Wisconsin Public Television University Place Entrepreneurship in Society  Keith Baisden, "Financing The Small Business"  March 23, 2011 UP 569     cc >> Jeanan Yasiri: I hope you all enjoyed a fabulous break. This is Entrepreneurship in Society, a course offered through the University of Wisconsin School of Human Ecology. I'm Jeanan Yasiri. As we begin today, I'd like to extend thanks to our partners in supporting this course, the UW College of Engineering for their technical support, the UW Office of Corporate Relations, and financial support that is provided to us through the Ewing Marion Kauffman Foundation, which is committed to advancing academic education in entrepreneurship. Additionally, we would like to thank our media partners, Wisconsin Public Television and their University placed crew for taping today's lecture. I'm quite pleased to introduce our special guest today, Keith Baisden, senior vice president and business banking manager with M&I Bank in Milwaukee. Keith has 32 years of experience in the business banking world, 22 of those years at M&I. His work has involved working with privately held companies from the start-up stage, all the way through to those with about $22 million in revenues. He's assisted in companies in getting established in their early phases, all the way through their life cycles, eventually helping to sell enterprises for tens of millions of dollars. Keith is also a great community steward, and that's originally how I actually met him. 

He serves as chair of Milwaukee Public Television's Friends organization, the development and fundraising arm of that great public media outlet. Keith earned his bachelor's degree at Marquette University in business with a specialty in finance. And given Keith's background I asked him to come and share his insights with us today on what we should consider in financing small business enterprises. So please join me in welcoming Keith Baisden. (applause) >> Keith Baisden: Good afternoon, everybody. Everybody can hear me all right? You'll be happy to know, yes, I'm a Marquette Warrior. Yes, we're called Golden Eagles right now, but I was a Warrior from '75 through '79. Yesterday, when I was managing my sales, I had a monthly sales management team meeting with my 40 bankers in the southeast region of Wisconsin. And M&I, on Thursday and Friday and last week, they give us the casual days during the NCAA tourney, and we get to wear our colors. Obviously, I'm wearing blue and gold and I look dapper and dasher during that, but I asked my team, how many are wearing red and white tomorrow and Friday, and how many are wearing blue and gold. 

You'll be happy to know, 75% are wearing red and white so good luck to you all. Good luck to you all. We're all Badger fans at this time. Thank you very much, Jeanan. I met Jeanan at the Wisconsin Public Broadcast meeting a couple weeks ago for the first time. This is the first time ever in my career I was more prepared than a college instructor. I got to sit next to her at breakfast, that's how we first met, and we were meeting different representatives and senators regarding public broadcasting for the state of Wisconsin and just discussing what we do, radio, TV and the like. I was much better prepared than Jeanan, so I thought that was pretty good. It took me 32 years to do it, but I finally did it. But what I'm here to do and normally, I keep it kind of loose, you know, you can ask your questions, but I know we have to use a microphone. 

So we may keep questions till the end. If something is really-- is passionate that you want to ask, please do so. This is an entrepreneurial class. I guess I just want to raise of hands, I hope you can see you all. How many of you think are starting your own business after graduation, during school, after graduation, or shortly thereafter? Just let me see, I want to know who we have here. All right. How many of you are going into a family business? So we've got a couple hands over here, one back there. All right, good. That's what I do. Privately held companies means family run businesses. 

And privately held, you know, it's normally one owner, the father, the mother, that goes down from generation to generation, generation. I've been very happy over my 30 years of banking to bank the same customers for 25 years, going from one generation to the next. And preparing it for the next generation, hopefully. So that's always a very exciting period of mine. The reason I chose business customers the size from startup to $20 million, and not going into larger middle market companies, is the fact that as a banker, as a trusted advisor, as we're called, you are working with a decision makers. And that's what I've always liked to do, work with the decision makers. Yes, they can have their CFOs. Yes, they can have their COOs, and the like, but you are actually talking to the individual that's making the decision. A lot of people, before my prepared remarks, I just want to give you a kind of example of, you know, entrepreneurs, business owners. And everybody always says to me, when I started growing up, well, it's great to be an entrepreneur and these are people who were not entrepreneurs, it's great to be an entrepreneur because you have no bosses. 

