Without a plan or a road map, you
never know where you will end up.
That is just as true for businesses as it is for long, cross-country drives.
“Financial plans are great banking tools,”
says Kim Snyder, vice president of business banking, Fifth Third Bank.
The key, she says, is to get the banker
and all other members of the financial
team involved early and often. “The balance sheet of a company is the company’s
history,” she adds. “A good business
banker will know that history intimately.”
Smart Business spoke with Snyder
about financial plans and how they can
help shape the future of your business.
When should a business get its banker
involved?
Get them involved as soon as possible —
the earlier, the better. Banks can bring in
experts who can provide helpful insights.
Bankers have a lot of resources, both
inside and outside of the bank. You should
be sitting down with your banker for years
prior to an exceptional need. This allows
the banker to monitor your company during times of slow growth and have a better
feel for the situation when an opportunity
arises for faster growth or a one-time contract that needs to have an exceptional
line of credit funded. The bank should play
a role in all stages of your growth.
What should a business expect from its
banker in this case?
In addition to lending money, the bank
is a great source of advice. But, the success of any plan will depend on the openness of the client and how financially
sound his or her business is. Banks bring
the money to the table. They really want
to lend money, but they also want to be
repaid. Your bank needs to be involved in
the preplanning stage, so it can follow
your business into the growth stages.
How much time does a bank put into understanding a firm’s plans?
Banks will put a lot of time into analyzing and understanding those plans. Your business banker is the one who fights for
your company and speaks for your company. The banker has to understand what
you’re doing and why. If the bank doesn’t
believe in your plan, then nothing is going
to happen. However, in a situation that
could go either way, if your banker has a
good understanding of your business, he
or she can do a much better job as your
advocate.
How often should a manager have this sit-down with a banker?
At the very least, the whole management team should sit down with its business banker once a year, but quarterly
meetings are best. This gives everyone a
chance to review the financial plan and to
talk about how the company is growing,
how cash is flowing and how stretched
the credit line is. The plan should define
the first year and the next two years. You
have to know your numbers. If you are
not hitting them, it is better to see that
right away to figure why you are off. Then
you can adjust longer term.
Those plans should be communicated
to all employees at all levels, not just the management team. That way everyone
can buy in to the growth plan and know
the risks and rewards.
Other than the chief financial officer and
president, who on the management team
should be involved?
All members of the firm’s internal
strategic planning team should be present. The company’s certified public
accountant and attorney should be present, too. The attorney is important. Many
times, the attorney will not have the same
advice or perspective as the financial
members of the team. They are legal, not
numbers, people. They look at protecting
the business.
It is good to know how the accountant
views the financial plans, as well. If a
business is asking for a $4 million loan
but shows an operating loss, the accountant can explain that the loss was taken
for tax purposes. But, the business team
needs to know that it can’t have it both
ways.
What are some key metrics on a well-designed plan?
One key metric is the leverage ratio of
the company — three times the debt to
the equity in the company ratios. Another
key area is the credit score of the individual guaranteeing the loan, especially
where the business relies heavily on one
person. Over 750 is a good score — it
shows how the person manages his or her
own money.
While ratios are important, all banks
look at the Five C’s: character of the borrower, cash flow, collateral, capacity of
the owner to repay and inject his or her
own funds, and condition of the market.
Sometimes the conditions in an industry
segment are not right, such as gas stations and dot-com companies right now.
But that does not mean that another
bank might not be willing to lend.
Different banks can be at different places
on the cycle.
KIM SNYDER is vice president of business banking at Fifth Third Bank in Cincinnati. Reach her at [email protected].