Chances are you’re feeling the pinch of today’s economy in ways you never expected. With the recent banking crisis, you may be hesitant to share your worries with your bank for fear that it may see you as a risk. And your concern may be well-founded, as more than 40 percent of banks reported a reduction in credit lines to small businesses, according to a survey by the Federal Reserve.
But now, more than ever, is the best time to buddy up with your banker to develop a strong relationship that can help pull you through hard times and can ultimately save you money.
Forming a partnership with your banker makes sense, as you both share a common goal: the financial strength of your business. By talking candidly with your banker about all aspects of your business, you bring a financial expert to your inner circle of decision-making. Along with your accountant and attorney, your banker can help you streamline efficiency and keep you on the track to financial soundness.
“In a down economy, it’s more important than ever to have a lot of contact with your banker,” says Paul Murphy, CEO, Amegy Bank of Texas.
When you make time to talk with your banker regularly, you ensure that you receive the best services possible as well as the advice you need to keep your company running smoothly even when the economy is bumpy.Keep communicating
Communication is key during any climate, but keeping the lines of communication open becomes of utmost importance during downtimes.
“You really can’t overcommunicate with your bank,” Murphy says.
Like in any new relationship, those first discussions can feel a bit awkward. But each time you sit down with your banker whether during a quarterly meeting or through a monthly phone call it becomes more of a friendship. The most basic way to begin building the relationship is by inviting your banker to visit your business, so that he or she can visualize your passion. When a banker takes the time to see your business, he or she conveys to you that he or she is committed to helping you succeed and are willing to put in the time to learn your business.
From the onset, you must convey to your banker a sense of openness and eagerness to discuss the various aspects of your company. Additionally, there should be an understanding that both sides are in it for the long haul.
“For many customers, we’re their only source of capital,” Murphy says. “They can see that we’re consistent, we’re steady and reliable.”
You should also take advantage of networking opportunities presented by your bank.
“It makes sense for companies to attend monthly luncheons where banks are talking about risks and issues and changes in the market,” Murphy says.
These programs can provide valuable business information as well as an additional opportunity for some face time with your bank.
Discussing a vast amount of information will help your banker understand that you respect the partnership and are looking to the future.
While it’s easy to share positive news, such as unexpected revenue, some executives may find their heart racing when they think about telling their banker that a major account is hovering near bankruptcy. However, discussing matters quickly and honestly can pave the road to an amicable solution.
“If a good company has one bad quarter, we’re not going to overreact,” Murphy says.
Bankers detest surprises, so ensuring that you are their first line of communication is paramount.
“If you delay the distribution of bad news, then you could torch the relationship entirely,” Murphy says. “It’s better for bad news to travel fast.”
While a banker may not be thrilled to hear of financial shortcomings, he or she will ultimately respect a client who does not hesitate to share important information.Maximize the relationship
With a trusted adviser on your side, you can work together to develop a plan to prosper. To make the most of the partnership, go over your business plan together and discuss how to improve efficiency. Even if your company is thriving, you can always benefit from the sound advice of a financial professional who can help you look to tomorrow.
As a CEO, it’s your job to update the bank on any changes in your industry. Your banker can then help you plan your next best step, whether it be trimming costs or planning an expansion. It’s also a good idea to ask for your banker’s opinion on how you can take advantage of the low interest rates offered today. Refinancing may lessen your payments and free up cash for other investments.
Some questions you may want to ask include: How can I make my company financially stronger? How can I streamline my payroll process? What are others in my industry experiencing?
“Bankers are very comfortable talking about issues with their clients,” Murphy says. “We’re getting a lot of questions these days, and bankers would be very comfortable with the concept of that.”
Once you have a relationship with a bank, it may be tempting to shop around for additional services. However, remaining loyal to one bank for a variety of products even when you could get a slightly cheaper price elsewhere may actually save money in the long run. When a company has a variety of services throughout different departments of the bank, that company becomes a household name inside the bank and may be considered for special offers.
“The most important thing a business can do is to spend time,” Murphy says. “Attend bank-sponsored luncheons; go to lunch and sit down over a cup of coffee. Work to establish a personal relationship with the people at the bank”Find the right products
Banks today offer more services than ever before, and tackling the list on your own can be overwhelming. Once your banker understands your company, he or she can assist you in selecting products and services that can streamline your workday and improve your bottom line.
