Blue Collar Culture

Business Results the Old Fashioned Way

Greg Martin | How to Profit From Your Banker

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Greg Martin is one of the only two profit-first bankers in the world. What does that mean?

He advocates methodology where a banker is a strategic partner to an entrepreneur helping grow the business – not just a commodity service provider. That means you need a banker who not only understands how businesses work… but the reality of profit. 

Working in the profit-first model can have a huge impact on your business, creating predictable and sustainable revenues that will grow the business, even in tough times. This not only benefits your business… but also creates consistency in your personal life and builds your personal wealth.

Greg also talks about how the right banker can help protect you from risk, the biggest thing holding entrepreneurs back, and more, including…

  • The questions you must ask your banker (and what answers should make you switch)
  • Financial Flexibility vs. Operational Flexibility
  • The Multiple Bank Account Method for permanent profitability
  • How many business owners unknowingly steal from themselves
  • And more

Listen now…

Mentioned in this episode:

 

Transcript

Ryan Englin: Welcome back to another episode of the Blue Collar Culture Podcast. I am your co-host Ryan Englin and I am here with Jeremy Macliver.

Jeremy Macliver: Welcome back, everyone.

Ryan: So if you guys recall a little while back we had a guest by the name of Mike Michalowicz. He wrote a book called Profit First which is really about how do you get more profit out of your business, And if you recall, that book has been able to impact me in my business and there's a lot of people that really liked that book.

But one of the things that I found really amazing about today's guest is that he is only one of two Profit First bankers In the world. He subscribes to the Profit First methodology, and he helps entrepreneurs get more from their banking relationship. Greg Martin, I want to welcome you to today's episode,

Greg Martin: Ryan and Jeremy, thank you so much for allowing me to be here. I love this podcast. It's one that I've got on subscribe. And since I'm not driving a whole lot anymore, I listen to you guys as I'm working out in the morning. So thank you for what you're doing.

Ryan: That's awesome. Thank you for that. So we don't get a lot of bankers as guests, as you could probably imagine. And what we're going to do today is I want to break down some of the banking relationship myths and some of the ways to get more out of our banking relationship. So, Greg, what is the biggest myth about your industry?

Banking Myth Busted

Greg: I think the biggest myth about my industry is that bankers are a commodity. And I think part of this is because we as bankers have allowed that. We have not done a good job of going to entrepreneurs that we serve and educating them about the experience and the way that we look at risk. And then actionably going in and saying, here's how this impacts your business. How do I understand where you want to go? Let's talk about the risks between here and there and then let's push you towards success.

Jeremy: That's great. So give us a little bit on this. As we look at it, how do you take that? I mean, I love the theory there. How do we take that and actually apply that? So whereas business owners, I've seen so many bankers, you know, as I think about this, actually, this banking situation always comes to my mind.

I was sitting there, I had a business, we were working hard, I was busy, I set this meeting up with this banker. I remember going and sit down with this banker and I slid across the p&l. They looked at the bottom and they looked at it like it was a checking account. They're like Well, that they didn't get business. And so since then, I've always been promoting bankers that get business.

And I know you get that, but you actually get a little bit deeper than just getting business, you get profit, which is what this whole thing was about, right? So, maybe share, as we start illustrating this relationship and what that looks like in debunking this myth, what a couple of amazing results that you've gotten from clients by really focusing on the profit?

Greg: Well, I had one just today. And since you guys know Profit First and you love it as much as I do, you'll appreciate this. I met a client that was in the HPAC industry, and we started to implement Profit First in their business. And if you know anything about that industry, It is very seasonal. And this entrepreneur grew up in that industry. Like his parents were in that industry, so he's like, Greg, I'm used to having steak and shrimp in the summer, and ramen and beanie weenies during the winter, and I'm tired of it.

I don't want to live that way anymore. So we started to put in Profit First and last year, the last time that he went through his slow season, at the very beginning, I called him up and said, hey, how're things going? He said, Greg, I've got enough in my owner's comp account to sustain me through my slow season, plus a month/ That just blew my, and then today, just today, he called and said, I got a problem. I've got too much money about the tax account.

So he was going through and saying, I've got excess cash that's sitting there. And as we walked through it, he said, you know, if this keeps up, I'm not going to use $15,000 when my tax bill comes. And I was like, well, guess who just got a bonus. And it just blew his mind that he not only had consistency and sustainability in his personal life, but the business is throwing off so much profit that over and above his profit distributions, he's able to take another bonus.

