Bank Local

Bankers are not very popular these days. Neither are they considered very trustworthy. A quick search on Google or Bing brings up quite a collection of articles about declining trust. Here are two examples.

• What Banks are Still Missing: Trust, May 4, 2009
• Trust in Banks…gone! How to get it back? November 17, 2010

A healthy mistrust of banking is very trendy. Distrust of large financial institutions is as American as apple pie. The second and third Presidents of the United States were both leery of banks. President John Adams was no friend of banks when he said,

Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.

Thomas Jefferson also had some scathing words.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. 

The problem with the universal condemnation of banks and bankers is that it is misplaced. There are several banking systems. Adams and Jefferson were writing about a national bank. The recent financial meltdown was caused by another type of bank, the “too big to fail” banks and financial institutions. These are the banks that consumer guru Clark Howard calls “giant monster mega-banks.” However, locally owned and community based banks still deserve our trust and respect. If anything good comes out of the financial meltdown and the near collapse of the big banks, it may be a return to banking at locally owned and community based banks. If this happens, then it is part of a larger trend of doing business locally.

Many modern banks and financial institutions are primarily transaction processors and speculators, but those are new roles for bankers. Banks, especially in small town America, used to be the institutions that helped start small businesses and made it possible for people to buy homes. When little boys and girls saved their allowance or paper route or babysitting money, they dutifully took it downtown to the bank, and the friendly banker put it into an account and marked the deposit in a passbook. Banks encouraged people to put money away for a rainy day or to save for big purchases. Before the days of MasterCharge (now MasterCard) and BankAmericard (now Visa), banks encouraged customers to save for holiday shopping with Christmas Club Accounts. Now banks encourage customers to take on high interest rate debt. It is hard to say which came first, the rise of giant banks or the change in social mores from planning and saving to debt. In either case, too much debt is a huge part of the morass in which the world finds itself today. It turns out that easy credit had consequences.

The solution is to return to banking as it used to be. If you know where to look, you can still find a friendly banker. There are still places where children can deposit their allowance into passbook accounts. You can still find bankers that will discuss your business plan and work with you to help your business succeed, and there are still banks that will lend you money because the loan committee knows you personally, and they consider your character as important as your FICO score. A community bank  in Central Texas runs an ad where the banker asks, “Who is your banker?” He’s not asking the name of the bank. He’s asking the name of the person at your bank that knows your name. Do you bank where someone knows your name?

Local and community banks in your town also support neighborhood business. They have a vested interest in the success of the local grocery or pharmacy or hardware store because they shop in those stores. When the banker lends money to someone to open a new restaurant, it is not simply another loan to generate profit for the bank. Instead it is a new business for the community and another place that families, including the banker's family, can go out to eat.

Neighborhood bankers don’t just want local business to make enough money to repay their loans. They want local businesses to be successful so that the community is prosperous. When local banks make a profit, the money stays in the community and supports local business.

If you long for the days of a friendly banker that knows your name and not just your account number, if you want to do business with someone that will take the time to learn your business and wants you to succeed, if you want to bank with someone that is part of your community and not just a branch of some giant corporation, then it is time for you to start banking with the locally owned banks in your community.

Why Groupon Succeeds

Have you ever used Groupon? Groupon is a service that sends out a daily email with coupons for local businesses. Most of the deals are pretty good. If you don’t have any idea what I am talking about, ask around. One of your friends probably subscribes to Groupon or has used it on Facebook. Business owners that have used Groupon to promote their business have reported that doing so resulted in a lot of sales. Groupon is a new company, and it appears to be successful. According to recent speculation, Google may even be considering purchasing Groupon.

The whole concept and implementation is innovative. Even so, there must be some secret to their success. Do you wonder what it is? Do they have some sort of super-efficient way to manage their vendor and customer relationships? Could it be cutting edge technology?

Well? The answers are no and no. The secret is their attention to detail and the quality of their writing. Groupon does not rely on business offering deals for ad copy. It has a writing staff. It may not be off-the-wall like this product description I’ve added to the end of this post for a wool coat from the J. Peterman Company, but according to CEO Andrew Mason,

. . . having well-written, engaging content is a key part of convincing users to keep reading about new shops that they might never have never heard of.

Creative writing was a hallmark of J. Peterman whose ad copy was so well known that it even ended up as part of the plot line on the popular TV show Seinfeld.

Groupon works because Mason and his team understand the importance of branding and of articulating a value proposition to customers. Groupon recognizes that it has two customer groups: the vendor with the product and the customer looking for a deal, and it offers value to each group. Groupon’s brand represents good deals for consumers and an easy approach to product promotion using online coupons to for vendors, and the company avoids the trap of being another coupon clipping site.

Check out this blog article about Groupon. DEMO: The secret of Groupon’s success is … good writing?

  

J. Peterman Company product description:

North Woods Know-How

Men who wear jackets like this know things.

• How to start a fire in the rain.
• Measure a cord of wood.
• Build empires.

Like Samuel Bingham. Started out as a saw-filer and eventually became “The King of the Cascades.” At 60, he was still showing the greenhorns how to untangle log jams on the Gatineau.

Or J.R. Booth. Started out as a carpenter with $9 in his pocket. Worked well into his 90s and left a railway empire estimated at $33 million.

Clearly two men worth emulating.

Wool Zip Jacket (No. 2833). Both rugged and handsome, it’s made of a 90% Melton wool blend that’s brushed so the warp and welt yarns aren’t visible. 2-button adjustable cuffs. Side slits. Front and back yokes.

The front yoke is unique in that it covers the pockets, making them the perfect place to keep maps, a deed, or your GPS unit. Extremely warm but not bulky.

