Learn the specific steps that you need to take to establish, build and maintain and healthy banking relationship. Learn how to manage and leverage this relationship during this powerful course taught by Thrive15.com mentor and the President of Regent Bank, Sean Kouplen.Sign Up to Watch
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-What's up, guys? My name is Daniel Mckenna, business coaching helper. I'm the executive producer here at Thrive15. And I'm terrified of small planes.
But today, we have Clay Clark and Sean Kouplen here in the studio. And we're talking about Banking 101, Managing Your Banking Relationship when you start a business. Now Sean Kouplen has actually owned a bank since before the age of 35. He's slightly older than 35 now, which means he has some experience. And today, he's going to be talking about why managing your banking relationship is so important.
Here's the deal. If you have money tied up with a banker, or with anyone in particular, you probably want to get to know them. You probably want to know what the rules are, what you can do, what you can't do, and these sort of things. And he's going to talk to you about why that's so important, specifically about your banking relationship.
Here at Thrive, we believe that knowledge without application is meaningless. Meaning if you watch today's lesson and don't actually learn something-- or even if you do learn something, but don't actually apply it to your life or your business-- today's lesson is going to be more meaningless then deciding any movie is the greatest movie of all time, unless your answer is "Mighty Ducks 2".
-Sean Kouplen, how are you, my friend?
-Good. Thank you.
-Hey, for anybody who's watching this, and if you're maybe not super-- really, if your knowledge of all things Sean Kouplen isn't super high, I want to give just a little bit of a bio, little bit of an intro here.
Before the age of 34, all these things allegedly happened here. So you were the head of the Chamber of Commerce, the president of a Chamber Of Commerce, a national alumni president, an award-winning professor-- not one of those professors getting complaints online-- a Citizen of the Year in your hometown, and you ended up being a small business owner, as well. You did a lot before the age of 34. Are you just going to get in a hammock now and just relax?
-Pretty much. Pretty much. As I mentioned earlier, I've peaked now.
-OK. You've peaked now.
-So yes, yes, it's all downhill from here.
-OK. Well, we are talking today specifically about business coaching for managing your banking relationship. And we're talking about this with a guy who owns a bank. So this is a great-- if you're watching this and you've ever been sort of, you're trying to demystify, how do I build a banking relationship? Maybe you've just never gone to a bank before. Maybe you're a 20-year-old wanting to start a business, or you're in your 40's and you've never got a business loan before and you just don't know where to start.
So Sean, let's just dive in to it here. How do you put your best foot forward when you're dealing with a banker?
-I think dealing with banks can be very intimidating. People don't really know where to start. I think it's led to maybe some bad financial decisions, because people have funded start-ups in a way that maybe was more expensive. And it doesn't really have to be that difficult.
Business coaching lesson: If you think about a banking relationship, it's not that different than if you were going to loan me money. It's the same thought process that you would go through. You want to make sure that I am of good character, that I pay people back when I say I'm going to, that I have the ability to pay you back.
Because in underwriting alone, what you're typically looking at, you're assuming that that person will pay you back if they can. Your job is to make sure that they can. Because even the best people, whenever they don't have the cash or cash flow, they cannot pay back the loan.
So when you are approaching a bank to develop a banking relationship, it is important that you put your best foot forward. And you do that in a number of ways. First business coaching step, you need to understand your business. Whether it is a proposed business that you're thinking of starting, or whether it's an existing business that you want to expand, you need to understand the numbers. And that typically means putting together a detailed financial package for the banker.
-Let's do a business coaching example, just so we can kind of give a little context to this. Let's say that I want to open up a series of Sno-cone stands. OK. Let's say that's snow business, and I'm doing about $100,000 a year of revenue or less. When you say I need to know my numbers, what kind of numbers do I need to know?
-First of all, I think it's important to business coaching for you to know that banks are really designed to help businesses grow. They're not typically designed to help a business start up. And the reason for that, as we talked about in one of our other modules, is banks function on a very small profit margin and they are highly regulated. So typically, the risk associated with starting a business needs to be borne by that individual themselves, through personal savings, through other investors that they can bring in, family, to help them get going.
