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Begin with the end in mind… If you haven’t read The Seven Habits of Highly Effective People, you should. Even if you have, it is worth re-reading. Certain business and self-help books are truly timeless, and this book is one that should be close to your desk and dog-eared from frequent reference.

But, what does this particular habit have to do with my business financial consulting blog?

Over the years, I have met with many business founders and owners, and I have found that rarely do they fully understand and appreciate the end of their business. One of my mentors once told me that it is important for all business owners to understand that all businesses are sold at some point. Some are sold for huge profits by their founders, perhaps to a private equity group (PEG), perhaps to a competitor or strategic buyer, perhaps in an initial public offering (IPO).

Many are “sold” quietly as gifts to heirs, and many more are sold to employee stock ownership plans (ESOP), or other entrepreneurs. Tragically, many, and I suspect most, given the early stage failure rates of businesses, simply vanish. The business never really was a business, and the owners, eventually, became too old, too tired, or too disillusioned to continue the business, or the heirs simply didn’t have an interest in pursuing the family business further, so it is “sold” through a liquidation or wrap up. No legacy was created, and no enduring value remains.

One of the greatest tragedies to me, a lifelong Miami Dolphins fan, was the sale of the team by the Joe Robbie Estate because of the lack of liquidity to meet the estate tax obligations. I was not close enough to know the details, but I always understood from published reports that the sale of the team was forced by a lack of estate planning - in other words, failing to have the end in mind….

Typically, if I ask a business owner what their exit plan is, they don’t have one, and, as I probe, I find that the business is so reliant on the founder/owner/CEO, that there is really no business in the absence of this person. The pricing models fail to fully account for the value that the owner brings to the business, and the entrepreneur, the person taking all of the capital and operating risk, is really a well paid employee, filling many critical business functions, and there is no substitute who can perform that function.

In his excellent book, the The E-Myth Revisited, Paul Gerber admonishes entrepreneurs to work on their business, not in it. Too many business owners feel that only they can perform the key tasks, and make the key decisions for this business. Because of this, they fail to adequately recruit, train, and most importantly empower employees to reach for the next level of supervision and management that will eventually lead to a self-sustaining business, in the absence of the owners/founders. But, setting aside the owner’s own ego about how important they are to the business, this is exactly what outside investors and lenders want. A business that can run itself, with minimal oversight.

Regardless of where you are in your entrepreneurial journey, set aside a few minutes every day to actively plan for the day when you will not be there, whether by choice or by chance. This is how you can build an enduring business. You may sacrifice some short-term profits, by investing in higher caliber people, or by training the ones you have to reach a higher level, but, by keeping this end in mind, you will certainly achieve much more significant and lasting value for your business and your family.

First Published on Linked In May 16, 2016

By; Vince Schreiber

10 Banks Loaned Over $200 Billion Last Year. 5 Steps to get Your Share of the Next $200 Billion

It was a popular refrain, even though it wasn’t true…..Banks just aren’t lending to Main Street businesses any more. The truth is that even in the darkest times, banks are lending, and in fact NEED to lend. Despite the new regulations and many challenges facing the economy, bank loans and leases continue to increase even faster than the headline growth in the economy. Here is a look at 5 of the 10 largest banks in the US: (all data taken from Q1 2016 investor presentations on each bank’s website. Links to source documents are at end of the article.)

Total bank loans and leases are up year over year at the end of the 1st quarter of 2016 a whopping $176 billion or 5.5% at these five large banks. Many people might think that this is just a market share gain, and the big banks are getting bigger, stealing share from the small banks, but this simply isn’t true. Take a look at these 5 regional banks:

Their bank loans and leases are up $30 billion, and an even more impressive 6.5%! While I could be accused of using a relatively small sample size, considering how many hundreds of banks there are, Forbes recently published an article (Forbes Article Link Here) on the ratings of the top 100 banks in the US. According to this report, the total assets of the 10 banks listed above represent 74% of the total assets of the top 100 banks, so I feel confident that these trends are representative of the industry as a whole. And, I didn't cherry pick data, I just looked up the first 10 banks that came to mind - although I will admit that BOA and STI came to mind first, because those are the banks where I started my career. Even more importantly, these huge growth numbers, and the Forbes list don’t include all the other non-bank lending sources that are out there today, like peer to peer lending sites, captive finance companies at places like Walmart and Target, and specialized firms like ALLY Bank (the old GMAC), Synchrony Financial (the old GE Capital) and more. Also, these huge numbers represent the loans and leases held for investment, not the ones they are selling off to Fannie Mae, or slicing and dicing into some syndication (yes, they still do that too). Simply put, there are a dizzying array of lending options, and you should be able to find financing for almost any legitimate business need.