Well, that's about as far away as possible as you can imagine being an entrepreneur. Yes, Jeanan has bosses here at the University of Wisconsin. I've got bosses at M&I bank. If an entrepreneur, 100% owner, or 75% owner, whatever the case may be, every day you're waking up, you're going to work and I think you have some of the most complicated bosses in the world, and those are your employees. You're going to be putting yourself to work, but more importantly, you're putting five people to work, 10 people to work, 150 people to work. The Small Business Administration has a lot of difference, different definitions for "small." And in SBA, the Small Business Administration, SBA, you will hear me talk about that a number of times today. Small can be up to 500 employees for a manufacturing firm. It's always privately held. It's not public companies that can get SBA loans, it's privately held customers. When you talk about small, anywhere from start-up with zero to one or two employees plus the owner, up to 500+ for a manufacturing firm. 

When Jeanan and I were speaking, we started talking about, you know, what would you like to cover. And today, I'm just talking about a business plan, about you're looking to start your own business, you're looking to format it together. What are your steps? And so first, I'm going to be talking about the business plan. Then the different type of loans and then the different type of, with regards to short-term loans, fixed rate loans, equipment loans, commercial real estate loans and finally we'll talk about some of the government guaranteed loan programs and I have about 50 copies of my presentation here, I know Jeanan will be sending it out to you or putting it on the website for your reading pleasure any time you want to. So, with that, again, if you have a question raise your hand, If it's passionate. We'll probably have a question and answer period at the end. But if you want to, you know, jump in, please feel free. I'm more than happy to do, go through it. Business plan. The importance of a business plan, I'll talk about the importance of a business plan, the characteristics of the business plan and outline of a business plan. 

The great thing with the Internet, any time you want to bring a business plan you'll see what I like to see as a banker, and as someone who is going to be an interested party to this, but you can go on the Internet, you can go to the library, you can get a whole lot of different forms and outlines. I'll just tell you what I like as a banker. The importance of a business plan is the client's opportunity, your opportunity to crystallize their thoughts or actions for thoughts for product or service. You have a lot of great ideas and you have to sit down and put them into a business plan, of which I'll give you the outline. Again, just crystallizing your thoughts and ideas. Obviously, numerous drafts will have to be written. I always talk about, go see your banker even as you're writing your business plan or as you're formatting your business plan, so you find out from the bank what are you looking for, manage their expectations, manage your expectations, what are they actually going to look for, and that's what you want to stress. Road map of client as plan going from point A to point B. To get the initial loan, it's always very important to have a business plan. You are starting up your new company, it's going to be extremely important to have that. 

If you don't have a business plan, bottom line, you're not ready to ask for a loan because you haven't put it in thought, you haven't put your thoughts and ideas into a cohesive analysis, and so it helps us as bankers sit down with the business owners and go from point A to point B. Even my largest customers on an annual basis, they won't do the huge business plan, they won't do this business plan that I'm formatting, but every year they put together a strategic plan and again, it gets us from point A, you know, 2008, 2009, very rough years for our manufacturers, 2010, continued to be a rough year for our general contractors, our subcontractors. Manufacturers did much better in the southeast region of Wisconsin last year as a whole. But the strategic plan, once you have a business, then you're going to have to continue to do this strategic plan on a year to year basis. What are we going to do in sales? What is the gross margin going to be? What is our net profit margin going to be? How are we going to repay our debt? How do we grow our company? How do we get our products and services more into the markets? How do we diversify? All those types of questions. In addition, your business plan, you're going to have numerous business plans. You're going to have one for the bank, that's what I'll talk about today. But you're going to have one for the investors, one for your customers, one for your vendors, one for your partners, one for your employees. And that can range from how much information you give them, but you definitely have to show investors, whether it's patient money like mom and dad, or like Uncle Tom and Aunt Kathy, or is it friends, is it investors looking for a return on their dollar better than what M&I Bank's premium money market is paying right now, which is a very competitive rate, but not a huge rate, that type of thing. So your business plan has to change for your audience. 

