When the Banker Called

Numerous bankers with whom I am acquainted occasionally contact me for assistance with their customers. This rough transcript of a recent phone chat with a banker proves that bankers want you to succeed.

Banker: Hey Gary, I have a potential project for you.

Gary: How bad is it?

Banker: It’s bad, really bad. They have lost money for multiple years in a row and the only reason they actually showed a profit this year is they received a substantial funds from the Federal Paycheck Protection Program (PPP).

Gary: Well, we can’t plan on that going forward, can we?

Banker: No, that’s not sustainable, and they don’t have a good plan on how to turn things around. The bank is about to put them in special assets because of their financial position. We can’t loan them any more money.

Gary: Are they open to receiving input and guidance?

Banker: It’s a family business and the son, daughters, and granddaughter are open to input, but the founding father and head of the company is in denial that anything is really wrong, even though they have lost money for a few years in a row now. The dad will be a tough nut to crack. He has a lot of excuses as to why they are where they are. He’s very old school and thinks they just need to put their heads down and work harder.

Gary: Well apparently the pain to remain the same has not gotten greater than the pain to change. It usually takes a crisis to get people out of their comfort zone. People always hope that it will get better this year or next year, but hope is not a good strategy. They need a plan. Would you like me to meet with them?

Banker: That would be great, they really need your help.

When I met the family, I discovered that they were barely getting by, surviving on a shoestring. They had no fundamental business principles in place to improve their top-line revenue and bottom-line performance. They had been successful in the past and they were banking on that success to carry them forward, but the business environment had changed, and they were stuck in their old way of doing business. The patriarch of the family was still in denial and felt they would pull themselves out of it. He thought the reason they were in this position was due to a series of bad decisions. I learned the son was working six days a week, fifty-two weeks a year, had recently gone through a very tough divorce, couldn’t remember when he’d last had a vacation, and was asking himself whether he really wanted this for his life. In private he confessed to me that he didn’t want to live his father’s life of working seven days a week for the rest of his life. His daughter who was in line to take over the business confessed that she didn’t want her father’s life. I asked them what their banker told them they should do, and they replied that the banker said they should call me.

As part of my engagement process, I conduct a discovery phase that usually lasts four weeks, in which I interview staff and employees, make observations, and have the owners fill out my business assessment, which covers 16 different areas of the business. Once owners have filled out the assessment and come to the last question—what thoughts or impressions have you had as you’ve answered these questions?—their usual answer is, “We have a lot of work to get done.”

The unfolding process as I meet with individual staff members is always fascinating. There is the story that the owners tell when you first meet them, and then there is the story that you get from meeting and interviewing the staff and employees. That is how it goes, and this experience was no different. I asked the owners if their employees knew what was going on in the business and they said no, they had not shared this with the employees. But the employees told me they had a pretty good idea that the company was in trouble, and they were worried about their future. Even though ownership had not talked about the condition of the company, everyone knew. When leaders don’t communicate, employees usually imagine something even worse than what is going on.

In the course of my discovery phase, I learned that this company wasn’t abiding by some basic business principles that help businesses stay on track and succeed. While this business was doing a few things right that had worked for them in the past, they were doing so many things wrong it was no wonder they were not making money. Let’s look at some of the fundamental business principles that every business should pay attention to in order to follow the path of success.

Strategy

Have a clear strategy as to how you will meet customer needs, eliminate their pain, and provide them what they are looking for. I have always defined strategy as finding the customer’s need and providing tremendous value in filling it. The only effective way to know what the customer needs or wants is to be communicating with them. This is particularly necessary as we emerge from this pandemic, which has disrupted the business environment and supply chain in a dramatic way. Your pre-pandemic strategy may not be the same strategy you need post-pandemic, and the only way to determine that is to be communicating with your customers. Once you have found the need—and usually that need or pain point needs to be more like a shark bite than a mosquito bite—the next step is to organize your company in a manner that will meet that particular need in the most efficient and effective manner possible. If you are communicating with your customers and you’ve organized your business to meet their need, then the easy part is to work really hard not to screw it up in between—and then collect your check. Business success is about solving your customers problems or relieving their pain.

