Vol. 37: “Shell the Beach”

The North Bay Business Journal, a publication of the New York Times, is a weekly business newspaper which covers the North Bay area of San Francisco – from the Golden Gate bridge north, including the Wine Country of Sonoma and Napa counties.



Article published – March 9, 2009

BUILDING A BUSINESS: Planning, pre-emptive explanation will help you with your bank

“Plans are nothing; planning is everything.” – Dwight D. Eisenhower

In the last column we discussed a few core principles about building a sustainable banking relationship. “No surprises” and “preparation” are two of the essential elements.

Now we move to planning. This is a broad subject with many variations, so we’ll focus on cash flow forecasting as an invaluable component of that process. While it provides an important tool for your banker, it must also be an indispensable part of your planning arsenal. Gen. Eisenhower’s comment focuses on the process rather than the result to emphasize that unexpected events and new information always make a difference.

Nonetheless, forecasting remains an elusive objective for many business owners. Most of the objections I hear are comments like, “I have no idea what our sales will be” or, “Who knows what will happen tomorrow let alone the rest of this year” or, “Our industry is in such a state of flux that no one knows what might happen.”

While these “Double V” economic times (big volatility and little visibility) make it more difficult than ever to predict and forecast performance, your bank will be remarkably unimpressed by these excuses. They rightfully expect you to produce a realistically achievable forecast based on your experience and knowledge of the industry. You can’t expect them to lend money without it.

This frustrates many business owners, but it’s hard to disagree with that notion. If you can’t provide a realistic scenario for your business future, how can anyone else understand the risks? Imagine that you’re considering an investment in another business – we’ll call it Newco.

How would you react to Newco’s inability to paint a picture of how it’s going to do this year? How much confidence would you have if it couldn’t produce a realistic and plausible plan?

The next concept I want to share is “shelling the beach.” By this I mean laying the groundwork for a more important next step. It’s usually a bad idea to deliver financial information to a bank without educating them so they can interpret and understand the results.

Yes, it’s pretty simple if you’re meeting or exceeding your forecast on a consistent basis. If you’re missing your forecast, however, don’t submit your results in the same routine manner that you would submit a favorable report. “Shelling the beach” means that you must first explain to your bank the circumstances contributing to that shortfall before handing off your financial results.

Let’s assume that you relied upon a forecast when making the investment in Newco I referenced earlier.

Now, it’s several months later and you’ve just opened your mail to find its latest monthly financial statement – which showed they missed their sales projection by 30 percent. I suspect that your next immediate step would be to call them to ask about it, probably in more colorful language than “What happened here?” You’d expect a prompt explanation and would probably have squandered most of your patience before placing the call. Why? First, because they violated the rule of “no surprises” and, secondly, because they’ve provided no context with which to interpret the results. Was it a monthly variance that was already corrected? Was it a single order that got deferred into the next month such that the poor results are insignificant? Or is it a sign of a deeper systemic problem that is cause for genuine concern?

Contrarily, you wouldn’t want to be in the shoes of the guy you just called. You just air-dropped a ton of bad news, without warning or explanation, and before you can utter your first words, you encounter a disgruntled shareholder (or banker) with a distrustful attitude. When you get that kind of a call from your banker, it rarely goes well. Yet, by “shelling the beach” – setting some context for unexpected financial results (a personal meeting with your banker is usually best) – you can explain why your results are below forecast and help your banker understand not only what happened but what steps you’re taking to remedy the situation.

You’ll find your banker far more amenable to an open conversation about next steps when he’s not reeling from the atomic fallout created by your financial bombshell.

So, prepare a thoughtful forecast to describe your future expectations. Keep your banker informed if you go off course, and be sure he understands the current situation before dropping unfavorable results on his desk. You will avoid many unexpected and unwelcome consequences.


Lary Kirchenbauer is the president of Exkalibur Advisors Inc., providing practical business strategies for family and other privately owned businesses in the middle market. He works closely with senior executives and their businesses to accelerate their growth and improve personal and professional performance and hosts a CEO Round Table for middle market companies in the North Bay. Please visit www.exkalibur.com for additional information.



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