A popular item for businesses is remote check depositing, which allows an employee to scan an image of a check and deposit it instantly to its account from the comfort of the office.
Though some services have a fee, the benefits can outweigh the costs. For example, compared to traditional check depositing, remote deposits can save time and money by eliminating the need for an employee to drive to the bank.
In today’s market, cash is king. Products are available that can maximize your cash flow. Your banker can also provide advice on the best use for additional money such as investments or paying down loans.
With the nature of banking constantly evolving, a business must trust its banker to match the business with appropriate products. A company should review its banking products annually to stay fresh on the offerings.
In today’s tight credit market, even well managed, profitable businesses find themselves with limited options for financing growth. In order to combat that, these businesses should explore alternatives to traditional capital/financing sources.
Mezzanine financing, according to Sheila A. Enriquez, a senior audit manager with Briggs & Veselka Co., could be the answer.
Mezzanine debt is a hybrid instrument that falls between pure debt and pure equity. It is designed to fill the gap between the amount a senior lender will provide and the amount of equity capital the owners or buyers are willing to commit. Mezzanine financing is typically issued in the form of subordinated debt, and almost always includes “equity participation” or “equity kickers” in the form of warrants to purchase equity or conversion rights to common stock.
The debt has an amortization period, typically 5 to 7 years, earns an interest rate a few points higher than senior debt, and contains terms and conditions — which resemble bank covenants — and some equity conditions.
Smart Business spoke with Enriquez about mezzanine financing and what sets it apart from other capital options.
What are the advantages and disadvantages of mezzanine financing?
It offers more flexibility to structure coupon, amortization and covenants to accommodate the specific cash flow requirements of a business. It’s also a cheaper alternative than additional equity capital, and requires only interest payments for relatively long periods. Mezzanine financing does not require any type of management control or voting position; even though the owner loses some independence, he or she rarely loses complete control of the company or its direction. Mezzanine financing also increases the value of stock held by existing shareholders, even though they will not have as great an ownership stake. Most importantly, mezzanine financing provides business owners with the capital they need to acquire another business or expand into other areas.
As for disadvantages, the owner will have to relinquish some measure of control over the company, and lenders of mezzanine funds will typically have significant abilities to take action if the company does not meet its financial projections. Also, mezzanine financing is more expensive than traditional or senior debt arrangements.
Since mezzanine lenders usually do not have any direct security interest in the assets of the borrower, they typically incorporate restrictive covenants into loans by which the borrower must abide. They also include agreements by the lender not to borrow more money, refinance senior debt from traditional loans, or create additional security interests in the assets. The borrower must also meet various financial ratios.
Business owners who agree to mezzanine financing may be forced to accept restrictions in spending in certain areas, such as compensation of important personnel. Business owners may also be asked to take pay cuts themselves and/or limit dividend payouts.
What sets mezzanine financing apart from other capital options?
Mezzanine financing increases the range of financing options available to companies. For example, companies with a good credit rating, but whose funding requirements are not large enough for financing on the capital markets, can use this option to meet capital needs. Further, lenders of mezzanine financers are not really interested in the company unless there is a default. Traditional equity investors usually want to take control. With mezzanine financing, it can be guaranteed that financers will make a way for you to pay off the debt without opting for default. This funding comes in a form of stand-alone subordinate and equity transactions.
How does the financing process compare to traditional bank loans?
Traditional senior debt financing offered by banks and financial institutions are oriented towards collateral because of the regulatory environment and a bank’s financing structure. Consequently, a bank providing a loan will always be looking to secure it with mortgages or pledges of receivables and inventory.
Mezzanine funds are yield-oriented providers of risk capital who want to participate in the growth of the enterprise value. The risk of mezzanine finance is not covered by collateral but generally by financial covenants. Thus, mezzanine funds tend to be more liberal when it comes to tailoring the investment to meet the needs of the borrower.
However, because of the absence of collateral, the criteria companies must meet to qualify for mezzanine funding are also considerably more stringent than those for loan financing. The company’s ability to generate cash flow is often the most important consideration. Lenders also examine ownership flexibility, company history, growth strategy and acquisition targets (when applicable).
What are some key terms and negotiating points?
