An Intuitive Banker:
How counterintuitive can you get?
by Fred Gratzon
Gary burst into my office terror-stricken. “We're out of money!” he croaked.
“Already?” I gasped. “Didn't you just arrange an extended credit line last month?”
“We maxed it out,” he said
“How is that possible?” I protested. “I thought it would last forever!”
“So did I, but we're adding customers much faster than projected.” he replied.
“And that's bad?” I asked.
“It is when our suppliers demand to be paid before we are able collect from our customers. Plus we have to add more employees to handle the growth which also means more training, more desks, more computers, more phone lines, and stuff like that. All that burns cash. It's a vicious cycle,” he explained.
“Did you call Art at the bank?” I asked.
“Of course but he said no way.”
“Really? Maybe Cliff should call,” I suggested. “He's good at putting a favorable spin on things.”
“He already tried. Art turned him down flat.”
“Now what?” I asked.
I got up and walked into Cliff's office. Gary followed me. Cliff was sitting in the center of a swirl of letters, contracts, memos, charts, print-outs, reports, trade journals, and books, all liberally flagged with Post-It notes. A few clung to his computer monitor. Cliff looked harried.
“We've got to sell stock this second! Or we're dead!” Cliff declared, not mincing one word.
“Finding investors will take weeks, even months,” I countered. “And who's got time to court investors, let alone put together a memorandum? Certainly not you.”
“We have no choice, so we may as well get started,” argued Cliff.
“ Gary , how much time do we have before you guys start to squeak down there?” I asked.
“There is no time left,” said Gary . “One vendor is threatening to cut us off.”
“There's got to be another way out,” I said.
“Like what?” Cliff asked irritably.
“I'll give Art another call,” I said. “I'll start by begging and go from there.”
“You'd be wasting your time,” said Cliff. “He was adamant. He told me he won't even talk to us until we get a decent accounting system that can produce timely, accurate reports. We've got to sell shares. End of story.”
“But if the bank hates our accounting system, what makes you think an investor will feel differently?”
I went back in my office. Not wanting anyone to overhear me grovel, I closed the door and reluctantly dialed Art's direct line. When he answered, I braced myself for an onslaught of angry words. My quavering voice betrayed my nervousness.
“Look,” he said, getting straight to the point, “I told Gary and I told Cliff, the bank won't lend you any more money until you can produce a complete picture of how you are doing financially. I can't keep going to the well for you guys. It's getting ridiculous. You have no substantiation. I'm looking like a fool in front of the loan committee. You guys should just sell some stock.”
“How?” I asked. “Our accounting is a mess.”
“Change your accounting system,” he said.
“I wish it were that easy,” I said. “Art, we are trying to solve that problem, but software vendors are telling us a new system will take many months to install, besides costing a bundle. The trouble is, we're desperate now and have no where else to turn.”
Art sighed and was silent.
“How much do you need?” he finally asked.
“ Gary told me $500,000.”
Art sighed again. The pause was longer and more awkward.
I couldn't take the silence any longer, so I just blurted out, “We're growing so darn fast that things keep exploding. Not only have we blown out our accounting system, everything is strained to the breaking point – people, office space, phone system, computer network, cash flow, you name it. We even have a parking space crisis. Our database software can no longer handle the number of people who need to use it, plus we can't put any more new customers in it because it keeps crashing. The vendor issued us some emergency Band-Aids, but they said that their software can't be pushed any further. We had to divide it in two, and now customer service is toggling between two separate databases, which is a major headache. Look, we started this company on a shoestring. Now those early choices are killing us. But who knew the business would take off like this? And even if we did, we didn't have the money back then to do anything differently. Now we're trying to find a comprehensive solution, but that is not easy.”
Emotionally spent, I fell silent. This time Art broke the silence.
“Fred,” he sighed, “are you making money ?”
His question took me aback. “I don't know,” I replied honestly. “And there's no way of knowing. The accounting system is next to useless … as you well know.”
My response produced another abyss of dead air. When Art didn't speak, my heart dropped and my soul shrank. I pondered the tragic irony that my business was going to fail because it was too successful.
And then ….
