A banker sees slightly better times,
and tells how to survive until then
John Kimball is a newcomer to Minnesota, having become Associated Bank’s CEO for the state last April after several acquisitions by the Michigan-based bank holding company. He’s an old hand, though, at talking to business owners to get a read on the economy, and to figure out what it takes to survive.
Upsize talked with Kimball to get his take on a slightly recovering economy, and to share his advice about stretching cash resources until things improve. He says now is an inexpensive time to expand.
Upsize: What’s your economic forecast for the rest of the year?
Kimball: From the businesses I’ve been talking to, there’s no real clear direction, although we’re getting more feedback that things are picking up. It’s not as gloom-and-doom as it was. The financial performance of our customers is better than a year ago, not dramatically better but it’s trending better. Some of that’s because the weaker companies are gone.
Upsize: What’s the quality of your loans?
Kimball: Our credit quality is not unique. It’s typical. We go through the cycle with our clients.
Upsize: Are you pulling back on lending?
Kimball: It’s very competitive to get the loan business. Most of the banks have money to lend. The need to finance AR and inventory goes down as the sales volume goes down, so their need to borrow goes down. So good-quality loans are available.
Upsize: What are companies using borrowed money for?
Kimball: People are investing a little bit more in fixed assets because of a new job coming on. It’s spotty, but at least there are some companies doing that. There are people who have more quotes out than they did a year ago.
Some of it’s a general feeling. Sometimes you don’t feel that great after you talk to a business owner. Other times you come out with a spring in your step. They’ve been more positive recently, even more than six months ago.
Upsize: Are certain sectors doing better than others?
Kimball: The struggling ones still are those in lodging and recreation, number one. The mild winter has really hurt. No. 2, people who were relying on VC and other investment capital. No. 3, some industries like printing are changing so much, to digital equipment, and some aren’t in the right niche and will get stepped on.
Upsize: Now that venture capital money is down, are plain old bank loans back in favor?
Kimball: I think the pendulum analogy is a good one. It over-corrects. People react to conditions and there’s a herd mentality. If you’re swimming against the current you’re in the best shape.
The venture capitalists, I think there’s money out there. When you’ve got the current economic conditions, the Gulf war uncertainty, a new Congress, people are uncertain. People are making waves, though. There’s a little water springing through, a few companies buying equipment and inventory, but it’s not a tidal wave yet.
Upsize: Is this a good time to expand?
Kimball: Interest rates are at a low point, where it’s extremely inexpensive to make a commitment to a new line of business or new equipment.
Upsize: What about refinancing. Is now a good time?
Kimball: I would say it depends. I got a call from a friend and client who asked about refinancing. I said it’s a perfect time to do it. This guy’s debt had prepayment penalties, so you have to calculate the cost of that. Also consider, do you plan on selling your company in the next five years? Are you thinking of expanding? You have to consider many other things.
But for this person, he’s probably going to fix 75 percent of his expenses. A lot of times people fix 50 percent and hedge 50 percent. I said, your business has a lot of variable costs. Anything you can fix takes that out of the mix and you can focus on managing those variables. That’s hard enough.
Upsize: Are your customers adding jobs?
Kimball: I haven’t heard as much about companies adding jobs. Typically they make equipment purchases first, then the hiring follows. It is interesting, though — with this market being so diverse we haven’t had the same unemployment as other areas. Companies have huge new contracts but people are being very careful about hiring.
Upsize: How does this market compare to where you were?
Kimball: I was on the west side of Michigan — so Grand Rapids, not Detroit. Culturally the people are very similar to here. The economy here is far more diversified and far more robust. There’s far more technology and high-tech businesses here. There are a lot of small companies and growth rates are better here.
Upsize: Which business owners are making it through? What does it take?
Kimball: Clarity of a strategic vision, knowing when to make a move, is important. One of the most valuable things for small-business owners is they can’t know everything. They need to rely on advisers to help them through the minefield. They’re going to be so focused on the business; we want to be part of a relationship.
For many business owners, it’s those reciprocal, mutually beneficial relationships they’ve had that’s made them successful. They’ve picked good people both in their companies, and through their hired professional outsiders, like law firms, CPAs, bankers.
Upsize: What are the hallmarks of a good manager?
Kimball: People who are good managers are good managers of change, being able to adapt to conditions, to think, ‘This is an area I need to pursue.’ Managing the change and implementing it are important. A lot of people can do a lot of talking in the boardroom, but can they deliver?
Upsize: What financial controls should business owners be watching?
Kimball: When times are tough people start focusing on receivables. Look carefully there.
Focus on inventory. They should use perpetual inventory systems so they can key in and see what they have by the SKU number that’s not selling. Examining margins is important. A lot of companies will examine the pricing. Then look at financing costs, occupancy expense and labor costs. Driving all this through the revenue line is good, too.
Upsize: What do you mean?
Kimball: Focus on selling more. Say you make a garden hose. Could you put another fitting on it so it has more uses? Could you put two coatings on it so now it has an industrial use? It’s trying to be opportunistic. When times are tough there are more opportunities.
Upsize: Sounds optimistic.
Kimball: If you right-size yourself during the tough times you come out stronger and ahead of the competition. Recessions are not fun, but they’re healthy in the long run. Easy for me to say, I know. But it’s true.
John Kimball is president and CEO of Associated Bank in Mendota Heights: 651.905.3100; john.kimball@associatedbank.com; www.associatedbank.com