But there are times when you can start a business, and that is normally when the person has other sources of income. So this we see a lot. A husband and wife have good jobs, they have good credit, they have some money saved, and they want to start a side business over here.
And the bank goes, you know what, even if this side business doesn't work out-- because as we know, 9 out of 10 new businesses do not work out, they're very difficult, it's very difficult-- even if it doesn't work out, they can still make the payments from their jobs, from their income. So that is the most likely scenario forsomeone who wants to start a business.
-One of the things-- I just want to make sure. Because if you're watching this, hope-- maybe you didn't have the epiphany that did I had when I first heard this business coaching truth. But this blew my mind. Because I think a lot of people they go to college, or maybe they didn't go, either way they get to a point where they want to start a business. And they have this belief, this false belief, that well, if I want to start a business, I need to go to the bank and borrow money. And you've said that banks are primarily designed to help grow businesses and not help start them.
And so, I remember when I was first discovering this information, I thought, well, I'm going to have to go work construction, or I'm going to have to borrow money from friends. In my case, I worked construction. I know a lot of people watching this maybe you've had to get second jobs, different jobs. But just because your local bank won't lend you money to start a business, it doesn't need to crush your entrepreneurial dreams.
-No, that's right. And it doesn't mean that the bank doesn't believe in you. We see people start successful businesses all the time. We want them to. It's just when you look at the financial profile of a bank, the risk that is associated with starting a brand new business that has really no other source of repayment if the business doesn't work out, it's just too great for the financial modeling of the bank.
It's not personal. It's not that we don't want to help you. I have match-made over $70 million in deals where an individual wanted to start something, the risk was too great for the bank, maybe they didn't have enough collateral, maybe they didn't have the experience, whatever the case may be. But I still felt like it was a good deal. Sometimes I've invested in those. Other times, I have found other individuals that have invested.
That's how you need to get started. And then you prove your concept up even on a small scale. Then you come to the bank. And the bank is there for growth capital. That's really what we are designed to do.
-And so, just so we can put these up on the business coaching screen so we're clear here, you do have to have three years of tax returns. You do have to have a current balance sheet. You do have to have a current year-to-date profit and loss. And you also have to have a current accounts receivable, like a aging report.
-And, if you are confused at any of what these terms are, we have some unbelievable Thrive business coaching segments in our accounting section of the website where you can really get into what those mean. But before you show up to meet with the banking institution, you really want to have all these documents.
-You do. And the reason is that the bank is underwriting the credit. So we are basically studying the risk of making this loan. The only way to do this is by looking at historical numbers. There's really no other way. Your verbal assurance that it's going to be great and you have a great plan-- it is important. And we need to know that you understand your business, and that you have a plan to move forward.
Business coaching tip: But, frankly, the past is the best predictor of the future. And so, having proven numbers and understanding those numbers is important.
So that's why, typically, you want both personally, and for your business, you want to have, as you mentioned, at least three years of tax returns. You want to have a current financial statement, or a balance sheet. And that just lists what you own and what you owe. If it's in the middle of the year, you want to have how you're doing so far that year. So a current year-to-date profit and loss statement. And then, accounts receivable aging is important, because we want to understand who owes you money and how currently they are paying.
-Now when you say that the past is the best predictor of the future, essentially, I want to make sure the Thrivers are watching this and you're not getting the wrong impression here. Because I know that my 18-year-old, likes-to-fight-guy mentality, would say well, he's being negative and he means it people can't change. No, no, we're talking about lending money to people.
And so if you're somebody who has really operated and made a bunch of poor decisions up until right now, it doesn't mean your entrepreneurial dreams are crushed. It just means the bank would be a little bit crazy to lend if you've had a series of calamities up until now, right. I mean, so it doesn't mean you're, as a person, writing somebody off. You're just saying this is how we have to judge somehow. And this is the determining factor.
-Yeah, again, it really boils down to the risk profile that the bank can take because of our business model. Because we're highly regulated, and because we function on a very small profit margin. No, we see people-- Thrive is all about change, and change in our behaviors, and changing our outcomes. I am a huge believer and have personally experienced that. So it's not that we don't think people can turn it around.