The Universe must have hiccupped. God must have shot an air ball. Or Mother Nature must have dropped a stitch. I don't know what caused it but a banker, and not just any banker mind you, but a slicked-down, big time, urban banker said something that was completely uncharacteristic of his profession.
“Fred,” Art asked, “does it feeeeel like you're making money?”
The earth froze in its orbit. The cosmic flow of life jolted to a halt. All sentient beings on the planet instantly stopped doing what they were doing and concentrated their full attention on this unprecedented rent in the space-time continuum. Was the cosmos witnessing a great leap in the evolution of a species akin to the discovery of the wheel?
Let me call a “time out” here to make a clarifying comment. It is no secret that most businessmen live in the linear, logical, analytical world of their left brain hemispheres, bankers being a prime example of this mental functioning. In fact, in my experience, all of Mercantile-dom worships the left hemisphere with such fervor that any expressions from the spatial, emotional, intuitive right hemisphere are either demeaned, defamed, degraded, denied, denigrated, discredited, dishonored, disgraced, or discounted as having no value whatsoever.
For me, that is a problem. It is a problem because the right hemisphere is where I have set up shop. My left one is, well, to be charitable, not very alert. Alas, no amount of schooling, tutoring, effort, concentration, reading, vitamins, or flagellation, self-imposed or externally administered, has been able to wake it up. Linear thought, logic, sustained attention span, and retention of information are daily casualties of my left hemispheric sluggishness.
Now, here was a banker, in direct contravention to his genetic underpinnings, his psychological make-up, and his educational upbringing, attempting non-linear communication. My drowsy intellect notwithstanding, I am able to recognize a hanging curveball in my wheelhouse when I see one. When I heard his question, my eyes grew as big as Frisbees and I whacked that pitch into the bleachers in left center field.
“Well, it feeeeeels like we are making money,” I answered with Pavarotti-like sincerity, my moist eyes glistening with fresh, heart-felt tears.
Again there was a long pause. I heard Art exhaling resignedly.
“I need some numbers,” he said. “So just send me something. Anything! Even if it is on the back of an envelope .”
I hung up the phone in stunned disbelief. I sprung out of my chair and danced euphorically all the way to Gary 's office where I delivered a blow-by-blow description of my phone conversation. I ended with a flourish as I dramatically said those most improbable words “even if it is on the back of an envelope.”
I was floating in ecstasy. I had just been validated. My gangly, touchy-feely, open style of functioning succeeded where the polished, spin-doctored, MBA approach failed.
Art over-nighted the documents but before he did he made it unambiguously clear that this was the absolute last time he would go to bat for us until we got our accounting in order. I thanked him profusely and promised we would never put him in such an untenable position again.
Three weeks passed.
Gary burst into my office panic-stricken. “We're out of money!” he cried.
I blanched. “How can that be?”
“Same story as before. We're outgrowing our cash flow.”
“How much do we need now?” I asked
“$750,000,” he responded.
I winced. “Did you call Art?”
“He got angry and I had to hear him scream about how he told us last time was THE last time,” said Gary .
“Did you get Cliff to call?”
“He got angrier still.”
“Hoo boy,” I exhaled.
Cliff exploded into my office. “We've got to sell stock,” he declared.
“Maybe I should call Art,” I said.
Disgusted, Cliff spun on his heels and left.
“No, no, no, no, a thousand times no!” Art barked. “I told you three weeks ago that was the last time. I can NOT go to the loan committee again. I can't. And I won't. Period. Sorry, but period,”
“I know you can't,” I said as despair flooded my body. “We didn't know where to turn and you were our last hope.” I said. “Do you have any advice for us? Can you at least point us in a right direction/”
No words were spoken. The moment was supercharged with emotion – my hopelessness and his anger.
“How much are we talking about?” he finally asked.
“$750,000,” I said.
“$750,000?” he demanded. “Are you sure that's what you need?”
“That's what Gary told me,” I answered.
“This stinks,” he spat. “You know this really stinks.”
“I know,” I said.
There was a long stretch of silence. I heard computer keys being clicked in the background. I thought he had ended the call and forgot to hang up.
“Art?” I inquired.
“Wait,” he said irritably and typed some more.
When he came back on the phone his mood had mollified.