Vision and Direction

This is one of the most common problems I see in business, the lack of a vision or clear direction. Business owners are so busy being busy that they do not take the time to stop and determine where they want the business to be in the future. The problem is that when you do not determine your direction, circumstances outside of you and the business usually determine the direction. Without vision, the business is like a rudderless ship being blown in whatever direction the wind is blowing.

Successful businesses have a clear vision and communicate that to everyone within the organization. The company I was visiting had no clear vision of where they were going. All they knew was to put their heads down and work harder and hope that things would work out. Yet the son was tired of working harder and was questioning his future. Their staff and employees had no idea where the company was going, other than they were trying to stay afloat. Every day they came to work to do their job uninspired about what they were doing and why. The interesting thing was that this company was vital to people’s lives and the local economy because they provided fresh food to the local market. This is a pretty important part of our economy, and they were missing the opportunity to get their employees excited about what they were doing, why they were doing it, what it provided for people, and where the company was headed.

People want to be a part of something bigger than themselves, something that gets them excited about coming to work and making a difference. But without a clearly articulated vison and direction, it is just another job.

Have a Plan

Without a clear vision, you are unlikely to have a plan of action to bridge the gap between where you are and where you want to be. No vision equals no goals on how to get to where you want to go.

Having a plan or a map helps you to see the most efficient route, and it keeps you on course. You can’t just make the plan and forget it. You need to refer to it to stay on track.

The business environment is changing constantly, and we need to continually make course corrections to create a successful future state. When I used to fly an airplane, I would set the coordinates of where I wanted to go, but if I did not check my location and refer to my map, I could easily get off course due to crosswinds or other factors. It is the same in business.

Here is another factor to consider: Your banker will be much more willing to work with you when you have a plan. This is true even if you are in trouble. If your banker knows you have a well-thought-out plan of action on how you will turn things around, they are more likely to work with you.

Leadership

One of the most important aspects of busines is leadership. Peak performance depends on it. Leaders set the direction and then help everyone head in the same direction. If a business is doing well or not doing well, it often comes down to leadership.

The problem in this case was that the son was told he was in charge but was not really in charge. His father the patriarch was ultimately in charge and the son continually had to go to him in order to make decisions. The son after years of being under the direction of the father and often being told how bad some of his decisions were, was gun shy to make any decisions about the business without consulting his father first. There is no way to grow the company under this scenario. The father had become a roadblock towards progress. The son had a number of ideas on how to improve the business and to implement mechanization to help streamline operations, but without his father’s blessing he was stuck trying to just put his head down and work harder.

The lack of a clearly defined organizational structure eliminated a key to success in business, a consistent chain of authority. Every organization needs a structure to help determine how decisions will be made and to whom staff and employees report to.

Marketing and Sales

Marketing is about getting noticed and capturing someone’s attention. Usually if a company is having a cash flow problem, it is a marketing and sales problem. The two go hand in hand in order to generate positive cash flow. Marketing is too often focused on the company’s mythology and how the company does things rather the benefits and results of what is being provided. It is important to have a marketing plan that communicates and educates your target audience on the advantages, value, and results of doing business with you.

The company I was conducting the business analysis with had no marketing plan in place. They were relying on the customer base that had always done business with them and made no effort to bring in any new customers even though they had recently lost a substantial account. The attitude was that it was unfortunate, but nothing could be done about it. This attitude is one of the reasons this whole scenario was a train wreck in progress.

When it came to sales, the company waited for their customers to call them with their needs. They made no real effort to reach out and communicate with customers. When a business doesn’t communicate with their customers on a consistent basis, they have no real understanding of the impact they are having on their customers. They may think their customers are happy, but they really don’t know until a customer quits doing business with them as had recently happened to this business. When I saw that they made no effort to communicate with their customer unless the customer called, and were missing a sales plan, I realized the train was coming off the tracks. Revenue growth needs to be a proactive activity. We can’t wait for the customers to call, the business environment has changed and if you aren’t calling your customers, your competition most likely is.

