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-Now let's talk about business coaching for some of these mistakes that you have to avoid when you want to start a business. Let's talk about some of these mistakes you have to avoid. You're saying here it's lack of proven cash flow. What does that mean?
-Well, we touched on some business coaching for it earlier. But one of the mistakes that people make is they basically come to borrow money without any real proven way to pay it back. So you need to either be able to show through your business financials or through your personal income that you have the cash flow to pay it back. As we discussed earlier, the days of being able to borrow money on an idea and just hoping that idea works out, I think, unfortunately are long gone.
-Now what about leaving minimal equity in the business? What's does that mean?
-This is a good one. This one we see a lot of. When times are good, a business owner can pull a lot of the cash out of the business and the business will continue to function. Accounts receivable are being collected quickly, cash is being generated, so they don't need to leave a lot of cash in the business. However, when times get tough, that can be a disaster. And so what we unfortunately saw a lot in the recent downturn is people with great businesses pulled all of the cash out of those businesses.
As you accumulated cash, they would take it out and go buy personal assets with it. And then when times became difficult, they came in and wanted to borrow money. And when you've looked at their company, they had very minimal equity and that made it difficult to loan money. So I think it's always best-- our personal business coaching principle is that we leave all equity in the company. And you're going to have conflicting advice here.
You're going to have an accountant when you want to start a business who is going to say, pull all the money out because you're risking it leaving it in there. If you get sued, somebody can get it. You're going to have the banker saying, leave it all in because it makes you safer, more bankable, and I think honestly the truth is somewhere in between. Business coaching advice: I think you can pull some money out, but you need to leave adequate cash in it.
-I've heard this, and I'm curious to get your thoughts on this. I've heard this from people who are not owners of banks. And I just want to get your take on this. A lot of these guys I've met over the years have said, keep a lot of equity in your business and just buy a ton of insurance, because it's just a cheap way to mitigate the risk of being in business, but at the same time it allows your business to look healthy when applying for loans and that kind of thing. Would you agree that ever business should just buy a bunch of insurance?
-Yeah. I mean, again, as with everything, there's bad insurance and there's good insurance. And so, but yes. That principle I think is very sound. And it's not only leaving equity in the business for the bank. It's also leaving equity in the business so that you can take advantage of opportunities. We don't know when a competitor's going to go out of business, or a new salesperson is going to become available, or we can buy a whole bunch of inventory at a discount.
We don't know when that's going to happen. When you have cash, you can take advantage of that. That's why unfortunately you see many times in life where the rich get richer. A lot of that is because they have the capital to take advantage of opportunities that others cannot.
-And I've always kind of viewed cash as basically it just allows you to buy opportunities, allows you to seize opportunities. And there's a big phrase you hear a lot in business that cash is king. The idea that you have a lot of cash, you have more opportunities. Now business coaching talk about unrealistic assumptions. These are mistakes to avoid. The unrealistic assumptions.
-This is the one where you say you're going to go from to a million dollars in the first year, and there is no real basis for that whatsoever. This happens all the time. I'm going to do it because Google did it. Well, Google's one in a billion in terms of companies. When you make assumptions of growth, you need to have a realistic reason for understanding why. And this one really comes in when a business has been growing at 10% or 15% a year for every year and then they come in and apply for a loan. And all of a sudden, their assumptions show them growing 40% and 50%.
The question has to be, why is that the case? And unfortunately because I'm going to put more money into marketing, that's not always the right answer. More money in marketing doesn't always lead to more sales, as we now.
-Now what about giving half the story? What is a prime business coaching example of giving half the story?
-Well, this is when you come to a bank and you know that you've had problems in the past, but you don't really want to be honest about those problems. You would rather give a different version of reality. And the problem becomes, when the banker learns the true version of reality-- which we will, because that's really what you're trained to do. You're trained to figure out and kind of put the pieces of the puzzle together-- it just makes you look dishonest.
-Well when you think about it, if you're watching this and maybe you're feeling a little bit down and out because you've made some credit snafus in your past, Business coaching realization: Walt Disney lost it all twice. Henry Ford lost it all five times.
There's been a lot of successful entrepreneurs who've bet it all and lost it. So it doesn't mean you're a bad person if we've made mistakes. I think it's just important that we own it. And when somebody asks you what happened, I think it's important that you can share with them.
But I also would offer the suggestion in banking that maybe you bring up your past snafus maybe before the banker looks too deep into it, because it would be nice for them for you to be forthright about explaining the issue and owning what happened, so that way the banker has that already there, as opposed to thinking you're going to hide it.
Business coaching lesson: Because with the technology available today, and the internet, and all the resources, highly unlikely that you're going to be able to hide some sort of credit snafu or some issue in the past.
-Exactly. That's exactly-- I really couldn't have said it better. Past financial problems are-- they're OK. They happen to all of us make bad investments and bad decisions. And maybe they were good investments that just turned bad.
It's not necessarily your fault. It's just much better to just come clean, admit those upfront, talk about how you're going to mitigate doing that in the future. That's far and away the best way to handle it.
-Now, business coaching for a few other mistakes to avoid here is poor personal or business credit history. When you say poor personal business credit history, what are we talking about?
-Just not paying your bills on time. So again, as much as we hate to admit it, the past is the best predictor of the future. Everybody understands things happen.
But on a credit report then, that should look like a blip. It should look like ones where you've made your payments on time. And then you had an issue. And then you recovered.
Unfortunately what you typically see is either really good credit or really bad credit, where people just pay late all the time, and just don't have the ability to handle their finances.
