Trust Your Banker

Dear Santa, I don't need any new electronics this year.  I couldn't wait for you and Rudolph.  My iPhone 3 battery was dead.  So I got a new iPhone 5, and since I happened to be at the Verizon store already, I got an iPad as well.

This year, please just heal RGIII's knee.  And if you don't mind, please get the Redskins a head coach, who knows how to use the last four minutes of each half.  This coach  would instill a sense of urgency in his offensive players, so that they don't waste a minute of every last four mulling around aimlessly.  This coach should also comprehend the concept of calling a timeout just before the two minute warning when the other team is trying to run out the clock.  After you've accomplished those two things, then you can work on healing Tiny Tim, that little poser.

Last week, I met with a long time client in the residential construction industry for income tax planning.  Tax planning gets much easier in mid-December, since we only have to crystal ball a few weeks.  They are having a fantastic year, growing by almost a third in what is best described as a challenging year in construction.

However, they are facing the cash flow problems that come with rapid growth.  When you are growing, your receivables grow more rapidly than your payables, and you run out of cash.  So I asked about the size of their bank line of credit and how much they had used already.  They are a very well managed company with involved owners and a good internal bookkeeper.  So they had not used much of their line and had plenty of availability left.

Bringing up the topic of banking led into a discussion of their relationship with their current bank.  Actually I brought up the topic.  I work with a number of great small business banks, and I always look to match clients with banks that will serve them well.  They are happy with their current bank and should be.  However, they told me a story about how their previous bank had treated them.

A few years ago, the company had about $3 million in revenue.  They were profitable, but not wildly so.  They had a small line of credit with a bank, maybe $200K at most.  One day, without warning, the bank called the line of credit for immediate repayment.  The bank had decided to quit lending to residential construction businesses.

On an emergency basis, the company owners went bank shopping and were fortunately able to find a new bank during the worst of the recession.  For 2012, the company will exceed $9 million in revenue.  I'll bet the old bank would love to have them back now.

Your relationship with a bank might end the way Ike and Tina Turner's relationship ended, and you won't be the Ike in the relationship.  So get ready for a beating.

The way to avoid a good Ike Turner style beating from your bank is to cultivate relationships with other banks before you need them.  Emergency shopping for a bank can be a good way to go out of business.  Start networking now with community bankers.  Get to know them and the types of businesses they like.  When you find one that works well with your industry, give them a chance at your business.  Annually reviewing your bank relationship gives you alternatives if Ike gets pissed off.

Last night, I had my hair cut by a Russian spy.  Apparently, the spy business isn't so hot with the end of the Cold War.  So Natasha is working for Hair Cuttery to make ends meet.  I didn't understand a word she said, but she sounded like someone from an old James Bond movie.  I'm pretty certain she planted a bug on me.  When I turn on my car radio, all I get is a Moscow classic rock station that plays nothing but "Back in the USSR."

As always, thanks for reading.  For real tax and accounting advice, please visit our main S&K web site at www.skcpas.com.  Also, "How to Screw Up Your Small Business" is now on Facebook.  Please like the page.  I post a screw up of the day as well as various other short rants.  Once in a great while, I might post something truly educational, but don't count on it.

I'm looking for interesting blog topics.  If you have a subject you would like me to butcher, please leave a comment here or on the Facebook page.

Until next time, let's do it to them before they do it to us.