Banks Continue to Fire Good Customers

The marketing mentality of most banks right now is amazing. Getting rid of good customers still seems to be a much higher priority than getting new customers. In a Chief Executive Boards International meeting this past week, I learned of yet another member who's been asked by his bank to take his business elsewhere. In this case, it's a bank presently notorious for firing small business customers -- they're apparently exiting that market. He's wisely approaching five banks in parallel, to minimize time duration in getting this hassle over with. Related Article....

In the past year, I was fired as a customer by one bank and one credit card company. The first is a bizarre tale of the current disarray within Bank of America. I refinanced a home mortgage in February 2009 (I couldn't turn down 30-year money at rates below 5%). I've had an occasionally-used 6-figure Home Equity Line of Credit since the 80's, when I first learned about them. B of A had the HELOC on my current home. In fact, they've had it since the home was built in 1996, when they had both the original lot loan (100%) and the first mortgage.

After this refinance, I called and said I needed to get the line re-subordinated to the new mortgage. That's all it took to get that done 7 years ago after the last refinance. Well, the voice on the phone said, "We can't do that any more, we'll need to re-apply". Same home, same customer, 13 year-old LOC and we need to re-apply? Just like some unknown guy off the street? Yep, that's the deal, they said.

Not needing the line immediately, I decided to just let this play out and see what it took to get this done. It took 6 months (to not get it done). About every 3 or 4 weeks, having heard nothing from B of A, I would call up, talk to a different person in the call center, and get a different story about the next piece of documentation they needed. Of course, they never called me or told me they needed anything additional.

Finally, they said there was a "loan-to-value" problem. Considering that the first mortgage PLUS the line fully drawn down would still have been below 70% of the recent appraisal by the real on-site appraiser for the refinance, I was puzzled. "We did a desktop appraisal", she said, and then gave me the results of that -- 30% lower than the appraisal done by the on-site appraiser, considering 8 comparables. This quickie appraisal was roughly the construction cost of the home in 1996, excluding the lot! And, it turned, out, not subject to review, revision or negotiation.

We went around on that for a few weeks, and they finally declined the loan, citing LTV as the problem. So much for a 14-year "relationship".

Relating this story to my financial advisor, he recommended Schwab Bank, who took the application over the phone, asked for all the documents they needed in 1 pass, did a drive-by appraisal (10% under the on-site appraisal, but close), approved the loan and sent a lawyer to my office to close it. No cost, no fees, no muss, no fuss.

So, I decided to fire B of A as my business bank, and it's been more 6 months -- they don't seem to notice my checking account has become dormant, although when I terminated my merchant services (credit card clearing) agreement I would have thought they'd pick up on it. They clearly don't want or need small business customers.

Last month, I got fired by First Equity Card as a credit card customer. We maintain Visa Cards for use by myself and other CEBI employees. We don't use them much, preferring American Express, which most of our vendors take. Well, imagine my surprise opening the mail to discover our First Equity cards had been cancelled, for "lack of use", the letter said. I checked back and, sure enough, we hadn't used those cards in 90 days. Oh well. I emailed my new banker for a Visa application, and coincidentally received a promo letter and application from Capital One. Don't know what got into those First Equity guys, but they apparently don't need any more customers -- or the ones they have now, either.

So, where do you find banks interested in new customers? Community banks. A local community bank, Greenville First, is out there scooping up small business customers right and left. They realize something most banks don't -- that befriending customers when credit availability is tough will build business long term. And, of course, if you're looking for debt capital, cast a wide net. Approach a dozen banks in parallel, rather than working through them sequentially. It'll save you a lot of time.

Finally, it's become clear to many business owners that they need multiple banking relationships, and more than one account for their working cash. You never know when your banker is going to wake up one morning and decide he doesn't want your business any more. Be wary, and have a fallback plan already in place.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

What's One MORE Good Idea Worth?

What's one good idea worth? A whole lot, I believe. I saw a real-time case of that in a Chief Executive Boards International meeting this week. Two different members left the meeting with ideas that will easily earn them $100,000.
How can that be?

When you have 6 or 8 people, all knowledgeable about the same topic, there's an amazing synergy (overused, I know) of ideas. People tag onto and build upon ideas of others. That's what happened in both of these cases. Here's just one of those stories:

A member who manufactures large capital equipment knew his customers needed parts, many of which he outsources -- things like motors, switches, gauges, etc. Parts are a traditionally high-margin item, starting at 50% margin (100% markup) and going up from there. They already sell several hundred thousand dollars worth of parts over the phone, to customers who happen to call them vs. a distributor. He had already thought through the fact that if he cataloged his high-runner parts in an online store he would get a lot of those orders, rather than the customer seeking out a distributor of the part itself. That idea is on his own scorecard -- not part of the $100,000.