-Now business coaching for poor communication. What does that mean in the context of banking?
-That means as you're managing your banking relationship, when you have problems or when you have issues, being forthright with the banker. If we know what is going on, we can almost always help you.
What we cannot do is when you're not answering the phone, or you're embarrassed and won't return a phone call or an email or a text, we have to assume the worst. You know. And so good communication, I think, is very important.
-What about lack of loyalty there in banking? Does that mean if you're a bank hopper? You go from bank to bank to bank. You just kind of move around.
Or what does that mean, lack of loyalty?
-Well, it really does. It means that-- and I know this is an ego decision. But I really want to encourage your viewers to think about switching banks if they've had a good experience with a bank, any bank. Business coaching advice: If that bank has been there for them and treated them well, switching for a very small quarter to half a point of interest I think is a very bad decision.
Because one, if you'll look at what that half a percent cost you on your overall P&L. It's going to be minute. It's going to be a rounding error on your P&L. What's much more important is having someone that you can count on that will be there for you when you need them.
So what happened to us, again, and this always happens during tough times. During the recent recession we have lost a client or two because somebody had come along and offered them a lower rate. And we went as low as we could go. We just didn't feel like we could go that low.
The individual left, they got into trouble. Their bank didn't know them or care about them. So they weren't there for them when they needed them.
They didn't help them with cash when they needed it. They didn't stand by them. And unfortunately, you can burn a bridge with a financial institution by leaving. And the loan committee goes, why should we jump out there again? I mean, this individual wasn't loyal to us the first time. You know, why should we believe that they will be again?
Business coaching tip: So I just think when considering a banking relationship, you should really think about the relationship first, and then the pricing second.
-Well, just two examples of that real quick. In Tulsa there was one gentleman who had a bank. His first name was Carl. And I knew a lot of people in Tulsa who'd banked with Carl for years. And they would say, I bank with Carl. They even started doing like commercials in town about how I bank with Carl. I've known Carl for years.
And I know a lot of people that were real examples of somebody who had worked with Carl from when he first got into the business through towards the end of his career there. And they had a relationship. And they'd gone through marriages and divorces and illness and death and all the things that happen in a business.
But they were there for Carl. Carl was there for them. And I know having banked with you now for basically well over a decade, it's been interesting, because we all go through stuff. You have kids. There's just stuff that happens. And I think it's so important that we don't view baking as a transaction, but we view it as a relationship.
-I think that's just super important business coaching advice. It's not just an auto-- if you're not careful, it becomes this automatic recurred billing sort of thing. You just pay it. You don't think about the people. But you really do have to make an effort to build a relationship, don't you?
-Particularly when times are tough. We always say anybody can bank you when times are good. Where the relationship comes in is when you're struggling. Who's going to stand by you? And that's where I think these relationships are so important.
-What about the inability to give the global picture?
-Yeah. This deals with when someone owns a number of different businesses. Business coaching lesson: Banks today have to understand your whole picture. They have to know your entire financial picture.
So the days in which I own 15 businesses, and I can just bring you one and call it good-- that doesn't work. Because the other businesses can drag down the one that I am banking. And frankly it's required by regulators.
So if you're borrowing money of any size, you need to go ahead and spend the money to put together a global financial statement. One that shows all of your companies-- all of your entities-- globally whether they make money or not.
-And I want to just hammer home on this business coaching lesson for a second. If you're watching this and you are not using a bookkeeper or accounting service, I am example A1-- exhibit A, B, C, whatever. I forever did my own bookkeeping.
Well then as our business grew, my wife started doing bookkeeping with me. And because we had different businesses, we had to provide these reports. And we weren't the best at doing it because neither one of us are professionally trained accountants. And eventually the business got so big that we had to hire a bookkeeper.
I would just encourage anybody watching this. If you are awesome-- let's just say that your company is this snow cone stand we've talked about. If you're awesome at marketing, and selling snow cones, and getting people there, don't spend all your time bookkeeping.
Hire a professional bookkeeper, because banks need this kind of global picture information when they-- they don't want a bunch of handwritten Post-It notes. They want to actually have professionally prepared documentation. It's well worth it, isn't it? To have a professional bookkeeper?
-It is. Your business is judged by your financials. It is that simple. We are judged by our ability to communicate as individuals, either written or verbally. Business coaching lesson: Your business is judged by the quality of the financial statements. So it's well worth the money to have a professional help with those.
-Now, business coaching for the final error-- the mistake we want to avoid here-- the final mistake we want to avoid is the failure to provide financial documentation. Like, you just kind of say, uh oh-- I don't have that. How does that usually go down when someone doesn't have the financial documentation?
-Yeah. It can either be on the front end when you're applying for a loan. They make a lot of blanket statements about how the business is doing. They can't back it up with any financials.
Or in an existing banking relationship it happens when the banker requests tax returns, a financial statement, accounts receivable, and you don't take the time to provide them. Over time the banker loses confidence in your ability to provide financials.
-So if you're the kind of guy who says, well I'll get that to you later, but you never come back-- that's not a good thing for you. You want to make sure you provide that documentation.
Sean, I appreciate you taking the time to deep dive into business coaching for how to build a banking relationship. And again, if anybody wants to know more information about you, or I know you have a couple books you've written as well. But where can they find more information about your particular bank online?
-Sure. Our bank is Regent Bank in Tulsa, Oklahoma. Www.bankregent.com is our website.
-Hey, thank you so much.
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