How hard is it to find the right banker?
TAMARA BARKER WATSON: We went through four or five before we found the right one. One time, we got stung on a huge commercial renovation project. The client wasn’t going to pay us, and the bank turned tail and wouldn’t bail us out. Fortunately, we were able to bail ourselves out and keep the doors open. But that was an eye-opener.
Another time, we met with a banker who said, “I can do this and this for you, and I’ve looked over your financial statements and you should be doing this and this.” We were blown away. So, we said, “OK, send us some paperwork next week and we’ll review it.” Yet, we didn’t hear from him the next week, or the week after. He got busy, and his attitude was: “You don’t need the money, so don’t worry about it—I’ll get to it.” But he never followed up with us.
How did you finally find a good banker?
BARKER WATSON: We told the bankers we were considering: “If you want to meet with us, you have to come to one of our jobsites. Come get in the mud. Come see what we do. Come see how hard our guys work.” A banker showed up on one of our sites one day, and our reaction was “Wow!” We had coffee with her, got her to meet the guys and really connected with her. She has now been our banker for eight years.
The key is that we’ve communicated all the way along. I’ll tell her: “There’s going to be an issue. This client won’t be able to close on time for these reasons, and I’ll have to dip into my line of credit.” By letting her know in advance that we’re going to have an issue, we’ve built a huge trust factor.
What difference does it make for a company to have a good banking relationship?
KEVIN HIGGINS: Last year, we had a situation in which it really did make a big difference. We were doing a share transaction to buy out our founder and, on the closing day, one of the lawyers suddenly noticed that the shares we were about to transact were encumbered by a line of credit. Even though we weren’t even using our line of credit, the shares were pledged to back it up. Here we were about to exchange the shares and they couldn’t be exchanged.
We had to call our bank to ask if they could unencumber the shares and get rid of the line of credit. And they were highly responsive. This wasn’t a simple problem to solve, but our bank came up with a workaround that allowed us to complete the transaction quickly.
Why was your bank so responsive?
HIGGINS: We had been with them for a number of years and had a good relationship. They were a customer as well as a supplier, and our business was good business for them. So, when we needed help, they jumped. They had to go up a couple of levels in the bank, and they did that quickly.
It could have been one of those moments in which, if they hadn’t been helpful, we’d probably be banking with somebody else now. I bring up this example because having a good relationship with your bank isn’t just about the money.
Sylvain, what do you look for in a banker?
SYLVAIN BOUCHER: One thing I’ve found is that good bankers need to be business enthusiasts. We’re all entrepreneurs and we like to talk about business. Some bankers are truly enthusiastic about business, and that makes a difference to me.
They also add value because they have a circle of influence. They’re a good source of contacts, and point you to potential deals.
BOAZ SHILMOVER: Our bank finances developments and is constantly sending leads about those to us. They also own an insurance company and tell us about insurance claims that could lead to work for us. They want us to make money.
It’s also about finding a banker who is truly passionate about what he does and what we do. The one we deal with is passionate about building his portfolio of clients. He’s in the foothills area of Calgary, one of the city’s industrial areas. And then you have the oil and gas companies downtown. Our banker is competing against his bank’s downtown branch to build a bigger book. If you can find a banker like that, he’ll be all about giving you more money, making more money off you and giving you clients.
BOUCHER: Another important thing is to understand the bank’s financial incentives. We had a discussion with our banker because we weren’t using our line of credit but felt it still needed to be there. But they were being penalized because we weren’t using it. They’re allocated a certain amount of money to lend; so, if a client isn’t using its line of credit, then the bank isn’t making money on it. We discussed this with our bank and found a way to close our line of credit but arrange it so we can have access to it within 10 days if we do need it. It was really a matter of understanding what our banker was thinking, what his concerns were.
Has anyone had a really bad relationship with a banker?
BOUCHER: Yes, at a previous company. Our bank switched us to a bad banker. She wasn’t knowledgeable, and when I tried to explain the business, she was confused all the time and wasn’t learning from appointment to appointment. She wasn’t qualified to have that job, and it wasn’t very clever of the bank to switch our account to her.
