Aprivate banker can offer an excellent partnership by designing a financial plan for a business life cycle, says Mary Ann Stropkay, senior vice president of FirstMerit Bank. Bankers provide the opportunity to depersonalize the financial aspects of your life and business. They help manage risks by offering an objective view of how to start a business and help it grow.
Personal and professional priorities and goals should be determined with a private banker, as well as a plan designed to achieve the desired result. The private banker’s expert opinion can help you determine answers to questions you may have overlooked. A good banker will revisit the plan every year. The plan will change throughout its life cycle and should be adjusted accordingly, says Stropkay.
Smart Business spoke with Stropkay about the life cycle of a business and how a banker can help design a financial plan for each stage.
How can a private banker help you plan for the stages of a business/personal life cycle?
The four stages are creation, growth and development, maturing and investing, and retirement and distribution.
During the creation state, a banker should be consulted as soon as possible to discuss lending opportunities. At this stage, a banker should offer funding suggestions and provide investment and financial plans for growth. Bankers will discuss cash planning and expenses. They will take a realistic, objective look at your new business.
Development and growth strategies need to be outlined. As a business owner, you must determine where you will get the funds to start. There are many resources for funds, such as a financial lender, family, friends or personal assets.
During the growth/development stage, you begin to acquire wealth. A private banker will help design a plan for profit. A tough question for many business owners is, ‘Should I reinvest profit into my business or should I start saving for my personal needs?’ Each situation is different, but a private banker can help you find the correct answer.
Bankers also can help you locate outside investors who may be interested in your new business. ‘Angel’ investors often look for small businesses in which to invest money, enabling the company to grow. These investors often use banks and bankers as a contact for new ideas. Private bankers can point them in your direction.
At the maturing/investing stage, a banker should help diversify your risks. Your No. 1 asset besides your home will be your business. You have to plan for failure. In the event something happens to the business, what would you do? A private banker should supply different options and levels of risk and security. You should review these options with the banker regularly to make sure they still fit your needs.
At the retirement/distribution stage, business succession planning is necessary. A banker can help you look objectively at the future of the business to determine the best course of action. A banker will ask tough questions that must be answered, like ‘Will the business go to the family or to a business partner?’ It often is beneficial to consult a specialist for an evaluation about the future of the business.
This stage is emotional, so an adviser is necessary to offer an objective view. Estate planning is crucial, and your family must be aware of the plan.
What should a business owner look for in a banker?
You want to work with a seasoned lender. The person should be an expert but doesn’t have to possess all the answers. A banker should be comfortable bringing in experts to provide the service you require.
The bank is just as important as the banker. You need to look for a team that will serve your business and personal needs, even though team members may change as you evolve in the life cycle.
The more informed your advisory team is, the better. The team should have key partners, such as an attorney, a CPA and a banker. Preferably, team members should know each other and have regular conversations about the business and the plan.
The banker should understand the family and the emotional makeup. You want someone to guide you down the path to your dreams.
What are the common mistakes made when developing a plan for your business and personal future?
Most people do not plan far enough in advance. The problem is business owners believe they cannot fail. They would not have taken on the risk unless they were self-confident enough to believe they were going to be successful. Everyone must have an exit plan in case a business does not succeed.
The biggest risk is they are not seeing their businesses as separate from their lives. At the beginning stages of a business, you may not have a choice. But the two plans should become separate as soon as there is enough profit.
You will not have enough for retirement if you keep reinvesting in the business. You must be realistic. Let a banker review the plan and your goals and help you determine where new profit should be invested.
MARY ANN STROPKAY is senior vice president of FirstMerit Bank. Reach her at (330) 384-7877.