Kenneth Dewitt is a CPA and certified financial planner who serves as a part-time chief financial officer for a variety of businesses, including trucking companies.
If there were one strategy for surviving and thriving in a tough economy, it would be to keep your banker on your side. Doing that is no easy task, as the common lament about bankers is that they give you an umbrella when the sun shines, and take it away when it starts to rain.
“Try to see yourself as your banker sees you,” advises Tim Valdez, President of Transportation Alliance Bank of Ogden, Utah, a bank that deals exclusively with the trucking industry. “Know what they look at, and do what you can to address these concerns for them in advance.”
Valdez has identified several attributes of trucking companies that prosper in tough times. He calls them the “five steps to becoming bankable.”
- Owners must invest in their own company. A bias to build net worth is always noticed by bankers. So is the opposite: weak, non-existent, or negative equity in a company. “Are the owners stripping out too much given their performance and circumstances?” Valdez asks. If so, expect bankers to be tough on rates and restrictions, and tight on credit.
- Have a bias to listen and improve. “The strength of the management team is paramount,” Valdez. “The best managers know their best routes and tracks and their worst. They are demons at managing their costs, such as their fuel programs, and build in incentives for compliance to their best practices by everyone in the fleet and company.” The best managers also listen to almost anyone who may offer a cost savings, a tighter management practice or an advantage, and they carefully consider how this might work in their own company.
- Manage your own credit when you are the banker. Fleet owners lend every day – through the granting of credit to customers. Who makes the decisions on credit and limits? If the dispatchers are the credit-grantors, this is generally bad, as their bias is to grant credit freely in order to fill the trucks. Your overall measure of days sales outstanding (DSO) will raise eyebrows if it exceeds 50 days if revenue recognition is upon dispatch, or 40 days if you recognize revenue on completion and delivery.
- Know the quality of your own book of business. Your customer base can be viewed as the sum total of your management oversight of your company. Let one customer reflect 25 percent or more of your accounts receivable or your revenue, and you had better have a good reason, such as a seasonal peak. Valdez recommends focusing on three things: growing your core business, managing your risk and cultivating relationships. It is as true for trucking companies as it is for banks.
- Know your own daily cash flow targets. “This dictates everything in lending, assuming all the others are in place,” Valdez says. “The managers who thrive in tough times – and there are many – know the daily and weekly targets in every key item that affects cash flow, from the miles to be driven, to where to buy fuel, to how much credit to grant, to how to cut idle time, to how closely to stay in touch with customers. One hiccup on any of these and they’re all over the problem instantly.”
In addition to these steps, you can anticipate banker needs by reading what they read about the trucking industry. Loan officers use various publishing sources, including articles published in Journal of Commercial Lending or topical studies by the Risk Management Association. These articles likely become inserts in your lending files, reviewed not only by your banker, but his boss, and their boss, the Loan Review Committee.
If you could see your company as your banker sees you – and take the consistent actions to build a stronger company – one day you will find that banks will compete to lend you money.
Purchase a banker “Industry Study Pack”, a collection of articles for bankers on your industry from the Risk Management Association (RMA): www.rmahq.org/Online_Prods/industrypacks.html (Select “Trucking”), cost $45.