The characteristics-- Where am I?  The characteristics of the business plan, professionally written and complete, and again, you have to do several drafts of it. Don't bring, unless you have a good banker, bankers do have the time to sit down with you and help you crystallize your thoughts and plans, help you go over it, but again, you'll be doing numerous drafts. Adequate length to the user, whether it's the bank, the government agency or the investors on what you're trying to accomplish. Get the loan, you're trying to get investors. It's got to be an adequate length to get your thoughts and passions across to the audience. I've seen business plans that are three three-ring binders full and I've got to tell you, I'm sorry, you bring me three huge business binders full of information, it's probably going to the bottom of the list. I don't have the time to read that much. You have to get concise, as I mentioned, you have to get to a concise size. Don't bring me two pages. So it's a fine line what you actually are going to do to get your message across. 

And proper use of illustrations. Jeff just asked me, do you have movies? I'm looking at Jeff, I'm happy that I'm getting this Power Point presentation. Movies, obviously, you know, illustrations, what is the old adage? A picture is worth 1,000 words. Pictures of your product, picture of your service, what you're looking to do. I was driving in today, and is it the Green Cab company? Driving all the little Priuses? And all of a sudden we don't, we have these monster gasoline taxis in Milwaukee, but in Madison you have the wonderful little Green Cab company, and I had two of them. One is right in front of me, it's got a bike rack on it. I'm trying to figure out why would you need a bike rack on a taxi outside of having a flat or it starts raining, or anything else. The other one next to it did not have a bike rack. Both of them were empty, but that would be a pretty cool thing to see, a picture. This is, you know, we're green, we have the Prius, it's electric, whatever the case may be. 

And that's what business bankers do as we're driving down the highway or road we're looking around saying that's a good idea, not such a good idea, but that's a good idea. So that's what you want to do. So illustrations are important. This is the outline of the business plan. You can go on the Internet, Forbes Business Magazine. SCORE, I mentioned SBA, U.S. Small business Administration. I'm going to talk a lot about SCORE. SCORE is the Service Corporation of Retired Executives, that is a wing of the SBA. I can't stress enough, I just, in preparation of this presentation today I got online last night, www.score.org and that's later in the presentation, you don't have to write that down. 

But I was amazed at their website. Part of the U.S. Government, part of SBA, and these are exactly what it says, these are retired executives, retired business owners who volunteer to sit down with you and help you formalize your plans. I copied some of the things this morning from their website. Look for them, they have a Madison office. Not too far from here. For my customers that are looking to start up their companies, I ask them that they should go through these trainings at SCORE. You can get different certificates of financial managerial accounting, and different certificates, but just the amount of talent they have, you're going to have business owners, men and women who have run companies, $25-$50 million, $100 million in sales and revenues, and they'll sit down with you and they will give you with no charge, they will give you the vast experience that they have and tell you the pit falls of owning a business, what you can look for. And again, managing your expectations. So, later on in the presentation you'll get a list of different Internet websites that you can go to, SBA, SCORE, and I would whole heartedly, when you're looking to do this and preparing, please do so. I'm going to do a personal aside right now. 

My son, my oldest son is 24, 25 this May. He's a graduate of UW Stevens point in psychology. Why psychology? He chose psychology. I said do something you might get a job with and get paid for, that's the banker speaking. And I'm sure that's a lot like your dads and moms, I apologize. But his business, his dream, he's always wanted to be a chef since he was in 7th grade, he works at the Underground Kitchen here in town right on, is it Pinckney? I think it's Pinckney. Mifflin maybe, Pinckney, I'm actually having drinks with him afterwards. And so, but that's his goal. You know, some day he wants to own his own restaurant. Well, owning your own restaurant is probably the riskiest type of business you could possibly own. 

