What to do when banks play musical chairs - bank mergers and acquisitions; includes advice for selecting a banker - Family Business

After doing business with one bank for 30 years, a family-business owner we'll call Bill Herrington "lost" his bank. When his bank was acquired by a larger one, he wasn't really surprised--despite his old bank's repeated insistence that it was determined to stay independent.

Herrington knew it would happen, but he was disappointed. Still, he resolved not to take the easy way out. He wouldn't just keep doing business with the institution' that absorbed his old bank--he would consider new options.

In the United States today there are 3,000 fewer banks than there were six years ago. Few family businesses have been untouched by this trend. One business we know had a strong relationship with a local bank for generations. It was acquired by large regional bank that traded it to another regional bank that was acquired by one of the nation's largest banks--all in a period of eight years. Without "changing" banks, this family experienced three changes in bank policies, technology, relationships, and costs. And experts say economies of scale will drive still more consolidation in the banking industry.

For many years, commercial banks have been the primary source of outside capital for family-owned firms. Long-standing relationships between bankers and business owners provided a level of comfort that capital would be there when needed. But in today's environment, that comfort is eroding.

What to do? First, don't be satisfied with wherever you wind up in today's game of banking musical chairs. If you had a good relationship with your old bank, rest assured that you are a valued banking customer. Banks are experiencing intense competition and more-sophisticated customer demands. Climb back into the driver's seat.

Start by thinking through what you want from your bank. Banks can provide much more than access to credit. Increasingly, they can aid with cash management, help manage employee benefits, provide benchmarks by which to judge company performance, and supply a host of services, from foreign exchange to business valuations.

Moreover, family businesses are often concerned not just with what the bank offers the business but also with what it can do for the family--providing personal banking, trust services, and, most important, a genuine understanding of family businesses.

Talk with your advisers or other business owners about their experiences with their banks. Chances are they will recommend that you choose a bank large enough to serve your needs yet small enough to give you personal service. They will also tell you that much depends not only on finding the right bank but on finding the right banker. You should seek a banker who:

* Is a respected lender within the bank.

* Has above-average experience, particularly in your industry.

* Is highly self-confident.

* Offers insights and ideas to improve your business.

* Is open and direct in discussing your needs and those of the bank.

* Has a track record of helping companies get capital from the bank or from other sources.

* Merits your respect personally and professionally.

Unfortunately, a symptom of changes in the banking industry is turnover in the ranks of the bank officers with whom you may have direct relationships. Build solid rapport with bank managers at the highest possible level. Make it clear to account officers that you will assess their performance in part by their ability to facilitate your relationships with their superiors.

When you commit to a banking relationship, you can protect it by carefully tending it to keep it strong. As with all relationships, communication is the key.

We've found that the following advice well serves family-business banking relationships:

* Ask your banker to review regularly your company's financials, whether or not you are borrowing.

* Make sure that successors in the business are involved in the banking relationship and that your bankers understand your management and ownership plans.

* Encourage your present bank and banker to learn more about how family-owned businesses function generally and how your specific business benefits from your family's commitment.

* Understand all you can about your bank, including knowing the bank's board directors, its mission and strategy, and its loan policy and loan-approval process.

If you haven't done so already, ask your bank for a copy of its financial statements and its Community Reinvestment Act statement, which must spell out its loan policies. Good relationships are built on mutual understanding.

We'll end with a note to any bankers who might be reading this column. Your good, business-owning customers are concerned, uncomfortable, and increasingly skeptical about banks. That translates into a great opportunity for those who can live up to the standards of "relationships" and "partnerships" that most banks claim.

Work to gain a real understanding of the way family businesses operate, what makes them strong, and what makes them special as customers of the bank. That effort will pay off by enabling you to retain existing customers and enhancing your capacity to serve them profitably, and by enabling you to gain new clients in the tide of bank customers set adrift by consolidation.

Moreover, as your understanding of family businesses permits stronger relationships, the quality of your loan portfolio will also improve.

What feels like a crisis for many banks and their family-business customers can become a real opportunity. By developing good relationships, all parties can come out ahead.

Craig E. Aronoff left, holds the Dinos Chair of Private Enterprise at Kennesaw State College, in Kennesaw, Ga. Norbert E. Schwarz has held top executive positions in both banking and family businesses. Both are principals of the Family Business Consulting Group, headquartered in Marietta, Ga. Copyright (C) by the Family Business Consulting Group, Inc.

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