Blueprint for Success

Be Prepared

Once the decision has been made to move the account into special loans there is little anyone can do about it. Local influence on the account is gone and even the credit approval people become powerless as the Special Account Management group is usually outside the influence of virtually all other groups within the bank.

You need to be aware how serious this is and need to be prepared for the initial meeting and agenda that will likely be set out for you. Before the meeting, it is essential that you sit down with your trusted advisors to talk about the issues that have been plaguing the business. Don’t spend too much time on this as this is not an operational meeting, but it is meant to be able to put together a short outline of how you intend to fix the problems you may be encountering. For example, if you are frequently over limit or out of margin on your operating line, it means one of a number of things:

• poor internal controls on cash flow and the bank account
• sales and asset growth exceeding the capital growth of the company
• lack of long-term funding for capital assets
• lack of cash flow to finance capital repayment obligations or capital purchases
• protracted periods of loss

Whatever is the cause, the company should have a plan in place to address the cause of its situation with the bank before meeting the Special Account Manager for the first time. This is a first step, but you will find that (while the company should have a detailed plan for its own benefit) the SAM has little interest in hearing about the plan unless it involves a fix in the situation within 30 days. Long term solutions need not apply.

The SAM May Have His Own Suggestions

Be prepared to specifically speak to the direct concerns of the SAM which will be those which are most evident. If you have suffered severe losses, it will not likely be enough to tell him you are going to be more careful next year. He is looking for immediate replacement of the funds you lost. Or equivalent. So be prepared for the suggestion that you put personal money in, mortgage your house (if you haven’t already done this), take on a partner...any number of scenarios come to mind.

Be prepared to speak to his intention to appoint a national accounting or consulting firm to do a “feasibility study” on your business. This, I believe, is especially dangerous. It may turn out that this study will help you, especially if you can develop a relationship with the consultant, but it may turn out disastrous as an outsider comes in to give an opinion on your viability and make exit recommendations to the bank. Rest assured, this is what a feasibility study does. It not only examines the business, but also values the assets on a going-concern and liquidation value basis. Does the word liquidation strike any chords with you? Not to mention, the feasibility study will cost you a minimum of $15,000 to $50,000. That is your expense.

How do you fend off the appointment of a feasibility study consultant? Have at your hand a number of trade-offs that you can offer to buy time. Personal guarantee. Mortgage or additional security. Aunt Bea’s cottage. Sale of excess assets to reduce loans. The bargaining tools are in your hands. Remember, he wants to reduce the bank’s exposure quickly and anything you can do to make him look like a champion when he returns to the SAM office will win you temporary relief.