I asked a senior executive at the bank to switch our banker, and he did. I think the unqualified banker was sent back to her previous job—she was that bad. We ended up with a sharp guy who took an interest in our business, visited us often and found the right financing opportunities for us at the right time. So, we’ve stayed with him.
Has anyone else had that sort of problem?
SHILMOVER: As much as you want to have a relationship with your banker, you also have to be prepared to divorce them. We’ve done that. We’d had a great relationship for four years, but then ran into problems. They weren’t looking at accounts past 60 days. They weren’t looking at increasing lines of credit a certain way. They weren’t looking at financing our equipment at a certain percentage, allowing us certain payment terms over a certain number of years.
Then, another bank contacted us. We met with them, and they understood our business because they focus on construction companies. They started telling us everything they could do, and they came to our sites and looked at our business even before we’d had any major discussions with them. And although we had this “great relationship” with our existing bank, we had to make the difficult decision to divorce them.
We switched banks three years ago, just as the economy started to peter out. But our new bank told us that they understood that it was the economy, that it wasn’t us. And they stood by us.
Any other thoughts about getting the most out of your bank?
BARKER WATSON: Do any of you deal with two banks at the same time? I do. If BMO doesn’t give me what I want, I call HSBC. And if they give me what I want, we’ll run all our cheques through HSBC that month. And then I’ll have our banker at BMO on the line, asking me, “What did you do that for?”
We have chequing accounts, overdrafts and lines of credit at both banks. If we don’t get the best deal from BMO, even though our banker there is really good, she knows HSBC is waiting in the wings for any scraps—a commercial mortgage or anything.
I also think you shouldn’t make it personal with your banker. Don’t have drinks with them. Don’t go golfing. Don’t give them presents. Total tough love.
Mary, how would you advise entrepreneurs to develop a good banking relationship?
MARY GAGLIARDI: You need to know your bank, because a certain bank may have better knowledge of and capacity in your industry than other banks do. But you also have to interview your banker, and not be afraid to divorce your bank or banker.
My managers at BDC will often come to me, saying, “Listen, this is not working.” Just like in your businesses, we don’t always make the right choices in the alignment of our account managers or salespeople.
What about the personal side of the relationship?
GAGLIARDI: I’m going to disagree slightly with Tamara, because I think getting to know your banker personally does help. I’m not suggesting you have your banker come over for Sunday dinner with Mom. But you do need to know who your banker is.
SHILMOVER: You can develop a relationship with your banker without getting personal. We’ve invited our banker to a charity dinner and the bank will sponsor a table and come to the dinner. They’re over there and I’m over here, and we’ll shake hands and say, “Nice to see you.” And that’s enough. Don’t get too close.
Mary, what’s a common difficulty that arises in your dealings with businesses?
GAGLIARDI: I don’t hear a lot of complaints about our relationships with businesses. But when I do hear them, one of the most common is: “Oh my goodness, you folks ask a lot of questions, and this took a long time.” Entrepreneurs are usually pleased when things go quickly, but I’m disappointed when I hear that they have.
It’s not that I don’t want us to serve our customers quickly; it’s that your business is complicated. There isn’t a business that’s not complicated. So, we need to understand each business and make sure that we get the nuances. We do a disservice to our customers if we move far too quickly and don’t ask enough good questions.
Have any of you used Scientific Research & Experimental Development federal tax credits or the Industrial Research Assistance Program?
RANDALL LITCHFIELD: We use both of them, and they’re quite effective. They’re like any government program—you multiply the paperwork by 10 times. But what these programs have done is encouraged us to take on the R&D in the first place—and much bigger projects than we would have. We launched a pretty ambitious enterprise software development project that we’re now completing, and SR&ED was in the back of my mind while we were doing that.
What other financing sources have proven valuable for your businesses?
SHILMOVER: One of the best financers we have is the company that has become our largest supplier: IKO Industries, which is owned by one of the richest families in Canada, the Koschitzkys. IKO makes every building product—you name it. I know the president, David Koschitzky, and I called him up and said, “Look, I’m going to make you a deal. We’re one of the largest contractors in Southern Alberta for what we do, and I’ll give you 80% of my work. I’ll give the other 20% to your competitors to keep you guys honest from a pricing perspective.” I negotiated 60-day terms and a 2% payment discount on those terms, so we’d get free money. Every other supplier wants to get paid in 15 days, but we would guarantee IKO this large volume of orders. And at the end of the year, they give us a 5% rebate. I’m getting paid to guarantee that I use them.
