Your financial advisor can help your business
As your business grows, its need for credit grows. Is your relationship with your banker such that your ability to obtain the required credit is maximized? It is important to develop the type of relationship with your banker that fosters mutual trust. The more they know about you and your business, the more they can advise you on a number of business decisions.
Where your banker can help
Your banker can assist you with your credit needs. He can advise you on various types of credit sources and vehicles to best suit your business. Your banker should be in a position to help you maximize cash flow. He can also advise you on the best use of credit and debit cards. There may be ways to streamline your purchases and payments to provide the cash management features and benefits to optimize your overall profitability. Your banker should also be familiar enough with your goals and financial condition to advise you on investments.
Developing a relationship
You should start developing a relationship as soon as possible. If you have been working with an individual for some time, you probably have already determined how helpful they are. If you are just starting out, or feel the need to seek a new banker, find out as much as possible about them. How long have they been in the business? How much do they know about your industry?
Once you decide that you have the right individual to work with, you need to give them your full trust. At a minimum, you should sit down with them once a year and discuss your business and needs. It is important that your banker understands the seasonal nature of the green industry. They can’t use standard ratios and percentages to make recommendations and decisions. They need to know what causes peak times and slow times. If you see that you are not making projections, you need to let your banker know right away. Share with them your successes and your challenges. Consider your potential needs long before you have credit needs. Your banker can help you develop the required file as the need for credit approaches.
Most banks have a variety of account types to choose from. There is more than one type of checking account and, usually, numerous savings accounts. There may be mutual fund accounts and other accounts for various purposes. Some businesses have used sweep accounts where funds in the checking account are swept into an interest bearing account over the weekend and then back into the checking account as needed. Talk to your banker about all the options and seek their input as to what combination will work best for you.
Your banker should also know about your key employees and their importance to the business. You need to have a succession plan and make your banker aware of it. Your banker likes to know you are thinking ahead. While you may feel forced to do some planning that you hadn’t thought of before, you are going to be much better off by doing the upfront thinking and planning that a good banker is going to expect.
You should also be aware that your personal credit is going to have an impact on your business credit. The more upfront you are with your banker, the more they can help you. If you are considering taking on a partner, be sure to thoroughly check out their credit and background also. Before a bank lends money or issues a line of credit, it is going to look at every possible aspect of the company and its owner.
An SBA (Small Business Administration) loan is actually a commercial loan granted by a lending institution with the loan partially guaranteed by the SBA. Since this is a government-run program, there is a myriad of paperwork needed. There are individuals and companies that specialize in packaging all that paperwork, but you will still need to work with your own banker before, and after, such a loan is received. The SBA was created to help small businesses start, grow and expand by making funds available that wouldn’t be in other ways. The idea is as business grows, so does the economy, and the government is provided an increased tax base. There are several advantages to SBA loans, including longer repayment terms, more flexible terms, lower down payments or capital injection and competitive interest rates. It can also be easier to qualify for these loans. Here again, your banker, thoroughly familiar with your business and its needs, can advise you.
Since the Check Clearing for the 21st Century Act went into effect on October 28, 2004, there is an option to consider in handling checks. While merchant capture is being used by more and more retailers, it is something that you should at least be aware of and talk to your banker about. Merchant capture is a system between a merchant and the bank whereby the merchant captures or scans the customer’s checks and makes their deposit by transmitting the MICR information from the bottom of the check and the checks image to the bank electronically. The process eliminates the need for the paper check to physically move from place to place. Deposits can be made anytime, day or night. It also cuts down on the time it takes the funds to move from the issuer’s account to the payee’s account. Your banker can run a cost/benefit analysis of your business and advise you on your potential for using merchant capture. Be sure that you consider all costs related to your present check handling process. Consider also the time spent and the processing and service fees currently assessed by your bank.
It is also important to know about merchant capture and electronic funds transfer as you write checks. Many people used to depend on “float” when they wrote checks. They could figure on anywhere from two to several days lapse between when they presented a check and when the money was transferred from their account. With the new electronic banking, you can no longer depend on any float.
More and more companies are using plastic for purchases and payments. This is something else to discuss with your banker. There are many potential benefits and pitfalls to using credit and debit cards. Debit card purchases have grown from $421 billion in 2001 to $1 trillion in 2006.
Purchasing with plastic can provideinstant, online information on purchaseswithout the processes ofpreparing purchase orders, processinga plethora of individual invoicesand creating checks for each of thenumerous suppliers. It is easier foreveryone when trusted employees canuse cards instead of having to dealwith cash. Reporting methods can becustomized by your provider to giveyou the right combination of reportsto provide the details needed to analyzeyour spending. The credit anddebit card industry is also unique inthat, in many cases, the cardholdersare paid to use them through rewardpoints, mileage, rebates or other services.Fleet cards are being used bymore companies to obtain discountson fuel and services and keep bettertrack of expenditures. Another benefitis employees don’t have to usetheir own cash or credit to gas up andyou don’t have to have to worry abouta reimbursement process.
Some companies are starting to usepayroll debit cards. That’s somethingelse to talk to your banker about.
With debit and credit cards, youdo need tight controls, but youshould have those in place anyway.Do know that every card, debit orcredit, has disclaimers or footnotes.Make sure that you read all the fineprint and follow the rules. Ask yourbanker to explain any terms youdon’t understand.
Advice on investments
As a trusted advisor, your bankershould act as a consultant who providessolutions to problems andadvice on investing your profits.Mostpeople in the green industry plowtheir profits back into the business. Itis also a good idea to put as much aspossible away to help offset the offseasonor a bad year. When yourbanker is fully aware of your business,your goals and your plans, he canoffer the best recommendations toobtain the most with your funds.
As you and your banker worktogether, both of your assets willgrow. The more profitable you are, themore you will have to deposit.
Steve Trusty is a partner in Trusty &Associates, a communications andmarket research firm located in CouncilBluffs, Iowa.