Bank Board Letter April 2014 : Page 2

metric from retailers; successful bankers are recognizing this as an alternative way of measuring branch value. The uber-example of a retailer that has mastered this approach to its business is Apple. By renovating older stores and adding more open floor space, the consumer electronics powerhouse increased selling room and condensed transaction space, subsequently increasing store traffic and revenue. When one considers why consumers flock to Apple stores — to learn what is new, deal with product complexities and maybe even overcome fear —the comparison to branches is not such a stretch. Today, branch technology is being applied more often to shrink the back office and teller counter, and put the space savings and time savings to better use. While spreading fewer transactions over fixed costs is a burden, automating and com-pressing transactions is a benefit. Multifunction scanners, cash recyclers, self-service kiosks and other technologies are making it possible to reshape branch operations, drive down costs and give back square footage and staff time that can be used for richer and more complex customer interactions. As with any major shift in strategy, the benefits are only experienced if managed correctly, and evolving wisely takes planning, foresight and patience. Former Apple executive Ron Johnson joined J.C. Penney and, in an effort to revive its busi-ness, applied many elements of Apple’s approach at his new po-sition. However, Apple’s evolution was a result of a comprehen-sive strategy that recognized the specific needs of the business. Johnson’s attempts to duplicate his Apple success while at J.C. Penney were misguided, without much consideration for how a similar restructure — on a much smaller timeline — would im-pact business.The changes implemented were rushed and forced on the business, with a public failure as a result. Similarly, about 15 years ago, a particular bank conducted a cold-turkey switchover to video banking within the branch. Customers felt forced into adopting the technology and the bank lost business and brand integrity, not to mention the sig-nificant resources that had been dedicated to purchasing and implementing the technology. Did the bank put operational considerations ahead of the customer? Ultimately, the winning strategy for bankers opening more branches will be centered on richer and more complex customer interactions. Increased traffic, mindshare — and wallet share — will be the byproducts of this effort. Effective application of today’s branch technology can enable the strategy by automat-ing and compressing transactions, putting the resulting space savings and time savings to use for the customer, and maximiz-ing the dollars per square foot. Glen Fossella is chief operating officer, CTS North America, a market leader in providing branch automation technology to the financial services industry. For more information, go to www.ctsna.com. WARNING SIGNS: IS YOUR COMMERCIAL CLIENT SELLING THE BUSINESS? BY RALPH MONTGOMERY Y our longest-lasting and most loyal banking clients may leave you, and it has nothing to do with your perfor-mance. You guessed it — they’re selling their businesses. The bad news: You may increasingly face this scenario in the coming years as baby boomers reach retirement age. The majority of baby boomer wealth is in their 12 million privately owned businesses, and every day for the next 17 years, 10,000 boomers will turn 65. The good news: If you know the warning signs, you can turn this challenge into an opportunity. A sale doesn’t have to translate into a lost client. Getting in front of a looming transaction enables you to act as an adviser to your client — and perhaps even help the buyer of your client’s business secure financing. Depending on the circumstances, you may have the option of referring your client to your bank’s wealth management department. How do you know if a sale is on the horizon? Typically, you’ll give yourself an edge if you stay in tune with three areas of your NEXT MONTH: Cut Costs, Retool for Growth Bank Services Need Branding client’s life: his or her personal life, the industry’s trends and the company’s status. Personal — If you’re not already keeping in touch with your client, pick up the phone and check in. Or better yet, invite him or her to lunch. Pay attention to these five categories to determine if a sale is in your client’s future: 1. Age: If your business owner is approaching retirement age, chances are he or she now is or will soon be thinking about selling. Baby boomers started aging into retirement in 2011, so this will be one of the most common sale scenarios you face over the next 10 to 20 years. 2. Health. If your client’s health is becoming more of a con-cern, he or she may be interested in selling so as to focus on getting better — or maybe just slow down and smell the roses. The health of your client’s family also comes into play here. If a spouse or child has health concerns, a sale may be necessary to cover medical expenses, allow for caregiving or simply increase quality time. 3. Attitude. If your client’s passion for business seems to be waning, he or she may be considering a transaction — and if one doesn’t transpire, the business may go under, as a busi-ness rarely thrives when the leader loses interest. Timing a sale of one’s business at or near its peak is always one of the most challenging situations for an entrepreneur and requires thoughtful introspection. 4. Family. Does your client have kids who can take over the family business? If not, you can expect the owner to begin

WARNING SIGNS: IS YOUR COMMERCIAL CLIENT SELLING THE BUSINESS?