And there is my son, the son of a nice conservative banker jumping into the restaurant business one of these days. He's worked for Tory Miller here. Tory owns L'Etoile and the past Cafe Solé, now Gray's. Now he works for the Underground Kitchen, two great restaurants. If you go to the Underground Kitchen, look for the tall, thin, red haired, good looking guy. Single, but I digress. So, but here again, that's his passion and I think that's, when I talked about working with business owners privately held customers, the "small business customers" that's what you see. You see a passion to come into work every day. Good news, bad news, good economy, bad economy. Again, they're coming, they are trying to figure out how they are going to retain their employee base. 

They have all these families that they are employing, and that is a sincere passion of theirs that they don't want to lose. A lot of tough decisions in the last three years. Laying off people, hope to god they can bring them back. And obviously if you have your passion and I'll go into what makes up in a lot of other people's minds the characteristics of a good entrepreneur later on in the presentation. But definitely having the passion to come into work every day is a big thing. Executive summary, market analysis, Who is my market? Who is my competition? What am I doing? Company description, again, what am I-- It's the who, what, where, when, why and how. Who am I? What am I doing? Where am I doing it? How profitable will I be? How competitive in the marketplace and the like. Organization and management, am I going to be a sole proprietor? Am I going to be a partnership with my spouse, with my brother? And again, family, I could spend three hours talking about family businesses because not only do you have the normal business ups and downs, pros and cons, but then all of a sudden, put it into a family mixture and I think I saw three or four hands. You all know that if you're going into a family business you know, your family has expectations. Not only do you have expectations of yourself, but then there are still the family expectations. 

So, again what is the company partnership, service corporation, manufacturing firm, that type of thing. Marketing and sales management, again, spend some time. And how are you profitably going to get your business, your product, your service, out into the marketplace? Service or product line, again, what is this? And funding request. You know what, I'm going to jump around a little bit. I'll come back to these, don't worry about it. The funding request. In this presentation, you're going to have these. These are the forms we like to see. These are actually on M&I Bank's website: www.mybank.com again, don't need to write that down, it's in the presentation later. But this is what we like to see. 

It's not the end all be all. When you're working on a business plan, we're asking you to get an attorney involved. We are asking you to get a CPA involved, an insurance agent involved. You want a team of professionals helping you migrate through this wonderful entrepreneurial business, this competitive marketplace. Being able to do that, you're going to need professionals. If I can instill one thought, you cannot do it all. You cannot, in a business, in a difficult economy, good economy, all the different governmental agencies that are asking for taxes from you. It's the second thing I'll give to you, but have your CPA, your attorney, your insurance agent, your banker. Some of my most successful customers, customers that I have taken from one generation to the next generation to sales, every year, not only do we have a plan at the beginning of the year, they sit down with us four, they sit down with the insurance agent, the CPA, the attorney and their business banker in one meeting for two to three hours. It doesn't have to be long. 

They put together their financial statements and say okay, this is where we're going. This is where we want to go. How can you help us get there? So, just write this down, make sure you have a great team of professionals to help you through what is some of the best times you will have, the greater-- The thing about being an entrepreneur, and it's an interesting article that I'll be quoting from a little later on. Back in the day, back in my day, you wanted to be an entrepreneur for power and money. So, the power and money thing is shifting downwards. You are generation X, generation Y, whatever you want to be called, you have a passion for different things than we do. The average age of getting married went from 26 years old when I was getting married, to now I think it's 34 or 35. I just read that last night. I still have faith for my sons. But you have a passion that we never had. 

