Planning ahead Featured

7:00pm EDT December 27, 2005
The new year seems a logical time to take stock of personal and professional achievements. The turning calendar inspires us to measure our successes and consider future business opportunities, and most of the targets we set will require capital — loans.

Of course, we should consider our growth and investment goals all year, but January 1 is still a fine time to start a healthy planning habit. Begin by arranging a meeting with your banker, who can guide you toward realistic ways to fulfill your resolutions.

Smart Business spoke with Craig Johnson, president and CEO of Franklin Bank, about planning for the year ahead.

What should business owners review before planning for the following year?
It’s important to evaluate what your lending needs were during the past year and what you anticipate they will be in the coming year. You should prepare a projection and meet with your lender early in the planning process — even if you are not ready to process a formal loan application.

You’ll want to discuss capital needs, equipment needs and fixed asset purchases. Your banker will need this type of information to help you secure loans for these investments.

Why is it important for banks to understand your needs in advance?
Banks ebb and flow. For example, there might be times when a bank may be more aggressive with financing working capital than real estate.

If you sit down with a loan officer, prepare a summary of your last year and project your borrowing needs, you can get a feel for how the bank can finance your growth strategies. Also, the lender will want to get a feel for the positive and negative events that occurred in your company and the economy.

What happens if you wait too long to plan properly?
Say a company grew 10 percent, but it didn’t properly plan its working capital needs. As a result, the company had to approach the bank for a stopgap measure — bumping up credit at the time of line renewal or stretching trade payables. Generally speaking, a lot of small businesses should be able to project their next 12 months to avoid these last-minute fixes.

When a business owner makes such emergency requests, is he or she viewed as a risk by the bank?
The risk is that the bank could say no to the request. The same holds true with capital expenditures, whether for real estate or equipment. You want to talk with the bank early in the year and let them know the avenue you are paving. That way, come July, if you find a building and need to request a loan, you are more likely to secure capital than if you do not have dialogue with the banker in advance.

Also, the banker might not advise purchasing a new building, depending on the company’s financial picture. The banker might tell you, ‘Based on your growth, you should conserve cash.’ When you talk with the bank in advance, you know whether it will support your growth strategies, and you can also obtain valuable planning advice.

What exactly should a business owner prepare for an annual meeting with a lender?
You’ll want to be prepared with a summary of your last year, including revenues; what went well and what didn’t go well; new projects on the horizon; new clients; and any new products that will require additional financing.

Will you expand your current facility or buy a new building? Will you relocate or add another building in a different location?

On the other hand, consider whether you will contract your expenses in the coming year. What will you do in terms of excess space at existing buildings? Can you sell your equipment? How will you reduce your expenses?

What other banking considerations should business owners discuss during a planning meeting?
You should look at your existing banking relationships — your nonFDIC-insured investments. Are they meeting your needs? Are you maximizing your returns?

Think of cost and convenience. Would you be better served with different products and services? Your banker can provide suggestions on ways to ensure you invest wisely. Also, if you haven’t already enrolled in Internet banking, you should consider the security it provides and the time, money and storage space these services can save you.

Craig Johnson is president and CEO of Franklin Bank in Southfield, Mich. Reach him at (248) 386-9860.