Jeremy: Wow. And so maybe explain to the audience because we're really familiar with Profit First and I'm excited to have you. We're really we're looking forward to having you as a guest because so often there's so much pushback from bankers around this methodology, even though it is the most proven way to actually get, turn a profit into actual cash because sometimes we see on a p&l that we got profit, but there's nowhere to spend it.

Like we don't actually have those dollars. Like the story you're telling here. This guy's got 15 grand, right? So the big pushback we get is obviously these multiple accounts and all that kind of stuff because it's a little bit of a headache for a bank. Would you share a little bit of that with us?

Parkinson’s Law and Muscle Memory

Greg: Sure. And to be honest, I don't understand why there is that difficulty from the bank because part of the business of banking is to have a checking account, deposit account that the bank can then leverage to lend out. So like if you think about it, your deposits are the bank's inventory. Instead of being steel, it's dollars. And so I don't understand why banks don't like having this system or get confused by it. But that's a separate issue. What I say from when I first introduce Profit First to entrepreneurs that don't know what it is, I say, there are two exercising principles or health principles that underpin Profit First.

The first one is Parkinson's Law. And basically what Parkinson's Law is that any activity will increase to consume the amount of resources that are available. So if you have $100,000 in your account and that is what you can spend each month, you will find a way to spend all hundred thousand. Most entrepreneurs will probably find a way to spend 110,000. But if you were to lower that, and say you were to take $10,000 and take that off to the side, you only have $90,000 to spend, you'll figure out how to run your business on 90,000.

So that's the first one. And I equate that if you have, if you are looking to lose weight, then instead of having a huge plate at dinner, have a smaller plate and so you'll put less food on that, and you'll consume less. The second thing is muscle memory. And so when you work out, you have to actually go through the exercises consistently. And with Profits First, you have to go through a system of allocating your cash to where it needs to go.

And so going back to the checking accounts, so you have an income account, you have a profit account, a tax account because Uncle Sam is going to get paid. Uncle Sam's kind of like that silent business partner that wants his take. You've got an owner's compensation account because the owner is the most important employee in the business and the owner deserves, has to get paid, has to be compensated.

And then you have an op ex. And so the muscle memory is that you put all your money into the income account whenever you make deposits. But then twice a month, you take a certain percentage, and maybe that's 10% and that goes into the profit account. So right off the top, you're taking 10% net profit. That's real profit. That's not at the end of the year when you look at your taxes and your accountant says, congratulations, you made $100,000.

And then you look at your checking account, and there's 20 bucks in it. This is real hard cash profit. And then we're going to take maybe 15% and put it in your tax account and then we're going to take another 25% and put that in the owner's account, compensation account. That means if there's 10% profit, 15% tax, 25% owner's comp, and let me take off my shoes and do some quick math, that means that 50% goes into op ex.

You can only run your business with 50 cents of every dollar that comes in. And if you allow your business to go over by one dime over that 50%, then you are stealing it from either your profits or your owner's comp. Because like I said, Uncle Sam is gonna get his. And so Profit First helps you to shrink the cash appetite of your business or the cash consumption of your business. And by putting it into the different accounts, it ensures that you have permanent profitability.

Jeremy: The thing I love about this system is that sometimes you read some really complex really well thought out systems, but this one's not. This was just super simple and actually digs into our behavior. I love the fact it, just check your bank account. We're all doing it, right? We're all logging in, hey, what's my bank account look like today? What's the stock market look like today? But it's really controlling that so that when you see the 50,000 or the 50 cents for every dollar, you're making decisions based off of that.

The interesting thing, Greg, that I have seen and I'm sure you, I'd love to hear stories if you have any of them. is that you started thinking well, 50% of that, I just wouldn't grow as fast. It's actually almost the inverse. They get more creative, they get more focused and they actually accelerate their performance as a company while they're holding down their profit, because they're working with a piece of the puzzle that they really need to be doing and they're really, they're supercharged in that part of it. So love that. And thanks for going through that explanation of it.

Greg: I know. I agree. 100%. If the last six months have taught us anything, entrepreneurs are some of the most courageous and strong and creative individuals on the planet. Unfortunately, things get real easy when you have a lot of cash. And this forces you to think and to go into a guerrilla warfare marketing mentality or to do something better, cheaper because if you don't have $100,000 to spend on Google AdWords this month, then you figure it out. And you'd still achieve results.