The 10 banks I referenced are all projecting 5% or more growth in bank lending again this year, so that is another $200 billion up for grabs.

Here is what you need to do to secure your share:

Know what kind of bank business loan you need. Are you looking for a line of credit or a term loan? How much do you need to borrow and why are you borrowing it? What is your collateral, and how and when do you plan to repay the loan? By setting up your loan request for the banker in language they can understand, you put a giant EASY BUTTON on the loan package. They know in minutes if it fits in their wheelhouse and if they have a chance to get an approval quickly. It is human nature. People will gravitate to the path of least resistance, and with many qualified borrowers available to sign up for the piles of money they have to lend, your bank loan will quickly go to the bottom of the pile if it isn’t EASY.
Target lenders who like the type of bank loan that you need or want. There are certain lenders today who simply can’t make any more of certain types of loans, because of their current concentration levels. But, if you need a different type of loan, or present your request in a different light, and it falls into what they want to do right now, it will be smooth sailing. Here is a real life example: A client wanted to purchase a multi-tenant commercial building for both investment and future expansion. Depending on how the request is presented, it could be viewed as an investor commercial real estate loan (HARD for some banks), or as an owner-occupied commercial loan (EASY BUTTON). But, you have to stay informed, as these attitudes can change quickly as the bank’s loan concentrations change – maybe they lose a couple deals in the out of favor category, or sign up a couple big ones in the in-favor category.
Create competition. Don’t just go to your current bank. Present your bank business loan request to multiple lenders, and make sure they know you are doing it. Again, we are going back to human nature. Even bankers hate to lose, especially when you are bringing them an EASY BUTTON. This competition will ensure that you are getting the best overall bank business loan terms. Bank business loans can have many different features, including the amortization period, interest rate, fees, closing costs, balloon periods, maturity dates, reporting requirements, collateral margin requirements, guarantees, and more. By understanding and negotiating these elements with multiple lenders, you can get the best bank business loan deal for you.
Prepare a presentation. Develop a bank business loan request package that you can easily control and distribute to lenders to get preliminary interest level. You don’t want to dump all of your confidential financial information on 10 banks and let them sort it out. By preparing a package, usually 10 to 15 power point slides is sufficient, you control the story and the timeline. If they like it, you can move to the next level quickly with those who do, and not waste any more time or valuable electrons with those who gave you a fast “No”. And don’t be offended by the nos – bank business loan attitudes can change from one quarter to the next, so you have to stay on top of who likes what loan type and when. Take a look at this presentation from Regions Bank. Notice how they are controlling the story about what they are doing and expect to accomplish. Find similar presentations from smaller public companies in your industry or similar industries and use them as a guide to develop your presentation. Learn to speak and think like a banker, and soon you will have more bank business loans than you can possibly need or imagine.
Be sure all of your back-up data is ready and quickly deployable. As soon as you have a positive response, ask for a checklist of what the bank will need to close the bank business loan, and assemble the documents in an orderly fashion. Don’t waste time collecting things they are going to request on their own (like your credit report). You need to know what your credit is like, but they are going to get the report themselves, so it doesn’t help much to send it to them (unless it is really bad, then they get to "no" quickly). Here is a list of the items you should have ready in order to prepare your presentation:
1. 3 years of company financial statements and tax returns - If you don't have three years of company financial statements, you may not be in the market for a bank business loan, but there are other options we will present in future articles
2. 3 years of personal tax returns
3. A current personal financial statement – be prepared to provide back-up for any meaningful assets and liabilities
4. If the bank business loan is to be secured by inventory and/or accounts receivable, a current inventory list and accounts receivable aging
5. If the bank business loan is to be secured by existing equipment, an equipment list
6. If the bank business loan is to be secured by real estate, a description and the tax parcel number. If you have a recent appraisal (within two years), it may be helpful, but you are probably still going to need a new one anyway.

These steps should be sufficient to ensure that you get maximum exposure to banks willing and able to lend to you. Don't forget the famous words of Willie Sutton when asked why he robbed banks: "Because that is where the money is..." Give your banker an EASY BUTTON and she will push it!

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Schreiber Development

Business Planning, Business Financing, Business Loans, Business Growth