“Why don't you borrow it from yourself?” Art finally asked.
“You have got to be kidding,” I said. “None of us have that kind of money.”
“I don't mean from yourselves personally, I mean from your business. I just checked your average daily cash balance and it appears you guys never dip below $775,000. Since that is what you need, why don't you just borrow it from yourself?” he suggested.
“How?” I asked naively.
“By managing your cash more tightly,” he responded.
“I don't understand,” I confessed, knowing full well I was appearing hopelessly stupid – a sure way to scaring off what little confidence Art had in me. “I don't know what an average daily cash balance is or what it means to manage cash more tightly.”
“It means you guys always have at least $775,000 in your account with us at any given time. You just have to manage your cash more tightly ,” he said putting a Monty-Pythonesque hint-hint-nudge-nudge emphasis on his last words.
“But we've already written checks against that money. It's just those checks haven't cleared yet,” I said innocently.
“But if you manage your cash more tightly, you'd have the money you require,” he said impatiently.
I was at a loss not grasping what he was telling me. It seemed so inconsistent to my conception of how bankers thought. “Are you suggesting we kite checks?” I asked in astonishment.
“Absolutely not,” he protested. “I'm simply suggesting that you manage your cash more tightly ,” he said once more, enunciating the last five words slowly and deliberately.
I definitely was not seeing any difference between kiting checks and managing cash more tightly, so I asked a clarifying question. “Let's say, hypothetically speaking,” I began, “that in the process of managing our cash more tightly we accidentally slip up and a check clears sooner than we planned and we end up writing a check that exceeds our cash balance by say ….”
“By say $250,000,” Art interrupted.
I was blindsided by his example as I was about to say $25.
“Okay, let's say we bounce checks for $250,000 more than we have in our account, would you guys cover them?” I asked.
“Yes,” he responded.
“But we'd have to pay interest on them, right?” I naturally assumed.
“No,” Art said.
“No?” I asked surprised. “What would happen then? We'd have to pay some kind of penalty, right?”
“You'd have to pay an overdraft fee,” he explained patiently.
“How much is that?” I asked girding myself emotionally against what was sure to be an astronomical figure that would make managing one's cash more tightly both too risky and highly impractical, given our slipshod accounting system.
“Thirty five dollars,” Art said.
“Thirty five dollars!” I shrieked. “We bounce a check for $250,000 and we only have to pay $35?”
“That's right,” said Art.
My brain swooned as all the implications clamored in.
“All right then,” I said warming to the lesson and feeling a lot more cocky, “how many times, hypothetically speaking of course, could we bounce a check of this magnitude before the bank got irritated with us?”
“Let me put it this way,” Art answered, “I wouldn't make a regular habit of it if I were you.”
I hung up the phone dazed. Art, who was incensed with us for wanting to come in through the front door, was now enthusiastically waving us down the alley and through the back door. To this day I shake my head in disbelief. If it wasn't for the integrated hemispheric functioning of Art's brain (and heart), we'd have died ingloriously in mid-sprint. His heaven-sent strategy of managing cash tightly gave us enough money, time, and flexibility to continue operations and get our financial house in order. We did not require further loans and were able to obtain a mezzanine investment of $20 million before eventually taking the company public.
Art saw that my enterprise had caught a major wave. Everyone did. That was never the issue. I think what ultimately convinced Art to give us more chances was my guileless approach in discussing the business. I never tried to hide our many warts. I discussed them frankly. And I suspect that was refreshingly rare given all the spin and hand-waving he must have been exposed to by countless other businessmen.
It should be fairly obvious that Art's corpuscles were far too oxygenated to be suited for a blue-blooded profession like banking. Predictably he ended up leaving his bank's employ, on excellent terms I hasten to add, to join the ranks of us wild-eyed entrepreneurs and start his own company. He must have seen how quickly he was able to turn our shrieks of terror into rollercoaster-induced squeals of delight and I guess that he thought it looked like fun being one of the screamers. In any event, with his new entrepreneurial endeavor, I hope he finds a banker who can rescue him as frequently and as creatively as he did for us.
By the way, while managing our cash more tightly , we never bounced a check. We also paid the bank back in full and referred a lot of lucrative business its way.