Every North Woods estate should come with one of these jackets and a black lab. Imported.

Men’s sizes: S, M, L, XL, XXL.

Colors: Navy, Red.

A different approach to business plans

I wrote a short note to an old Marine Corps buddy who is launching a new business. This is what I wrote.

Here are a few things for you to think about as you get rolling.

You need to develop a one sentence description of your venture that captures the essence of what you plan to do. If you want to dust off your old field manual and use SMEAC that will work. Just be sure you cover the Who, What, Where, When, Why, and How.

Be sure you have a clear vision of what you are trying to accomplish. In the business planning world, this is called a vision statement. Figure out something that helps share your vision that is memorable and short. KISS is the acronym to remember for this one. “Keep It Short and Simple.”

You also need to have a clear understanding of your mission. One way to do this is to take the time to write out a simple mission statement.

If all of this sounds like the beginning of a formal business plan, that is because it is. Here are the basic components of a plan.

Summary
Overview of the business
Analysis of the market
Description of products
Organization and management
Marketing and sales plan
Financial details

If you have experience with business plans, most of this should be familiar, but what is SMEAC? If you have a military background, then you may recognize SMEAC as a Five Paragraph Order. The Five Paragraph Order, or some variation, is the format for virtually everything the military does. The initials stand for:

Situation
Mission
Execution
Admin and Logistics
Command and Signal

The armed forces are large bureaucratic organizations, and it is easy to poke fun at them. However, two things that the military does better than most are organizing and planning. For example the basic administrative tasks of military units are divided into four parts: 1) Personnel, 2) Intelligence, 3) Training and Operations, and 4) Supply. Those four groupings are clear, concise and complete. One of the ways that the military accomplishes its organization and planning tasks so well is that it has developed consistent methods and proven them over time. The processes are also simple and easy to remember. For example, when troops need to report enemy intelligence, they simply remember the acronym SALUTE which stands for Size (of the enemy force), Activity (of the enemy), Location (of the enemy), Unit, Time, and Equipment (of the enemy). This is simple and easy to remember. It also provides all of the information necessary.

SMEAC is an easy to remember way to organize a plan. It will work with big projects and small projects. It is simple, and it contains all of the elements that would normally be included in a business plan. The following explanation is simplistic, but it will help you to understand the concept.

Situation
This section is exactly what it sounds like. It is the section where you will provide an overview of the relevant facts and provide background information. This is also the place where you would explain the business opportunity.

Mission
This section is where you will explain what you will do. You do not need to explain exactly how you plan to do it. You will explain how in the next section.

Execution
In the previous section, you described what you were planning to do. In this section, you will describe how you will do it.

Admin and Logistics
This section will include the details to support what you say you will do in the Mission section. It will tie to how you plan to do it as described in the Execution section.

Command and Signal
In this section you will describe your organization.

As you can see, the Five Paragraph Order is clear, concise and complete. I’m not suggesting that you use it instead of the business planning formats that you already use for two reasons. The first reason is that if you are already comfortable with a process that works, you should stick with it. (If what you are already doing does not work, that is another matter.) The second reason is that most of the other people that you show your plan will be more familiar with a more traditional format. Even so, it is useful for you to understand this way of organizing your plan. It will help you to write a more complete plan and to write it more quickly. SMEAC is also so simple that you may find that you are able to take the time to plan that you may have done without planning in the past.

Do you need a zero balance account?

A zero balance account is an account that usually has a zero or extremely low balance. Businesses use zero balance accounts to manage cash by moving money into the account only when it is going to be needed for a specific purpose. For example, payroll accounts are often zero balance accounts. Businesses will move the funds necessary to cover payroll into the account right before issuing paychecks, and then as employees cash the checks, the balance will drop back to zero. Zero balance accounts let businesses keep cash invested until it is needed. Zero balance accounts also help reduce exposure to fraud because it limits the number of people who have access to other business accounts.

Zero balance accounts are useful whenever a business makes routine or predictable payments out of an account. The most common example of this is payroll, but other examples could include rent or vendor payments.

So the question is, “Do you need a zero balance account?” The short answer is that you do if a zero balance account will help you put idle cash to work. While it may seem to be a lot of extra effort, many banks that provide cash management services can help you automate the process.

There is another reason to consider a zero balance account, and this reason applies to all businesses. It also applies to people that do not own businesses. The reason is fraud. Do you bank or shop online or use a debit card? Have you set up automatic debit transactions with vendors? A zero balance account can protect you. Consumers have a measure of fraud protection when they use credit cards. Business credit cards may not have the same protections. Debit cards may offer fraud protections, but legal protections may be limited. There are also some issues with automatic debit transactions.

Here is how a zero balance account could work for you. First establish a new checking account. Use a checking account because savings or money market accounts often limit the number of withdrawals that you can make. Keep your existing checking account. You use the same financial institution where you normally bank. That will make it easy for you to make transfers as necessary, and it will limit your additional recordkeeping. Try to use an account that allows a zero or very low minimum balance and either no fees or small fees. Some financial institutions will combine the balances of all of your accounts for the purposes of calculating minimum balances. You should also choose an account that will let you set up automatic transfers.

Once you have the account established, link it to your debit cards and online banking. Use the new account for automated debits and other predictable transactions. If possible, unlink your debit card from your old account. You can set up automatic transactions that will transfer funds from your first account to your new low balance account to cover your routine transactions. When you know that you are going to be using your debit card transfer the funds to cover your anticipated transaction. The idea is to limit your exposure to risk by limiting the amount of money in your account. Another way that it works is that setting up a cash management process that requires regular attention also increases your awareness so that if you are a victim of fraud or theft, then you will be able to respond more quickly.

Does a zero balance account makes sense for you or your business?