Waiting for your customers to call you to make a sale puts you at a disadvantage to your competitors; they are calling your customers to get that business away from you. To sell to your current customer base and attract others with your marketing efforts, you need a plan for communicating how you will meet customer needs or eliminate their pain. The larger your organization gets, the more important it is to have a clear, documented sales process to ensure you’re consistently generating revenue, leading to your success

Operations

Operations is at the core of most businesses because it consumes the most resources in terms of labor, materials, equipment, energy, and capital investment. In a global economy, competition from other countries can make it extremely difficult. Examining your operations and looking for ways to streamline your processes and procedures is essential to gaining a competitive advantage.

I have found that companies that have been in business for a very long time often do not take the time to examine their current way of manufacturing and look for ways to create more linear flow. Many times, there are no documented processes and procedures on how work gets done, which generates confusion, randomness, chaos, and inefficiency.

Every organization needs documented processes and procedures to create consistency. Once streamlined and documented, you can create standard work procedures, which are the foundation of organizational improvement.

Financial Management

The numbers drive everything in your business and without a complete understanding of them, you cannot effectively evaluate how your business is doing. The company I was evaluating did not have a good understanding of their numbers, and the owners had trouble reading their financial statements. They were not producing or following a budget. They did not produce a cash flow analysis and they did not spend time reviewing their financials on a regular basis. The family member who was acting as the bookkeeper took over the role from her mother but had no formal accounting background and was struggling.

You don’t need an accounting degree or to be an accountant to take care of your books, but you do need basic accounting knowledge. Doing busines without understanding your numbers is a bit like flying an airplane without paying attention to the instruments

The instruments on the dashboard of your business are the profit and loss statement (P&L), balance sheet, and cash flow projection. Understanding these instruments is critical to your business success. You can’t leave the financial management of your business to chance, hoping things will work out. That’s a surefire way to crash.

Succession Planning

My mentor and the leader of my Mastermind group, Phil Symchych, has said that succession planning tends to happen in one of four places: the board room, the kitchen table, the hospital room. or the funeral parlor. The last two are not good places for succession planning.

While conducting my assessment, I discovered that the company I have been discussing had no succession plan in place. The patriarch was approaching eighty years old, his son was questioning if this was the life he wanted, and his daughter (the next in line to take over the business) didn’t want to live the life that her father was living. And even though she was thought to be the next in line, nothing had been discussed or decided as to the path they should take. The company had no plan to prepare the daughter for her eventual position as head of the company.

Having a succession plan does not mean that you are planning on selling your business right away or passing it on to a new generation immediately. It does mean that you are planning for the future of your business should anything happen prematurely to anyone in ownership. Succession planning takes time, and it cannot be done effectively in crisis. It often takes two or three years to create a solid succession plan. Succession planning forces you to take a hard look at your business; it has benefits for the future but also the present.

Going It Alone

Banker: How’s it going on that potential project?

Gary: The assessment went well, and I provided them with a game plan on how to move the company forward. But they have stalled on making a decision. The son and other family members see real value, but the dad still thinks they can fix it themselves.

Banker: That’s really too bad. They need your help. 

My business assessment covers sixteen critical areas, and I’ve only discussed a handful here. The list above represents the key areas that were lacking in the company I was evaluating, and it is a good place to start if you are looking at your own business. That company did not move forward after I provided them with the assessment and plan of action. They were busy being busy, and the patriarch felt that they could fix the problem themselves. Of course, if they could have, they would have already done so.

Don’t make the same mistake. You can’t fix your situation by using the same behavior and tools you have been using. With a return to business fundamentals, you can improve your top-line revenue and bottom-line performance.