The key questions that businesses must be aware of when negotiating with mezzanine lenders include: Does the mezzanine lender require the same covenant package as a bank deal? Will the lender want to put people on your board? After the loan is issued, how closely will the lender scrutinize your financial statements? If the debt cannot be repaid, how will the lender handle it? Will it agree to restructure or refinance? What percentage of warrants will be required, and when can they be claimed? What are the relevant put (investor’s right to be paid in full) and call (company’s right to buy back the investment) provisions and how will the investment be valued at that time?
Business owners in need of capital should do some comparison-shopping when selecting a source of mezzanine financing. The ideal investor is one that understands the business and will respond consistently and appropriately in the event best laid plans go awry.
Sheila A. Enriquez, CPA, JD, is a senior audit manager with Briggs & Veselka Co. Reach her at firstname.lastname@example.org or (713) 667-9147.
Construction & Industrial Services
When Kenneth D. Meador took the reins of TWR Lighting in 1994 after a decade of success as a an advertising executive, he had just finished helping the leadership team beef up its marketing to better drive sales and increase visibility.
TWR was a subsidiary of a large, privately held tower erection, maintenance and communications service company, supplying specialized lighting systems red light and strobe used to mark communications towers. It had relied on existing customer relationships passed along by sister companies since its inception in 1981 and done well for itself.
But the company’s leadership thought it could do better. In 1991, Meador was given the opportunity to forge a separate brand identity for TWR. His success with that project led ownership to hand him the captain’s chair three years later.
Over the past 15 years, Meador has led TWR through good and bad times. He’s helped expand the company to more than 50 employees and successfully navigated its purchase and sale to three different owners as well as coordinating a complete facility move.
Where other presidents might have allowed the transitions to distract them from focusing on developing new products and services, improving service and satisfying the customer, Meador never took his eye off of the ball.
His vision was to create a company that would think creatively and be more nimble than its competitors. He knew that to succeed his team had to provide better products and services to customers than they were already receiving in order to forge long-term relationships. And he’s always remembered the golden rule in business put the customer first.
How to reach: TWR Lighting Inc., (713) 973-6905 or www.twrlighting.com
Business Services & Staffing
June Ressler didn’t know much about the oil and gas industry in 1996 when she had an opportunity to supply a few consultants to a major energy company so that they could share a group insurance umbrella.
Ressler, a family law attorney who had moved from Pennsylvania to Louisiana, had been preparing to take the state bar and put out her shingle in the South. Instead, she shifted gears, founded Cenergy International Services out of her living room and became certified as a woman-owned business.
Starting with only a few consultants and little or no supporting staff, Ressler began soliciting additional contracts from other oil and gas companies to provide consultants to oil fields that specialized in everything from the design to completion of oil wells.
Cenergy’s first few years of growth happened slowly, but it was able to pick up contracts with industry notables such as Chevron.
After stringing together a group of successful client engagements, Cenergy, with its corporate headquarters now in Houston, started a three-year expansion tear.
But once again, things changed. Internal client procurement groups that were responsible for hiring consultants started sourcing for value and safety rather than just expertise. So Ressler adapted, quickly forming a safety group and re-evaluating her pricing structure. The moves reignited Cenergy’s growth and set the company on the path for its next phase.
Today, Ressler maintains a pool of about 400 consultants who specialize in all aspects of oil well construction and development. She has secured numerous long-term clients with industry leaders. And she is focused on the future, which she believes is international, and is positioning her firm for global expansion. She has opened shop in Canada and built a presence in China, but she is constantly on the lookout for other good opportunities to pursue.
How to reach: Cenergy International Services LLC, (713) 965-6200 or www.cenergyintl.com
Joel Bomgar knew there had to be a better way.
He was working his way through college in IT support for a local Mississippi company and was quickly growing tired of getting into his car every time someone had a problem.
So Bomgar sat down and thought through the problem. He had a computer science background, though at this point he was only through his third year of college, so he started working on a prototype. The prototype was an enterprise remote system that would allow him to view and correct any problems his customers had with their equipment from his own desk.
It sounded like something from the future, but it was not long after that initial notion that he had a working prototype the Bomgar Box. Today, that first prototype is much-improved and has become a staple of Bomgar Corp., the company Bomgar founded and where he serves as president and CEO. With its technology, the company has support representatives bypass all intermediary issues that delay fixing problems, as those people can get access to other people’s screens anywhere in the world.
