Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
ONE OF THE MOST valuable things a company can get is the right advice at the right time. With that in mind, businesses that want to get the most out of every dollar spent should acquaint themselves with the advice and consultation services their banker can provide.
Bankers are in a good position to serve as consultants because they deal with a number of diverse companies who face similar problems. As a business, your marginal cost for this advice is zero, because the price is included in any fees and interest you are already paying your bank.
There is an added cost, of sorts, that you may incur: If your banker is to provide you with useful advice, you need to keep him or her fully informed. This may entail providing information you’d rather keep private.
“If you don’t have a good banker, you’re not going to succeed,” says Sam Bell, owner of BellMobile Inc., a threeemployee automotive sales and leasing firm in Hopkins that had revenue of $4 million last year. “You’ve got to be open and honest, and willing and able to bounce anything off him. That way your banker can give you ideas you might never have thought of on your own.”
A bank’s first opportunity to demonstrate the quality of its consultation services may come when financing is arranged. When Bell bought his building in Hopkins, he took out a loan with Highland Bank.
“My banker gave me three or four different proposals regarding the way the deal could be structured, and laid out all the numbers,” Bell says. “It was not a matter of what was best for the bank, but what was best for my company.”
Of course, banks are most confident giving advice in matters financial. With so many small and mid-sized companies confronted with cash-flow problems, a bank’s guidance regarding the management of accounts receivable can mean the difference between survival and bankruptcy.
“If you’re not getting paid on the day the product is shipped or the service is rendered, then you need to make sure the money is collected in a timely way,” says Ken Wilmer, vice president of commercial banking at the Maple Grove office of Highland Bank.
Wilmer advises companies on staffing levels in credit and collections, the timing and frequency of invoicing, and the tracking and recording of accounts receivable. “Sales are one thing, but cash flow is another,” he says. “If you’re not collecting your sales, you’re going to go out of business fast.”
Bankers acquire a vast amount of knowledge in virtually every economic sector. This enables them to provide their clients with a useful context. “Bankers get familiar with the ratios and indices for each industry,” Wilmer says. “So when they review a company’s financial statements, they’re able to see if something doesn’t make sense, bring it to the customer’s attention, and help the company work out ways to improve its competitive position.”
In other areas — accounting, operations, marketing and legal — Wilmer emphasizes that a bank’s consultative role has its limits. “I’m a banker, not an accountant or an attorney,” he says. “In these areas, I can make clients aware of the pros and cons of the various options they have, and even make recommendations to them. But I’m usually going to refer them to an expert in the field who can better help the client make the final decision.”
Bankers may have other limitations as consultants. “Bankers make wonderful advisers — especially for getting companies to tighten up on their accounts receivable — because they see a lot of businesses that have had to deal with the same issues,” says Mike Ryan, director of the Small Business Development Center at the University of St. Thomas in Minneapolis.
“But the banker’s first responsibility is to the bank, and it is the nature of most bankers to be risk averse,” Ryan says. “The owner may want to push on to the bitter end in the hope that it’ll turn around. But the banker might say, “Yes, I know we’re fully covered on our loan to you, but maybe you’d better not continue with that.'”
Wilmer counters that a proactive banker will help the company avert a train wreck. “The banker should be giving advice to the customer every step of the way on the feasibility of some effort the company is making, as the banker helps guide the customer down that road,” he says. “If the owner and the banker are partners from day one, problems are less likely to arise.”
Wilmer and Ryan are of one mind when it comes to the client’s potential conflict of interest: Wanting to provide the banker with all the information available to get the best advice and to make the banker a better advocate for the owner within the bank, vs. wanting to withhold some information to assure a loan isn’t jeopardized.
“An experienced banker will be extremely thorough and will ask all the right questions,” Wilmer says. “If the customer is evasive, then the process comes to an immediate halt.”
“You’re better off telling your banker everything that’s material,” Ryan says. “If you think you’re going to blow a loan covenant or an asset is going bad, tell your banker as soon as you know. If they find out after the fact, your chances of getting or keeping that loan or line are reduced. Surprises can be fatal.”
If you feel the need to break out to the consultancy box, your banker may be able to help there too. “We can set up peer groups in the form of CEO breakfasts,” Wilmer says.
[contact] Alisha J.R. Johnson is senior vice president/director of marketing for Highland Bank in St. Paul, an independent community bank with seven Minnesota locations: 651.690.8214; al************@***********ks.com; www.highlandbanks.com
