STRATEGIC THINKING ABOUT SELECTING AND USING A BANK FOR YOUR BUSINESS OR NON-PROFIT ORGANIZATION

Article by Herb Rubenstein
CEO, Herb Rubenstein Consulting

It is well known that relationships with banks often play a central role for businesses or non-profit organizations with an annual revenue or income of over $1,000,000. Banks often have special “departments” for non-profits with annual receipts in excess of $3,000,000 annually and also provide “private banking” for managers and owners of companies with gross sales in excess of $1,000,000. The basic premise of this article is that all companies and nonprofit organizations, regardless of size, would benefit from strategically thinking about how to select and use a bank.

Below I will outline a process for selecting a bank that will not only lead your company or nonprofit organization to the right bank, it will lead you to the right kind of banking relationship with the right bank. This process should also be used even if you plan to stay with the same bank since it could lead to a great improvement with your current bank.

The first question to ask is: “How many banks does your company or non-profit organization and its top management currently use?” Often, small and mid-sized companies and non-profit organizations use two or three banks. When you add in the number of banks used by senior management and employees at small and mid-sized companies and non-profits, the number often gets well into double digits. Using so many banks prevents a company or non-profit organization (and its management and employees) from leveraging its most critical asset in dealing with a bank. This most critical asset is, “being an exclusive customer of the bank.” In order to get the most out of your company or nonprofit organization’s banking relationship, I recommend consolidating all business accounts, and lines of credit that a business or nonprofit organization has with one bank. While this may contradict the old adage “Don’t put all of your eggs in one basket,” the adage simply doesn’t apply to the megabanking environment of today.

Today, the more business you can bring to a bank, the more business a bank will bring to you. In fact, you may want to ask your new bank to send a representative to your company or nonprofit organization to let all of your employees know of the preferential treatment they could receive if they begin using the bank. Of course, since personal banking decisions are very private, management of a company or nonprofit should not actively encourage employees to use the same bank as the company, but should open the door to the bank by having a representative come on site.

The next question to ask if you want a better banking relationship is: “How do we currently use our bank?” In all likelihood your company or non-profit may have some line of credit, one or more checking accounts and possibly some deposits on hand in money market funds. If these are the only ways your company or non-profit organization is using a bank, then your company or nonprofit organization, like most companies and non-profits, are missing the boat. Banks now provide a broad range of services and your company should become knowledgeable about each.

Next, ask yourself, two difficult questions. “If everything goes 10 times better than expected during the next three to five years, what will we want from a bank?” And ask “If everything goes 10 times worse than expected during the next three to five years, what will we need from the bank?” The answers to these questions should be written out. This is scenario planning, an invaluable tool to you, your company or nonprofit organization and also to your bank. Make a check list for both the best and worst case scenario that includes the size of your line of credit needs, the size of your anticipated deposits, your investment objectives and a list of new relationships (with customers, suppliers, vendors, potential employees, potential members of your Board of Directors, public relations opportunities, etc.) that you would like the bank to provide for your company or non-profit organization.

The next step in the process is to interview two officers from at least two banks providing them with the information listed above and ask them to describe every service they can provide for your organization. In addition, be certain that you ask for the very top dollar line of credit you think your company or nonprofit organization will need over the next several years. Make sure that you offer the bank all of your credit needs, including all credit cards that you currently have, home equity lines for agreeable employees and management and lastly, but most importantly, ask the bank the role it can and will play in assisting you in expanding your company or non-profit organization.

Once you have determined which bank best suits your company or nonprofit organizations needs, establish a relationship with at least one person in the branch that you will use regularly. This person will become your primary contact, and will keep you informed of new banking services, important developments, staff changes, etc. Like any other business, banks do experience employee turnover. When this occurs, be certain to have your branch contact introduce you to the new employee, and apprize them of your needs. At any time, if you do not feel as though your needs are being properly met, bring this to the attention of a senior manager. No bank wants to lose any of its customers, so your satisfaction is very important to them. The key is for you and your organization to become “known” at the bank.

The days of selecting a bank because it has a slightly lower interest rate, slightly lower fees, is one block closer to your office or has a little easier computer access are now over. With the consolidation of banks, most banks are all alike in those areas. Today, and in the future, the real competition between banks is based on how well the bank, with all of its services and business relationships, can help your company, management and employees reach that scenario where everything will go 10 times better for you than you expected over the next three to five years.

Bankers should meet with your company or nonprofit organization’s representative in your office and should be given your quarterly, if not monthly, financial statement. Bankers should be a key referral source of new business (customers), new business ideas, new vendors and supplies and treat you and your company as a partner. Why else should your company or nonprofit organization give a bank your money and your banking business?

Welcome to banking in the 21st century. In some ways it is brand new and in other ways its like the way banking was done at the turn of the century.

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