By removing proximity as a need for his company’s success, Bomgar has watched the company grow up almost overnight. Since its founding in 2003, it has grown to more than 4,500 total customers in all 50 states, and because it can go anywhere, the company also has a presence in 40 other countries. As the company has grown, Bomgar has pushed forward a quest to have the company hit $1 billion by accomplishing the company’s simple goal: selling licenses for the Bomgar Box.
With his singular focus on that goal, the company has been able to stay on track and keep improving its internal systems because, after all, Bomgar knows there is always a better way.
How to reach: Bomgar Corp., (601) 519-0110 or www.bomgar.com
Business Services & Staffing
Linda Moorehead isn’t one to panic. After all, when you’re handling logistics for the International Space Station you need a steady hand and a cool demeanor because many things can go wrong and the client counting on you to fix them is in orbit around the Earth.
So it should come as no surprise that in January 2003 when Moorehead learned that her employer, BLACKHAWK Management Corp., was $1.5 million in the red and on the verge of collapse, she didn’t start polishing her resume and prepare for a job search.
Instead, the then-human resources director decided to buy the company and take over as its CEO.
Despite its financial troubles, Moorehead knew the organization had a good core concept providing engineering, information technology, logistics and maintenance, and program management services to organizations such as the Department of Defense and National Aeronautics and Space Administration. The business model just needed a little tweaking.
As new owner and CEO, Moorehead quickly introduced numerous changes aimed at turning the company around. She empowered vice presidents in the field to take a more active role in marketing. She brought together her managers and other employees and took an assessment of everyone’s strengths. She stressed a focus on the customer, and she began to think about how to expand BLACKHAWK’s business prospects beyond traditional military sites and into other areas of its employees’ expertise.
The moves paid off, and it didn’t take long for Moorehead to move the company from the red and back into the black. She also turned the company into a family business, bringing her husband and two sons into the company.
Today, six years after she purchased the business, BLACKHAWK employs more than 250 people and operates nine locations across the U.S. and in Iraq and Afghanistan.
How to reach: BLACKHAWK Management Corp., (281) 286-5751 or www.blackhawkmgmt.com
Oil Field Products & Services
Daniel J. O’Leary is still a team guy.
Years after his college basketball career at the University of Tulsa ended, O’Leary still shies away from making his company’s success all about him or anything he’s done. Instead, he wants it to be all about the team at Edgen Murray Corp.
O’Leary, who is the steel distributing company’s president and CEO, has never been particularly enamored with the spotlight. After completing college, he started his career coding invoices at a small, family-owned pipe manufacturer in Baton Rouge, La., called Stupp Corp. As the years went on, he worked his way through just about every job at the company and became president and CEO. As he continued to succeed, he caught the eye of Edgen and joined the company in 2003 as its chief operating officer. Shortly after that, he was named president and CEO.
Once he took the full reins of the company, he took quick action. He consolidated the brand and centralized processes to help the organization become a company holding a unique space in the steel distribution market. He also made strategic moves and acquisitions, adding complementary companies beginning in 2005 and growing the company to 23 locations internationally, including 17 in the Americas and the rest spread across Europe, West Africa and Asia/Pacific. The result is a global footprint for the company.
Along the way, O’Leary pulled out his idea of team emphasis and began preaching the idea that Edgen will grow into a global supplier. Since then, the company has hired people who share O’Leary’s vision of the future playbook and can become the leaders of the next generation at Edgen.
Of course, O’Leary wouldn’t want to take the credit for all the good things that have happened along the way. He just keeps focusing on the future and preaching that good things are coming.
How to reach: Edgen Murray Corp., (225) 756-9869 or www.edgenmurray.com
When Joseph A. Sansone Jr. started TMC Orthopedic, the CEO had many obstacles to face. Not only was Sansone establishing a small medical business during a time when similar companies were struggling to compete with larger competitors, but TMC Orthopedic also had a legal issue.
After the legal case was dropped, Sansone made it his mission to make TMC Orthopedic a household name in Houston. Today, TMC Orthopedic is the largest provider of prosthetics in Houston and was recognized in 2008 as being the No. 1 place to work in Houston by the Houston Business Journal.
