objectives?" If the answer to any ofthese is no, then find another banker.
At one of my former companies, I used to create a weeklystate-of-the-company status report for our employees. I would talkabout new contracts, marketing and sales efforts, Web page hits,cash flow, etc. When I would e-mail that to our employees eachweek, I'd cc: our banker, who would put it in his file. Helater told me that he had better documentation on our company thananyone else in his portfolio, and when we occasionally called himwith an emergency, it was easy for him to pull out that folder andquickly make a decision.
Unfortunately, the way most people do this is to call theirbanker with a request and then spend the next two weeks getting himdocumentation and bringing him up-to-speed on the state of thecompany. This can be time-consuming at best and devastating atworst (if you really need the money but don't have thefinancials to justify your request).
An additional benefit to keeping your banker informed is thathe'll help keep an eye on the financial side of your business(more free consulting!), and if he starts to see any trends thatconcern him, he can alert you and help you straighten them outbefore they get out of hand. A very important point, which is hardfor new entrepreneurs to understand, is that it is always good tohave an outside set of eyes looking things over.
So remember, get to know your banker as a person, treat him asan insider, teach him all about your business, and feed him regularfinancial reports. Follow these steps, and you'll go a long waytoward increasing your chances of success.
Keith Lowe is an experienced entrepreneur who is a founderand investor in companies in several industries. Lowe also mentorsnew entrepreneurs; serves as past chairman of the board forBiztech, anonprofit high-tech business incubator; and is a co-founder andofficer for the Alabama Information Technology Association.
The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.