The main thing is whenever you have a business concept that is not proven, it is just an idea it's just important the viewers know that that concept really needs to be proven with private capital. And then once it's proven, then we can help you take it from there.
-So, again, if you're watching this and you just feel like, well, the bank said no, but my idea is so great. Business coaching advice: Don't give up on your dreams. You just have to get private capital.
And I just want to add a little anecdotal supporting evidence there. Henry Ford, Bill Gates, Steve Jobs, these are all guys that eventually, or initially, started in a garage or started in a house. And they had to just scrap together whatever they could get. And then once they proved the concept enough, they were able to get outside investments. And so don't feel discouraged. And we have some great business coaching episodes on how to raise capital in nontraditional ways, if for some reason banking doesn't work out for you there.
-As the way for you to get the capital you need-- now we're getting into business coaching for the five C's of credit, the five C's of credit. And I'm going to read these off here, and then we're going to dive into them here. So, the first one is cash flow. The second is credit history. The third is collateral. The fourth is character. And the fifth is capacity. So let's go with cash flow and boom-- cash flow.
-OK, so let me give you a great example. When I put a group together and purchased Regent Bank-- just so your viewers don't feel bad-- we did not have cash flow. We purchased a bank that was struggling, losing money, was having a tough time. It was definitely a turnaround situation. I couldn't get a loan either. So I had to go raise the money from private investors to purchase the bank. So, the first and most important C of credit-- and the C's of credit, by the way, are these are what a banker looks at when they're evaluating you for a loan. OK, so they're going through these five steps.
First of all, is there cash flow to repay the loan? Now, this cash flow can be from your business. That's ideal. The business is showing a profit and has the ability to make the loan payment for the new piece of equipment, or building, or expansion, or whatever it is that we're going to do. We're going to give you the money up front, but you have the ability to pay it back over time.
-I'd like to define cash flow, just for everybody watching this who's like cash flow, what does that mean? Can you define what cash flow means for business coaching purposes?
-Sure. Cash flow is just revenue in excess of expenses. And so, you'll hear a lot of terms-- for profit, EBIDA, net income, et cetera. But what we're really interested in is cash. So, how much cash you bring in less how much cash goes out is how much cash flow, or net cash that you have to work with.
-Now, business coaching lesson for your credit history. Let's talk about this, your credit. There's a lot of just false information and we don't have time to get into all of this real quick.
There's a lot of people I know who borrow money for things they do not need to borrow money for, or who keep money on revolving credit on credit cards, paying interest, and they don't need to. And they'll say, well, reason why I'm putting this on my Visa, reason why I bought this TV on my Visa-- and I'm just going to let it ride and just pay minimum payments-- is because I'm building up my credit history. You hear a lot of this. Can you tell me what credit history really means?
-Yes, and you are right. We could spend hours on dissecting a credit score and how to manage it. And you are also right that people will often do things that are negative to their credit to try to help their credit. Business coaching tip: Credit history it's simply your history of paying back debts. So whether that is via car, home, business loan, credit card payment, whatever the case may be, we are simply interested in whether or not when you make a commitment to repay something you pay it back.
And the reason that this is important is for two reasons. First, we want to make sure that you are organized, and detailed, and make your payments on time. We have thousands of clients and so you simply do not-- and we only have 53 employees. So you just cannot have to call every single client every single month to make their payment. So that's one. It shows that you're organized and that you stay on top of your business.
The other thing a credit history shows is that you don't get overly obligated. So you don't live beyond your means. You manage risk appropriately. You don't buy things that you can't afford. And so, you have the ability to make those payments. So those are really what you're looking for when you're looking at credit history.
-Now, business coaching for collateral. What does it word collateral mean?
-Business coaching lesson: Collateral is basically an item of value that you provide to a banker lending institution. And you, in essence say, if I don't pay you back, you can have this. It would be like if I needed $50, and you say, OK, give me your watch. And I'll give it back to you when you repay me the $50. That is what collateral is.
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