BOUCHER: Suppliers are interested in growing their business. For the big suppliers to encourage an entrepreneur to grow—they’ll do it any time.
BARKER WATSON: We do the same thing. We buy all our supplies from one guy, but we have another guy in the wings to keep the pricing honest. The guy we buy from sometimes gives us 120 days to pay. And we get a cash rebate at the end of the year, which is our play money.
HIGGINS: We do the opposite in our business, which is a professional-services company. A lot of small, independent contractors work for us, and in our industry there’s a tradition of using them as part of the financing by making them wait 90 or 120 days to get paid. And they tolerate that because that’s just the way it is.
But at Fusion, we decided that we’d pay those people fast. We pay them even faster than we get paid—sometimes, as much as 60 days faster—because they have expenses. We’re reimbursing their expenses, which we then need to get from the client. About 25% of our revenue goes to independent contractors, so this costs us a significant amount of money. But it makes us different from all the other companies.
LITCHFIELD: We do the same thing. The value of this is that they tend to prioritize you as a customer because of that.
BARKER WATSON: Our tradespeople are very important to us. So, we pay them on the 15th and 30th of the month—period. If their invoice is in by noon the day before, we pay them. And that keeps them loyal. Even if somebody else would pay them more, the tradespeople might have to wait 60 days to get paid.
SHILMOVER: Yes, it creates lots of goodwill.
Sylvain, what have you done to improve your company’s cash flow?
BOUCHER: We took a course on sales-force training in which we learned how important it is to ask the right questions about getting paid. We used to ask, “Could you leave a deposit for your foot orthotics?” And our customers would say, “No, no, I’ll just pay when you deliver it.” But, in that course, they told us we should instead ask, “Would you like to pay for your foot orthotics completely today, or just leave a deposit?”
As soon as we started asking that question, customers would say, “Yeah, put it on my Visa card. I’ll pay the total amount today.” They do that, then ask their insurance firm to reimburse them right away. Now, I get paid 100% on the day of closing and start manufacturing the foot orthotics right away, which means I can deliver them to the customer two weeks earlier.
So, your customers can finance this on credit cards that they don’t have to pay immediately themselves?
BOUCHER: That’s right. They wait for the insurance payment, but we get the money right away.
Who else has made changes to improve their company’s finances?
LITCHFIELD: One of the most significant things we’ve done recently has been to bring down our receivables. We moved from monthly to weekly invoicing. That was a big step to take, but it brought our receivables down from an average of 78 days outstanding to 52.
BARKER WATSON: Do you send out invoices by email?
LITCHFIELD: Yes, unless a client doesn’t want it that way.
SHILMOVER: I’m also being paid by electronic file transfer (EFT) now. And that’s fantastic, because there’s no longer an excuse not to pay us unless you don’t want to pay us. It’s not “Oh, I forgot to mail it out” or “There’s an accounting cycle” or whatever. Instead, we get on the phone with them and say, “Here’s what’s going on; do the file transfer.” You quickly identify who your potential bad debts are and can act on them pretty much right away.
Do you demand that people use EFT now?
SHILMOVER: You can’t really demand anything; it’s more of a push. And it’s a system thing as well. We’ve outsourced our collections to a company that contacts all our receivables every single week. Now, pretty much within a week, we know whether there’s an account that’s not going to pay. And then we go back and work with the collections company to get the account to pay us.
The Growth Forum roundtable series was produced by PROFIT with the support of BDC.
Read Growth Forum I: There’s Always Work Out There about economic uncertainty and how to prepare for whatever’s ahead
Read Growth Forum III: The Fine Art of Managing Gen Y about better ways to manage people—including those tricky 20-somethings
Read Growth Forum IV: How Companies Prosper in Tough Times about how leading companies sell in a weak economy, build their brands and market online