You may have heard about someone going out of business lately, shook your head and said “That’s a shame” and continued with your day. After five years of recession, consumer fatigue, stalled housing and increasing competition, we all knew a shake out was inevitable.
Most people assume that failing companies are badly run, saddled with debt and just not up to life in today’s retail fast lane. And there is some of that, no question – owners unwilling or unable to change their strategies and operations. When the national lawn and garden market shrinks 20+% since 2007 and the sales of trees and shrubs drop by 46% in 4 years (National Gardening Survey), retail decisionmakers had better be nimble … or else!
But sadly, there is more to it: garden centers that are making money go out of businesses too. We know of two (over 100 successful years between them) who are currently scrambling to stay in business despite positive cash flow, increasing customer count and on-time bill paying.
The reason? National brand banks are turning away from their traditional role of credit-line supporter. Maybe there was a bankers’ convention about the dangers of “exposure” to small family-held garden retailers. Maybe being awash in cash, large banks have decided they can afford to drop these relatively small accounts – they probably never were very profitable with low bonus opportunities for the top cats anyway.
Let’s Blame the Fed
We know an owner who was excitedly taken on-board with an aggressive pitch and very competitive terms by a national bank in 2007. The bank won all his business, loans, merchant fees and credit line effectively tying up all their collateral against long term construction loans. Now he is told that the yearly rubber-stamp for a winter credit line (always paid back on time in spring) has been refused and their application sent to the bank’s own “Graveyard”.
There, bean counters who know nothing about their customer, will declare the business too risky according to their formula. Even more galling is a bank tendency to blame this on the Federal government’s post 2008 lending guidelines. The retailer said to me, “Didn’t I – the taxpayer – just bail them out? This is what I get in return!”
After many years of providing local employment, creating wealth and running many millions of dollars in sales through the bank year after year it’s over; but you can’t fight it. Today’s reality is to learn and move on.
A “DUH!” Moment
This retailer was told that as their company didn’t make a profit last year, they couldn’t have a credit line. Well, DUH! It is a privately held company, of course they didn’t show a Net Profit on their Profit and Loss statement! But if the bank was interested enough (obviously not) to do an EBITDA calculation from the same documents and spend about 15 minutes on the phone with the owner (as I did), they would see that there was plenty of Net Cash Flow (a much more accurate measure) generated last year.
The kicker is that with the national bank holding the retailer’s collateral, no other bank will give them a credit line either. So, like others we know, this retailer is now schlepping his business around town to see how community-minded these local banks really are. The owners are cheered by the attitudes of managers they are now “interviewing” for the privilege of being their customer, so they feel safe, at least until that local bank gets amalgamated into another national “brand” with lush ads and silly mileage cards.
No names mentioned here (to protect our own Net Cash Flow!) but that same national brand name comes up a lot these days in this discussion. Clearly as they grew from regional retail and community bank to international investment and commercial banking giant, they forgot to read their own “Visions and Values” (I am being kind), or are simply dumping the small businesses that once were their life blood.
The Moral of the Story
The moral, if that word fits in a banking story, is to find a bank who knows that your business matters to them financially. Remember, your weekend cash flow is their source of loan money next week! Now is the time to be a bigger fish in a much smaller pond. Be prepared with true Net Cash Flow documents, not just your own P&L or tax docs. Find a bank (still one that is insured and tested by the Feds preferably!) with a few branches in town, where the decision maker might even know your store. Most cities do still have a few banks living by their original values without visions of grandeur. (Who knows, the manager might just show up for that seminar on herbs!)
If you’re not ready to hang out that “Closed” sign for good, your banker needs to be an ally for you, not an adversary. It’s time for you to practice what you preach to your own customers: SHOP LOCAL.