Good, bad or indifferent, it doesn't make a difference. You have a passion, your social conscience is so much more developed than ours were in 1979. I will tell you I didn't go to Europe with my college roommates because all I wanted to do after graduation from Marquette is get a job and make money because I, for four years, I had zip. I'm sure there's a lot of you like that. For four years you're living with a bunch of crumb bums, the slovenliest guys ever, and back in the 1970s, all I wanted to do is make money and get a nice apartment and get away from the bums. Good, bad or indifferent, it was interesting reading this last night about the reasons for entrepreneurs in your generation. It's not the old power and money, and I'll go into that in a little bit. But back, I digress. Back into the source and uses of funds. This is where you list what money do you need for lines of credit, for equipment you're going to buy, to buy those Green Cabs. 

I need X amount of money to buy, I'm not sure how many Green Cabs there were. I think number 367 and 312 in front of me. I'm not sure if he has 367 cabs, I'm sure he doesn't. How much money am I going to need? And how many of you are business finance majors, accounting majors in the College of Business here? Raise hands. Oh, my goodness. Engineering? There we go. Engineers have always been smarter than business students, I don't care what anybody says. So what, liberal arts? So where are you all from? >> Retail. >> So you don't have a college of business, you have college of retail? Wow. I'm sorry? School of Human of Ecology. 

What's that? Okay, super. Wow, this is kind of cool. Jeanan did warn me, she goes, you're not going to have a whole lot of business students here, so I'm going to get into some finance, I'm going to hit finance on the 20,000 foot level because if I start talking about debits and credits and cash and loans and everything else, I'll kind of go through that because I do want to answer your questions that you may have of me about what your passions are, what are your concerns about operating a business. But back to loans. When you start a business, it is the riskiest time of the business, the company cycle, as Jeanan said earlier, the company cycle. It's the riskiest. Every cycle has different pros and cons but you have no money, you have to get money, you have to have those angel investors. A lot of time angel, investors truly are mom and dad, brother and sister, Uncle Tom, Aunt Kathy. What we call it is patient debt. Somebody has to be patient. 

Number one, banks, they have a risk profile that they have to maintain, and so we're going to give you money but our analysis is you have the ability to repay that money. We are not a non-profit agency. We are a for-profit agency. And so what you need to know, you're going to have to have some equity in the deal. You're going to have to have some skin in the game, if you will. Your cash in the game and that comes from you, that comes from family members, that comes from investors, whatever the case may be. And so this source and use of funds right here, it talks about personal investment, bank loans, it gets to bank mortgage loan, equipment loan, bank revolving line of credit and then when you're starting your company the other, other, other, is really the most important part. Where are you getting your equity outside of your personal investment to start your business? And then what's it going to be used for? Starting as an entrepreneur, you should not be buying land and building. As an entrepreneur, what you want to do is buy those cabs. You don't need to have-- lease the cabs, whatever the case may be. 

You don't need to have a building to put those cabs in, because that takes a lot of money and there's no repayment back from you. I call it brick and mortar. You don't need a lot of money in the early cycles of business to own brick and mortar. That doesn't pay back the loan, that doesn't put money in your pocket. Especially nowadays with the way commercial real estate is, your leasing rates and everything else are pretty attractive versus buying. When you're stable, when you are a mature company, and you have excess cash, you have huge retained earnings, you have very little debt, that's the time when you can buy your own brick and mortar, buy your own building and a family limited holding partnership and again, that is also a tax savings for you. We talked about vehicles, equipment, inventory, working capital, revolving, other, other, other. So that's what you're going to see. Let me get back to where I was. I did that. 

Wow, this is kind of cool, Bruce and Jeff, thank you. And then the financials. This is, again, if I'm going too fast raise your hand. If I'm going too slow or confusing you, because so many of you aren't finance majors, accounting majors, a lot of this stuff, a lot of this information may be foreign to you, but that is why you need the CPAs of the world to help you get through these mine fields. And then your appendices. When it comes to the financial information, and again, these forms are what we use, you can use any forms, you hire a CPA, the CPA is going to charge you money, as well as he or she should because they're giving you a great service. And I think that's important to know, it's money extremely well spent. You do not want to get into, even if you're not asking for a bank loan, even if Uncle Tom and Aunt Kathy are putting all the money to fund you, you don't want to throw their money down a rabbit hole. You want to be able to give them a return for the faith that they're putting in you. And so you need to do this. 