Ralph Montgomery


Your longest-lasting and most loyal banking clients may leave you, and it has nothing to do with your performance. You guessed it — they’re selling their businesses.

The bad news: You may increasingly face this scenario in the coming years as baby boomers reach retirement age. The majority of baby boomer wealth is in their 12 million privately owned businesses, and every day for the next 17 years, 10,000 boomers will turn 65.

The good news: If you know the warning signs, you can turn this challenge into an opportunity. A sale doesn’t have to translate into a lost client. Getting in front of a looming transaction enables you to act as an adviser to your client — and perhaps even help the buyer of your client’s business secure financing. Depending on the circumstances, you may have the option of referring your client to your bank’s wealth management department.

How do you know if a sale is on the horizon? Typically, you’ll give yourself an edge if you stay in tune with three areas of your client’s life: his or her personal life, the industry’s trends and the company’s status.

Personal — If you’re not already keeping in touch with your client, pick up the phone and check in. Or better yet, invite him or her to lunch. Pay attention to these five categories to determine if a sale is in your client’s future:
1. Age: If your business owner is approaching retirement age, chances are he or she now is or will soon be thinking about selling. Baby boomers started aging into retirement in 2011, so this will be one of the most common sale scenarios you face over the next 10 to 20 years.
2. Health. If your client’s health is becoming more of a concern, he or she may be interested in selling so as to focus on getting better — or maybe just slow down and smell the roses. The health of your client’s family also comes into play here. If a spouse or child has health concerns, a sale may be necessary to cover medical expenses, allow for care giving or simply increase quality time.
3. Attitude. If your client’s passion for business seems to be waning, he or she may be considering a transaction — and if one doesn’t transpire, the business may go under, as a business rarely thrives when the leader loses interest. Timing a sale of one’s business at or near its peak is always one of the most challenging situations for an entrepreneur and requires thoughtful introspection.
4. Family. Does your client have kids who can take over the family business? If not, you can expect the owner to begin considering an eventual sale or transition to existing employees as a means to achieve liquidity.
5. Liquidity. If your client needs money for another venture or investment, he or she may think selling the business is the best source for capital, and correctly so. But keep in mind: there could be viable recap options to help gain liquidity without selling, which may be in his or her best interest.

Read your client’s industry publications and join the leading industry Linkedln groups to stay current with industry trends and projections. If you notice any of these three flags, the environment might be right for your client to sell:
1. Competitor sales. It could be a prime time to complete a transaction within the industry if your client’s competitors are selling at decent multiples.
2. Industry consolidation. Are larger companies buying or merging with your client’s competitors? Your client may want to get in on the buying frenzy while his or her company is in high demand.
3. Increase in competition. If your client is faced with increasing competition, he or she has two choices: grow or get out. Does he or she have enough energy and capital to support growth? If not, the latter option may be the better choice.

You may have constant contact with your client, but do you know what’s going on inside the company? Here are four company- specific areas to learn about:
1. Management. If most of the company’s senior management is nearing retirement age, your client may foresee rapid defections on the horizon. He or she may conclude that selling is a better choice than replacing the majority of his company’s leadership team.
2. Company growth. Certain employee growth numbers change the rules of business. For instance, if your client’s company is approaching 50 employees, new health care requirements may come into play. He or she may not want to navigate the new territory. Company growth milestones may indicate that your client’s company is thriving and he or she will be your client for many years to come, or conversely, growth may indicate a new level of commitment that your client is not interested in managing. Pinpointing what category fits your client will help you offer sound advice.
3. Goal fulfillment. Many times, entrepreneurs start a company with an end goal in mind. If your client is approaching a sales or revenue goal, he or she may be going to market soon. Sometimes the best way to learn this information is at the onset of your relationship. When clients come to you for a loan, discuss their goals and document them. This information is extremely valuable in assessing your client’s company in the future.
4. Corporate behavior. Did your client order an audit? Is inventory noticeably thin? If a client is making changes to the company’s corporate structure, it may be a sign he or she is preparing to sell.

Having these selling signs in mind will help you understand and therefore serve your client better — not only as his or her banker, but as a trusted adviser.

Ralph Montgomery is managing director at FourBridges Capital, an investment banking firm based in Chattanooga, Tenn., that guides business owners in buy and sell transactions or accessing capital for growth. More information is available at www.fourbridgescapital.com

Read the full article at http://omagdigital.com/article/WARNING+SIGNS%3A+IS+YOUR+COMMERCIAL+CLIENT+SELLING+THE+BUSINESS%3F/1685003/205134/article.html.

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