What he didn't have was a really good launch plan for this online store. Websites are not a "field of dreams". You build it, and they DON'T come. Something has to drive some traffic there.

Regular readers know my personal conviction that a regularly-distributed, useful E-newsletter gets results. In this case, the member was encouraged to get a newsletter underway, something again that he had thought about already. What you need for that to be successful is LOTS of email addresses. Plan A for collecting those was to try getting people to give them up via a login/registration screen on their first visit. While not a bad idea, several members thought that would put up a barrier to potential buyers. And, of course, they would have had to hear about the parts site another way to have found it in the first place.

What was the $100,000 idea? While they know exactly the facility and company where they installed a large system, they don't know who would actually be buying the parts if they needed them. Worse yet, they don't have an email address to which they would send their newly-launched newsletter. Why not hire an intern to dial the phone for the summer, tell the customer they're launching an e-newsletter with good ideas on how to make their equipment more efficient and reliable, and ask for an email address (or more than one) of who should receive that. Wow, that would exponentialize the readership of their newsletter and when the newsletter reminds them of the online parts store, there's an engaged audience right in place.

Now here's the interesting part. The member looked around the table, and said, "I never would have thought of that." He's probably right -- it's so easy to get caught up in the mechanics of a project it's easy to miss a key point of leverage. The cost of the intern harvesting email addresses is likely 10%-20% of what he's already committed to spending on the newsletter and online parts store. Yet it likely improves the ROI and traction of both by 500% or more. And it raises the possibility of his message going viral. Those operators and plant managers talk, typically at industry events. All he needs is a few people who really like his newsletter telling each other about it and he goes viral -- the internet marketer's nirvana.

Will he execute? Time will tell, and his Board will ask. Will he earn a lot of money if he does? Absolutely. One good idea, in the hands of a capable CEO, can be worth serious money.

There are 250 days a year to spend at the office. And one looks pretty much like the next, in my experience. What have you done lately to put yourself elsewhere for a day -- in the crossfire of good ideas, whether at CEBI or elsewhere? At CEBI, "We Share Ideas."

Give it a shot. It's a strategy that's worked for thousands of business owners.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

The REAL Leading Cause of Small Business Failures

Conventional wisdom cites the leading cause of small business failure as undercapitalization. In my experience (and perspective through Chief Executive Boards International) watching hundreds of businesses "up close and personal" fail, survive or thrive during this recession, I believe the leading cause of business failure is lousy financials, misunderstood by a business owner who's good at his or her core competency, but not very financially savvy. Two of my friends lost their businesses during this recession for, I believe, exactly that reason.

What do I mean by lousy financials?

• Not timely -- It's not unusual for an owner to get monthly financials 2 weeks or more after the close of the month. At that point, any problem he detects in the prior month has cost him a 2-week delay in getting fixed
  


• Late postings or postings in arrears -- This is a killer. Credit card bills come in several weeks after the fact and post charges to the prior month (that the owner didn't see, even if he looked at the month's results a week or two after month-end). This problem can be averted, using online Credit Card statements (almost real time) to post actual charges through the last day of the month, (they become payables) regardless of the billing cycle. Of course, there are multiple possible sources of late postings. Specifically, if you're not closing and controlling your accounting platform, users can post costs or credit invoices in prior periods, and you'll never see it in the current month (profits just evaporate from the YTD figures). A good opportunity for not only employee theft, but also misinformation in the current period.
  


• Committed Costs -- Another killer. Even in simple platforms like Quickbooks, you can use an "Item Receipts" technique to post costs you know you've spent already (say, with subcontractors) in the month they're incurred, rather than having them come in 60 days later, hammering that month (while you were still feeling good about the fat month where you booked the revenue from the customer without this cost on the books).
  


• Mismatch of cost and revenue timing -- Another killer. It's critically important to match the month in which you bill with the month the related costs are incurred -- both material and labor. Otherwise, your month-to-month performance will be whipsawed one way or the other, and you never see the budgeted business model (ratio analysis) -- how a "good" month is supposed to look
  


• Lack of understanding of Accrual vs. Cash income statements -- One of the killer features of Quickbooks is its "dealer's choice" switching of Cash vs. Accrual on demand. Most small businesses pay taxes on a cash basis. Other than that, you want to run your business on an Accrual basis, carefully matching up the month the income was incurred (based on billing date) and the date the costs were posted (based on date spent or committed). That way, each month's income statement is a credible representation of how the business actually did that month. I've seen swings of plus or minus 200% of monthly net profit, simply due to errors of timing in when revenue and costs were posted. And, of course, if you're trying to manage from a Cash Basis income statement, it's completely warped by timing of customer payments. Worse than useless.
  