And that's why Service Corporation of Retired Executives, SCORE, they have numerous webinars, they have numerous classes to take about this kind of stuff. You don't need to be a finance grad. You don't need to be an accounting grad. It helps, but you don't need that. You can still have the passion for what you want and your product or service, and what you're going to do. This is the projected profit and loss, again, we're going to want to see, the bank is going to want to see at least one, if not two years of monthly-- Is there a laser on this, Jeanan? Ooh, that's cool. See, I'm a business banker. But you're going to have the total net sales, the gross margins here, all your expenses, and then all your fixed expenses, these are variable expenses, your fixed expenses and you're going to go out for 12 months and we're probably going to ask you for another year. A profit and loss is important. I'll show you if I can leave you with another thing, and you can write this one down, because it's not in here, cash is king. 

Making profit is extremely important. You got to make a profit for long-term growth and long-term stability, increased retained earnings and everything else. Cash is king. You need to have a cash flow that pays your rent, that pays your employee's salary. Whether it pays your salary or not, right at the beginning of the company, whether it pays your salary or not, that's kind of a mixed bag. Obviously you have to pay your employees' salary and everything else. The other thing that is not in this presentation, the only person you pay before the bank is Uncle Sam. Whether it's county taxes, whether it's sale taxes, whether it's profit, net income, withholding taxes, you make sure, if your business, and this is where so many young businesses fail, if your business cannot pay Uncle Sam in all the different local county, state and national taxes that you will pay, if you cannot do that, do not start a business. Because all you will do is put yourself and your family in dire financial straits. Certain taxes, you can go bankrupt and yes, you can dissolve the need to pay back a bank or whatever else. 

Then you'll have to live through seven years of bad credit to try to do this again. But Uncle Sam is not going to let you go bankrupt and not pay your taxes. You will have state tax liens, federal tax liens the rest of your life. So, again, pay the bank first outside of any governmental agency, and then everybody will be happy. And then you will get yours and you're saying why in god's name do I want to start a business but it is pretty exciting stuff. So that's the P&L. Balance sheet. Basically balance sheet, what do I have and what do I owe? I mentioned, when I talked about the source of use of funds before, we talked about how much am I bringing to the table? Bottom line, again, since we don't have a lot of finance grads, or students, for every dollar that you borrow, we would want to see, we would hope to see you have maybe 50 cents of stockholders' equity, of your money into it. We would like to see that. That would be a 2:1, debt to worth. 

A lot of times in a start-up you are going to have a 4:1 debt to worth. So for every buck of debt you have, you only have a quarter of net worth. So for every $100 of debt you have, you would have $25 of stockholders' equity. The risk you have there, it's very difficult, if you have so much debt that you cannot make the monthly cash flow payments and the like, it's just very, very difficult. And so that's why planning is so key and that's why this business plan is so key. So that's what balance sheet is. Cash is king. P&L statement. This is, again, a 12-month statement for cash flow. Cash incoming, cash outgoing. 

You need to have enough cash. So many times, god forbid, we have had companies that overdraw their account and they're overdrawing it on a Friday and it's payroll. And so now you have made your decision, my decision, you made your decision that I don't have money enough in the checking account to pay payroll, so I gave all the checks to my employees, you made the bank's decision whether or not we're going to pay that check. Don't do that. That's your decision. It's against the law to write bad checks. Personally, and this goes to your credit rating and I'll mention credit ratings in a little bit. But don't overdraft your checks. I know personally, if you're like me, back in, when I was 22, 23, I was trying to figure out how I was going to pay my student loan back with the wonderful money I was making back in those days. But you can't overdraw it, just don't overdraw your checking account. 