Jeremy: I know neither you or I really work with startups. But I'm sure you probably find people come to you asking advice as they're starting up. And I tell everyone that comes to me in that space and say, hey, look, whatever money you got, start with that. That's what you got. It's never going to be enough. And so don't, sorry, I know you're a banker, but I tell them not just start with borrowed money because it seems to just evaporate. And I tell them, you know, if you borrow $100,000, I can tell you when you're going to make your first smart decision. When? When you spent the hundred thousand dollars.

Greg: That's right.

Jeremy: Yeah, when that's gone, then you're gonna figure it out. Because I work with a lot of entrepreneurs and our annual planning will dig really deep into what, you know, kind of really understanding the leaders. Because there's some dynamic stories. It blows your mind at how many of these entrepreneurs were entrepreneurs when they were eight years old, when they were 12. They were figuring out how to wheel and deal, I mean, I've heard stuff about stuffing duct tape up the soda machines and saw the coins that spit out.

They figured out a way to make money. That's what they are. They're entrepreneurs. But when they have money, they think that they're just going to roll the dice. I always hear from talking to somebody without them ever sharing their financials, I can tell you if they're leveraged or not. If they're super leveraged, they'll constantly use words like you have to invest to make money. You have, you know, it's all about, you know, long term strategy and investing and you hear a lot of that kind of stuff.

Greg: That's just the cost of doing business.

Jeremy: Yes, you'll hear that stuff. If it's their money, it's that whole cold hard cash is that 15 grand like, I got this, I need to, they're like, what's the results? What's it gonna do? How's it gonna work? It's a totally different conversation because they're driving for results. So let's turn it a little bit deeper. I want to go into you because I know you, all your experience. What's the best mistake that you've ever made?

The Best Mistake Greg Has Ever Made

Greg: This is one of my favorite questions when you guys asked me. And I had to think a little bit, the best mistake that I ever had is that I made a decision for the client one time and it was around someone that actually had fraud on their operating account. And this was a couple years ago. And the bank has services that cost money or can cost money to help reduce the risk of fraud. There's, I'm not going to nerd out too much on this but there's something that's called Positive Pay, which basically protects you against check fraud.

There is something that's called ACH Positive Pay, which protects you against ACH fraud. And then there's a debit block, which is just like what it sounds like. It keeps anything coming out of the account that's not authorized. And this particular client, someone had gone in and they had actually had some spyware or something bad on their computer. And they actually had five figures wired out of their account twice.

And this could have been prevented by having some of these protections in place. But I made the decision, just through my conversations with the client, clients are very fee-sensitive and I don't want to ever come across like I am pushing a product or not being a good steward of whatever fees they do pay. And so I didn't talk to them about this type of protection And this fraud hit and as we were going through this, obviously, it came out that we have things that potentially could have protected you against that.

And they looked at me and they said, Greg, don't you ever make a decision about my business ever again. That is not being my advocate. I understand that there are fees with this but I would have been more than glad to pay $2,000 a year instead of losing or potentially losing all the money that just went out of my account. You don't get to make that decision. It is your job to understand my business. It is your job to help me understand the risks that are out there.

And then you bring those decisions to me. Make, let me make those decisions on how to protect my business. That is not your right. And that was a very sad face day. That was a tough conversation. And I walked away from that vowing that I would not be afraid to talk about services that are meaningful to clients, to be open and honest about the fees associated and but also to talk about the value and do, let them make the decision to protect their business or to move their business forward or to accept risk.

Jeremy: Yeah, I love the vulnerability that you're sharing there because we've all had something like that. And that's what, really the ones that become great are the ones that say, wow, I just messed that up. I own it. And I heard a lot of ownership in that there, that you own that and not say well, if they could have researched it, it was on the website, but you owned it and became a better banker. So I really appreciate you sharing that and going deep. So let's change it from, so you shared a little bit of what that was for you. We've talked a little bit about it. What's holding most business owners back in the banking arena?

Financial Flexibility vs Operational Flexibility

Greg: I think that if I can narrow down to one thing and I think this is holding them back not only in the banking, their banking relationship, but it's also in their overall business, and that's the lack of financial flexibility. I talk a lot about financial flexibility and a lot of entrepreneurs understand operational flexibility. Again, when you're a restaurant and COVID-19 hits and you can only have 50% of your seating capacity, you're going to get created. You're going to have a porch, your outdoor seating that maybe you didn't have before. You're going to have a drive-through.