Much of TMC Orthopedic’s success has occurred after Sansone switched TMC Orthopedic’s focus strictly to prosthetics and great customer service. Today, TMC Orthopedic caters to amputees and physicians with unique services. The company’s mission is to make the patients feel they are not on an assembly line of care. Sansone has developed a network for the amputee by bringing together the patient’s primary care physician, wound care specialist, orthopedic surgeon and physical therapist. TMC Orthopedic also provides an amputee social group, which serves as a consortium for support groups around the city.
To ensure that his patients have a great experience, Sansone has established a distinctive partnership with their physicians. To maximize physicians’ reimbursements, TMC Orthopedic has developed a stock and bill program. This program allows for TMC’s products to be stocked in the doctors’ offices; TMC Orthopedic also bills the insurer directly when the prosthetics are purchased. This has reduced the patients’ need to go elsewhere for equipment.
In 2006, Sansone founded the charitable organization Limbs of Love, which provides prosthetics for amputees who cannot afford them. Sansone also lobbies for prosthetic parity, legislation that would prohibit health care companies from not covering prosthetic devices.
How to reach: TMC Orthopedic, (713) 669-1800 or www.myamputee.com
Bobby Tudor had a vision, and he acted on it.
After 20 years in investment banking, Tudor left his job to create Tudor, Pickering, Holt & Co. LLC on a foundation of combining a traditional equity research firm with investment banking and asset managing capabilities.
As it turns out, Tudor’s decision was spot on. TPH has grown that model to become one of the leading energy investment and merchant banking firms in the industry. The company has more than doubled in revenue in the last three years and has mushroomed from 23 to 73 employees.
That growth stems not just from TPH’s ability to differentiate itself as a top-quality firm in industry knowledge, stock recommendation, advising, sales support and service but also from the entrepreneurial spirit Tudor ingrains in his people. He used his own capital to help get his vision for TPH off the ground, and every day, he thinks of his work as, “great fun.” As a result, he’s passionate about his work, but he also helps employees keep things in perspective by modeling a solid work-life balance. He also brings his team together with an open and collaborative work culture. He may have left his old life to follow a vision, but Tudor believes that all of his people have a say in tweaking that vision on a daily basis.
Beyond the teamwork atmosphere that the collaborative culture of TPH creates, Tudor also sets the tone for corporate responsibility at the company to give employees a sense of something bigger. Rather than formalizing a charity program within the company, Tudor lets people make their own choices on giving, but he provides them with a wide list of companies to consider just from his own charity work at places like United Way of Texas Gulf Coast, Houston Katrina/Rita Fund and several others.
How to reach: Tudor, Pickering, Holt & Co. LLC, (713) 333-7100 or www.tudorpickering.com
Mark B. Slaughter may not be an entrepreneur in the traditional sense in that he didn’t found his current company, RigNet Inc., but he is the foster parent that took on a wild and undisciplined child and raised it into a focused and talented company with a bright future.
When Slaughter was named president and CEO of RigNet, a global provider of managed communication services to the upstream oil and gas industry, the company was six years old and struggling with managing high growth, poor processes, weak financial performance and low morale.
Shortly after assuming the reins, Slaughter learned the company faced potential Foreign Corrupt Practices Act violations resulting from lack of controls and poor compliance policies.
But Slaughter didn’t panic. He reported the issue to the board and hired outside counsel to address the problem. Then RigNet self-reported the issue and its solutions to the government. In 2008, the issue was resolved with the U.S. Department of Justice, which closed the matter and declined to fine the company.
Since then, Slaughter has implemented stringent internal controls at RigNet and created a global-compliant culture. His keen eye for detail has also helped solve other problems that RigNet faced and solidified the company’s place as an industry global leader.
Today, the Houston-based company has installations throughout 34 countries and six continents, spanning the global offshore drilling and production industry.
Slaughter has increased the company’s profitability through cost-cutting, restructuring and cross-selling initiatives. He has upgraded key management positions, realigned incentives programs, and instituted operational and financial processes that deliver improved customer satisfaction. And, he’s grown RigNet’s top-line revenue threefold from 2006 to the fiscal year-end on Dec. 31, 2008.
How to reach: RigNet Inc., (281) 674-0100 or www.rig.net