• Lack of understanding of income statement vs. balance sheet postings -- Your vehicle loan payments aren't expense items. The interest portion is -- the principal portion is debt reduction (assuming you properly put the vehicle on the balance sheet at the outset). Many businesses expense items they're actually holding in inventory -- again distorting profitability of both the month when they buy them and the month when they sell them.
  


• Inability to understand and forecast working capital needs -- If your accrual income statement is wrong and your balance sheet is wrong, it's almost impossible to forecast what your working capital (Inventory, WIP, Accounts Receivable) needs will be. That's like flying with no cockpit instruments. Potentially fatal.

So, why does conventional wisdom lay business failure to "undercapitalization"? I think it's because the likely outcome of lousy financials is the same as bad cockpit instrumentation -- people fly into the sides of mountains with no warning. You only get to run out of cash once -- you can come close to running out of cash a lot of times. If you're the victim of any of the above, you're a prime candidate to run out of cash. And when the mourners gather, someone says, "What happened?" and someone else says, "He ran out of cash -- he was undercapitalized." Like a lot of accidents, it didn't have to happen that way.

Two of my friends, both victims of lousy financial information, lost their businesses during this recession. They were good operators. They were good businessmen. Worse than no instrumentation, their instruments were wrong, and they ran out of cash. They had been adequately capitalized all along -- they just didn't see it leaking away in time.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

What's One Good Idea Worth?

Years ago, I readjusted my expectations of business seminars, deciding that in most cases, if I got just one good idea in the course of, say, a 1/2 day or 1 day seminar it was more that worth the time. That's because I don't have all that many good ideas of my own. I find I can sit in my office all day, and not one good idea falls out of the sky onto my desk. I'm really good, though, at taking good ideas I get elsewhere (articles, websites, seminars, books, etc.) and turning them into real money -- in lots of cases, lots of money.

Einstein once said, "We can't solve problems by using the same kind of thinking we used when we created them."

I can list dozens of individual good ideas that have made me or my shareholders at least $10,000, several that have turned into $100,000, and a couple that have probably earned shareholders over $1 million. That's not far out of bounds. If you're doing anything that has any leverage to it at all (such as running a business), turning a single good idea into $10,000 is pretty much child's play.

Chief Executive Boards International, an organization of business owners and CEOs who meet regularly to help and advise each other, is one such source of good ideas. I do try to be polite when I hear a prospective member question whether CEBI will be worth the money. Or says, "I just can't afford to do that right now." Of course, I realize the prospect is really saying, "You haven't convinced me yet."

It's a really peculiar objection, and I hear it from people who apparently expect me to believe it. How could a person spend the better part of the day with 6 or 8 other business owners and not get just one idea he could turn into, say, $5,000 worth of cost savings or margin improvement? How could you avoid it? If that were the case, in 6 such events per year, he'd have an ROI of at least 5x what he spent.

This past week, I had those tables turned on me. For a couple of months, I've been considering attending a "Grow Your Company" seminar (2 days) put on by Inc. Magazine in Florida next month. It's not cheap. By the time the dust clears, I'll have over $3,000 spent, and 2 days away from the business. I was wondering out loud about that, when my wife asked, "What's one good idea worth?" She had me there. How could I possibly spend two days with hundreds of other business owners, participating in workshops, listening to guest speakers, networking during breaks, and not get at least one good idea that was worth at least 10 times what I'm spending? So, I signed up that same day. I expect to get at least 5x return on that investment, at a minimum - perhaps 50x.

She was right -- putting yourself in a place where you're likely to get a good idea that wouldn't have otherwise occurred to you is profitable. In my experience, almost always. So, I'm going.

There are 250 days a year to spend at the office. And one looks pretty much like the next, in my experience. What have you done lately to put yourself elsewhere for a day -- in the crossfire of good ideas, whether at CEBI or elsewhere? At CEBI, "We Share Ideas."

Give it a shot. It's a strategy that's worked for thousands of business owners.

Other CEBI Blog Articles...

To forward this to a friend, Click Here

Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com