There's a restaurant here that has turned their restaurant into a small bodega. So as you're coming through, you're picking up your hot fresh pizza and your homemade cookies, and a gallon of milk because they had a supplier that provides all that. And they're like, we can just simply add that to our website, have our clients for convenience. And you're creative. So you understand operational flexibility. You don't understand or you don't think about financial flexibility. And that's from everything from how you ensure that you have profit. Do you have a strategic reserve? Is that strategic reserve enough? Is your debt properly structured?

Not only from a payment and an interest rate standpoint, but how is it secured? What have you pledged for that? Do you have the flexibility of paying the debt off sooner? Do you have the flexibility of lowering the payment? It's all these things that you can put in place if you just think strategically about it and have a banker that thinks strategically about it. Because if there's one thing that I've seen helps entrepreneurs through difficult times, is the ability to shift, pivot, to change, to be flexible. But if you're locked in, you're locked in.

Ryan: You know, Greg, we talked a little bit about some of the things that are going on. You had mentioned some of the stuff that business owners are going through right now, changes in the economy, changes in the market, and financial flexibilities become really important. Now, one of the things that I've been told quite often in my entrepreneurial journey is one of the best relationships, or one of the probably the most important relationships every entrepreneur should have is one with a banker that gets your business that is on your side.

And so I have two questions for you. Number one, if I don't feel that my banker is on my side, how do I start that conversation? What are the things that I should be looking for? What are the things I should be asking? And then the second part of that is, if they don't answer in a way that's favorable to me, how do I go about finding that person? Switching banks even?

You Deserve to Have Somebody That is In Your Corner

Greg: Sure. And I know that that is not something that entrepreneurs want to even think about just because of the pain that it takes to move accounts and to get all your ACH's and your auto-draft and everything set up, to go to get your QuickBooks re-set up. And quite frankly, you're gonna have two banks for between 60 and 120 days. It's just the way that it is on the business side. But to answer your first question, let me ask you this.

Do you, so your banker, and your bank is a supplier to your business. They just happen to supply financial services. So I would, so how I would approach the conversation with your banker if you don't feel that you are getting what you deserve. And let me be very clear about this, being an entrepreneur is one of the most difficult things that you can be in today's environment, in today's world. You deserve to have somebody that is in your corner, someone that, like you said, understands your business.

And not only gets what you do, but yes you and thinks enough like an entrepreneur that they can grasp where you want to be in the future. You deserve to have someone that pushes you towards success. I call that a member of your Fab Five. And if you had a supplier that was egotistical, that charged you fees without any explanation, that basically had the attitude of, well, this is what we do. Take it or leave it and I really don't care one way or the other what you do, what would you do? You've probably fire that supplier, wouldn't you?

Ryan: Begrudgingly

Greg: Begrudgingly but there is not, unless you are a very specialized manufacturer or there's something that that supplier provides that no one else provides, then that's where it is. Then you can move. And so going back to the very beginning, okay, bankers are one of the biggest myths is the bankers are not, or that we're commodities, or not commodities. The bank's services are commodities. If I went to you and I said, Ryan, Jeremy, I've got this amazing thing. It's called an account, and you could put money in it, and then you could take money out of it.

Jeremy: I'm excited, Greg. Where do I sign up?

Greg: Oh, and we have a website. You can log in and see what it is. Or maybe, oh, you want to buy a piece of equipment? I have a loan. I'll lend you the money and you could have that equipment today. If that's the value, if that is all that your bank is bringing and all your banker is bringing, then what you have is a preferred vendor. You have someone that says yes when you ask them for more money.

You don't need a preferred vendor. You need a trusted advisor. You need a strategic partner. And just like you may have to have difficult conversations with your suppliers of Hey look, we've had this relationship for 10 years. I don't need a friend. I don't need someone to slap me on the back and take me to play golf once a year, and in spring 20 bucks for a lunch once a year. I need someone that is actually going to help me achieve my goals.

And if you don't, or can't, or won't, that's cool. We'll still be friends. I'll still let you take me out to lunch. But I'm going to find somebody that actually pushes me towards success and is actively an active component in me achieving my goals. That's a tough conversation to have. But you have it with vendors. Why don't you have it with your banker?

Ryan: I think it's because of what you said earlier. The thought of all those transactions and having them move them and cards and changing my account number. It's painful just even thinking about it.

Greg: It is, but just like, I think the entrepreneurs that listen to this podcast are growth-minded and they understand the difference between short term pain for long term gain. And I'm not saying that you need to be changing banks willy nilly. But what I'm saying is that you deserve to have somebody that actually sees you and pushes you forward and realize that there is better out there. You may have to have some tough conversations, you may have to do some searching for it but they're out there.