Don't make it the bank's decision whether to pay or return because if you do, the bank will return, and as I've told my sons, that hurts your personal credit rating, if it hurts your personal credit rating you will not get a loan. And we can go into that. This is the break even analysis. I'm not going to spend any time on this. Because it's pretty busy. There is a form in here you can go to www.my bank. A break even analysis, basically states, how much do I have to sell of my product or service to at least break even to get to zero loss, so I can at least fund my business operations. We went over the source and uses. Type of loan. Any questions, I kind of went through that but only have 24 minutes left, so I'm kind of-- any questions on that? Okay. 

Type of loan, seasonal lines of credit. We have our revolving lines of credit, term loans, and then our government guaranteed loan programs. Seasonal line of credit. It's funding inventory build-up for a seasonal need. And the finance back in the 1970s we talked about widgets, and I never understood what it is, it's a fictional thing, it's a stupid thing. I talk about my Easter candy company. They make their profit in only one very short period of time. They make a ton of money in three months, if you will. One to three months. But the next eight to nine months they're losing money to build up that, the seasonal line of credit, it's for a very short period of time. 

We fund the inventory, we fund the cocoa, the milk, we fund the employee wages to do all this, we fund the rent expense, whatever the case may be, it's a floating interest rate. Right now, on these types of credits that you would see, that you probably would be asking for, you're probably going to have a floating interest rate to near the 6% range. Prime is 3-1/4. Nobody looks at prime any more. We look at the London Interbank Origination Rate, LIBOR It's a different way of basically what our cost of funds are, what is the premium we have to make for time and risk, and that's how we make our money. Single payment note. Hopefully the week after Christmas, or week after Easter you're basically paid out on the line because all the Easter candy has been sold. You have gotten all your cash. You take whatever you borrowed in a line of credit and pay the bank off and the rest is your profit and it's paid by the cash flow cycle, i.e., collection of accounts receivable or cash sales. Revolving line of credit, this is for manufacturers, this is for wholesalers, to fund the accounts receivable cycle, the inventory cycle, the build-up of operating expenses, and I'll hit it at the 20,000 foot level. 

It's at the floating interest rate, a one-year renewable note, it's what's known as a line of credit. My father was a commercial painting contractor. So for large jobs in the Fox River Valley he would borrow a short-term to buy paint, to pay for the employees' weekly wages and the like. He would get the job done. Back in those days, hopefully, his customers were paying him in 30 days. The terms of the net was 30 days. And then once he got that money for that large specific job then he would be paying back the loan, the line of credit on that basis. Term loan. The line of credit, the seasonal line of credit and the revolving line of credit for short-term needs, less than one year. When we start talking about term loans, that's normally over one year, it's for equipment, it's for long-term working capital and again, a lot of times if you're lucky enough to have a company that is growing extremely fast, you're going to need some long-term working capital because you're not going to make enough cash to fund the working capital or the growth cycle. 

It funds equipment, real estate, long-term working capital, mergers and acquisitions. It's normally a fixed interest rate from two years to three years. Commercial real estate, is 20-year amortization. It's like your parents' mortgage or your mortgage, if you have one now, a personal mortgage can normally go up to 30 years. You are not going to see commercial real estate mortgages go up 30 years. There is more risk in the commercial real estate mortgage than the personal home mortgage, that's why you get 20 years to repay instead of 30. Term note, three to 20 years. This is not paid by cash, this is paid by profitable operations of the company. Cash flow pays back the short-term needs and so, to pay back your equipment loans, your manufacturing, your C&C, your lathe machining centers, whatever the case may be, the cars, if you're a taxi, the green taxi cab, it's got to be paid off by profitable operations and not cash flow. Spend a little time on government guaranteed loan programs. 

