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Money Talk
By Jill Andresky Fraser, Inc.'s finance
editor.
Communicating with your banker is never easy.
But there is a smart way to do it
Talk to Holly
Hitzemann, the president and owner of Great American Stock,
a $1.2-million provider of stock photographs, about the importance
of building good relationships with your financial backers,
and the conversation very quickly winds its way around to
"Ron." He's the executive at the local bank that has financed
Hitzemann's Rio Rancho, N. Mex., company throughout much of
its growth. Although the bank itself has changed, thanks to
consolidation, Ron has remained a constant fixture in the
development of Hitzemann's business.
Last year the
strength of that relationship bailed out Hitzemann in a big
way, when a major new contract stalled during the final negotiations
and she began to worry about her company's ability to meet
its financing obligations. "I was embarrassed. I felt like
a dog with my tail between my legs," she says. "But I knew
that I needed to just go in there and tell my banker, face-to-face,
that I was worried about this balloon payment we were due
to make in three or four months." Hitzemann could have delayed
that conversation, saved herself some embarrassment, and just
kept hoping for the best. But that course of action might
have resulted in her springing bad news on Ron at the last
minute--something she has never done during the almost seven
years in which he has helped finance her company.
Her gutsy strategy
paid off. Thanks to Hitzemann's frank and early disclosure
of her company's problems, her banker was, as she puts it,
"incredibly supportive." She recalls, "He was prepared and
understood the situation. And he worked out a much better
refinancing arrangement for us than I would have even asked
for." She pauses, then adds, "Thanks to that, we were able
to work our way through this cash-flow crunch and to redirect
funds that would have gone to the balloon payment to a new
marketing campaign instead. We're now in a stronger position
than we ever were."
There may never
have been a time when it's been more essential for entrepreneurs
to maintain strong ties with their bankers and outside investors.
For most companies, the best sources of future capital will
probably turn out to be their past sources--so long as their
owners have worked hard to maintain good relations with backers.
The key to accomplishing
that all-important goal is knowing how, and when, to communicate
what's going on within the company. It goes without saying
that the first step is living up to whatever basic obligations
lenders or investors have insisted upon, in terms of which
types of financial reports they want to see and how often
they want to see them. But for business owners who recognize
the value of going beyond the basics, here are some important
steps to follow:
1. Don't
overpromise; overdeliver.
Ken Thuerbach developed this strategy after owning Alpine
Log Homes Inc., based in Victor, Mont., for more than 25 years
while also making angel investments in a wide range of other
businesses and serving on the boards of two venture-capital
funds. "People don't realize that the more sophisticated an
investor is, the less mileage a business owner will get out
of making unrealistic promises," Thuerbach says. "It's much
better to err on the side of caution. Then, you can communicate
good news--your company has achieved better-than-expected
results--and that leads to more confidence in you and your
business." He adds, "What many entrepreneurs don't understand
is that investors and lenders always care more about the jockey
than about the horse. That's not to say they don't care about
the company. But what they'll really care about, if they decide
to back your company, is you--what you say, what you
deliver, how you deal with them."
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