And if I can answer maybe the second part of the question, so how do you look for that? How do you find them? And I think that part of the way that you do that is that you go to your peers, you go to the people that are in your inner circle and you ask them, maybe some tough questions about their banking relationship. Don't just go see Jimmy because, you know, he's the bank president and he'll waive all your fees. And he always says yes to me whenever I ask for money. Well, you've already got that. So ask them how has your banker helped you?

And then you're going to interview them just like you would interview another supplier, you'd interview them like you're interviewing a potential hire that is going to take your business forward and you really make them prove that they are a strategic partner. Maybe I mean, quite frankly, maybe even go to some of your competitors that are in the industry because there are some bankers have niches, and they understand a specific industry and to be able to understand the risks that are associated in that world is huge and is valuable.

And so to be able to say, okay, who do you use? Who understands? And again, I'm not looking for just another vendor, I'm looking for a true partner. And then you can interview them. If they start to try to sell you on day one, then you know that's probably a red flag that they're not the partner for you.

Jeremy: I love that, Greg. You know, and when we're teaching and working with our clients is that slogan hire slow, fire fast. And obviously, we wrote the book Unmasked: How to Hire the Ones You Don't Want to Fire. It goes right into this and all these relationships. But I know there's a lot of pain associated with transfer in the bank.

But it's been a, it's really cool when you see the leaders take the tough decisions that are right in front of them and make the right people choices as far as employees. So when they get that right person in that seat and they're there, they get it, they want it, they have the capacity to do it. They're bought into it. They're really supporting the company every time that they've made that tough decision, the leaders come to me and say, Wow, Jeremy, I wish I would have done that sooner.

They're accelerating our growth, accelerating our performance so much more. And so I would encourage your listeners to use that Unmasked: How to Hire the Ones You Don't Want to Fire book in selecting your Fab Five, as you said. The banker, like make sure we have somebody that really is there on our team driving that forward.

Greg: And I would say that another trait or another test that you can ask is, go to the banker and be like you know that this is going to be painful for me to move. What are you going to do to help me? And I've actually gone and I've called up the utility companies, maybe some lease companies or some other companies that had auto draft. And I could, you know, obviously, I can't, you know, I can't really say I'm client x, but I can say, Hey, I'm working with a mutual client.

I would love to be able to help them with the transition over to my bank. Can you give me the ACH transfer form? And dummy, you opened up the new bank account so you Know the routing number, you know the account number, you know the address, you know everything there is to know. Why don't you fill it out? And then you can just say, Hey, Mr. client, I filled this out as best I can. You need to sign here, here here, and then fax it to this number.

Jeremy: Perfect. You know what I love about that question, in our download guide that we have on our website about crafting interview questions, it's right there. Put them in the job when you're interviewing, ask them what they're going to do because that's when they're going to be the most responsive to how they can contribute. Works great with this banker relationship, just as well as it works with hiring employees.

Greg, I have enjoyed our time. It has been fantastic having you on here. I can't believe we've already come to the end of it. For our audience here that's listened to you, they've learned a little bit more about financial flexibility, creating profit from the banking relationships are really what the difference is about having that relationship. If they've heard all this and they want to talk to you, how do they get ahold hold of you?

Greg: Well, I've so much enjoyed our time too. I would say that there's two ways of getting in touch with me. One is through LinkedIn. I am most active, I'm more active on LinkedIn than I am on Facebook, but it is Greg Martin, and I am in Bryan College Station Texas. You can also search for The Entrepreneur's Banker and that'll bring me up. Or you can go to my personal website. My personal blog is The Entrepreneur's Banker.

And there they'll have contact information, they'll be able to reach out to me. And I also post, I think I've got about 85 different articles that are about entrepreneurship, leadership, understanding how to transform and how to have a strategic banking relationship. And I've even got some interviews with some entrepreneurs experts again, to be able to bring value to the entrepreneur. So those two ways are the best way to get in touch with me.

Jeremy: Perfect. So to all of you definitely, I would encourage you to take advantage of all of Greg's wealth of knowledge, his in-depth passion around turning that banking relationship into something that's driving your business. So if you'd like to turn your banking needs into profit and drive that, reach out to Greg. he's giving you several simple ways to get there. So all of you listening out there, thank you for listening. Greg, it's been a pleasure having you. Thanks for being here with us.

Greg: Thank you so much.

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