George and his Banker

Meet “George”


Life was pretty good for George. His manufacturing company of eleven years had twelve well paid employees and he maintained a healthy gross profit after paying himself and his wife a nice salary.


In his slow season, a long-term customer placed a significant order – the kind of order guaranteeing that this would be a banner year. Just two weeks after taking delivery of the order, the long-term customer filed bankruptcy. 


Not only did the expected windfall of income and profit not appear, but the invoices from vendors for materials and goods that went into that order did appear – leaving the company with very little money. 


George was forced to scramble and take many shortcuts to maintain his vendor relationships and payroll deadlines.                                                                                                                                                                                                                                                                                                                                                     


With the business desperately out of cash – after tapping his line at the bank and using credit card debt – George told his banker, Paul, that he would like to extend his credit line for equipment upgrades (when he was really using the money to pay company debts).


Vendor payments became chronically late and George’s firm went from getting early payment discounts to being the kind of customer the vendors sought to replace. Some vendors did replace him and now George was looking for new sources of materials and semi-finished goods. His new relationships offered higher pricing and worse terms which affected the cost of goods sold.


Suffering lower margins and still short of cash, George pulled in any work he could find. (Most business owners know that pulling in crap work will not solve your problems.) His margins got worse and his company began to spend increasing amounts of time and resources on worse and worse work.


It took George about two years to spiral the drain before selling out to some bottom feeders for 18¢ on the dollar.


Paul (you remember Paul, the banker?). Well, Paul didn’t know things were amiss until a couple of payments on the line of credit were late.


So what was Paul’s role? Certainly not one as a trusted advisor. It might be that George was embarrassed or shamed by his sudden turn in fortune. But in reality, it does NOT matter what put George behind the eight-ball. It only mattered what he did next. 


Well, here’s what he could have done next:


“Hello, this is Paul.”

“Paul, it’s George over at XYZ."

“Hey George, how are you doing?”

“That’s what I wanted to talk to you about. Got time for a cup of coffee tomorrow?”


In my imaginary scenario, Paul and George have a cup of coffee and George explains his problem. The fallout required coming up with some kind of a plan that would turn the short term high interest loans into a longer term note that would not suck all the money out of the business.


Remember that George’s firm has a solid track record and was profitable – without the non-recurring loss that forced the credit card debt and short term high interest loans that sunk his company.


Paul could have made the presentation to the bank board and the bank could have agreed to provide the funds at a decent rate and less painful terms. While this might mean a tighter belt for three years, George would have survived the ordeal.  


But reality was that the final few years were stressful and unhappy. For him, his family, his vendors, and his employees. I’d like to think that company would still be around today if he had made use of his banker relationship.