The SBA, I was a true specialist of the SBA in the 1980s. As a young banker I got into the 7-A program. There's a bunch of different programs. There's a product grid here that I'll just touch base on. But that's where I became the who's who of business banking in Milwaukee because I really focused and I knew the SBA government programs, and for a start-up company, for an entrepreneur, for a start-up company, this is where some of the risk that the bank is going to maintain because you're a higher risk company because you are a brand-new company, higher risk, they defer some of these risks to the SBA, and the SBA will guarantee from anywhere from 50% to 90%. Normally the focus is around the 75%. I'll go through that product grid. The SBA is your national one. WHEDA, Wisconsin Housing Economic Development, thanks, Jeanan. That's more of your state program. 

City of Milwaukee, Milwaukee Economic Development Corporation, they have a local government guaranteed loan program. City of West Allis in Milwaukee, Wauwatosa in Milwaukee County has it. I'm sure Madison has it. So wherever you end up, wherever you go back, whether it's Green Bay, Madison, Milwaukee, Rockford, Illinois, your municipality may have some programs that will help the start-up business owner. This funds various needs from business plan development, working capital, acquisition of equipment and real estate, and it's at floating and fixed rates. This is the busy grid, and for entrepreneurs for start-up customers, you're normally going to look at the SBA express document here. And again, not a lot of things you have to write down here. It's in the presentation. It's on our website, mybank.com. And then it goes on to the preferred lending program, the general program, and finally, the 504. 

And 504 is for long-term commercial real estate acquisition, and/or machinery acquisition. It's for your fixed assets. Local loan programs I talked about, state loan programs I talked about. And then the national loan programs. Seek these out, if you're an entrepreneur and you're getting financing for the first time, seek these out. Your banker partner should know these. If your banker partner doesn't know these programs, find a banker that knows them. When we look back at this program these PLP, Preferred Lender Programs, M&I Bank is a preferred lender, U.S. Bank is a preferred lender, Associated Bank is a preferred lender, what that means, is the SBA, the United States government has given us their approval, authority, because of our historic great service of SBA loans. We have a higher than average collection rate. We have a smaller default rate than maybe other banks do. 

We know how to utilize the programs. We know how to analyze the business plan, we know how to analyze the individual and the like. And I'll get back to being the individual, and I want to share with you a couple business plans, a couple of the interesting things I saw and when I read and what hits home. And a lot of this stuff that hits home, you may not think about would be exciting to a banker, I'll just go through that for you. But, seek out a PLP Bank. You have a number of choices. But find a bank that knows what the heck they're doing and they can manage your expectations, and listen to the banker. One of the attributes of an entrepreneur is perseverance. You might want to write this down, I don't have it in here. But perseverance. 

If you get said "no" to once, whether it's by a bank, by an investor, or whatever, the attribute of a good entrepreneur will not let you stop you there. You have to persevere, move on. Some of the world's best entrepreneurs went bankrupt several times. I'm not sure about the good old days but right now if you go bankrupt, you could pretty much bet for the next seven years you are pretty much going to be status quo when it comes to being able to avail yourself of credit because it's basically on your credit report for seven years. But they're the risk takers and the like. So, search for a PLP These are some of the websites that I talked about, SBA.gov, score.org, wheda.com, here in the state of Wisconsin, and Madison. MEDC online, that's Milwaukee Economic Development Corporation, a fantastic partner in Milwaukee County, WBD is Wisconsin Business Development, they're throughout the state. They help our customers. They're the intermediary for the SBA 504 loans. They're fantastic people. 

Madison, Milwaukee, Oshkosh, wherever, they're great. Five tips on approaching your bank, this is from SCORE. Something I added, Jeanan, I'll send this to you. This is one of the updated screens and I'll get this to you tomorrow morning, the new power play. It's in this one, but it's not on the one that I sent to her yesterday. Understand that your primary responsibility is the proper use of capital and that you're in business to make a profit. You are in business to make a profit, that's the only way you are going to pay your loans back. Test the economics of your product or service. Make sure that it is profitable. And that the gross profit percent is in line with that of the industry. 

And in your business plan, you go through that in the market analysis of your product and service. Know how you will finance your business. Visit lenders, banks, prior to seeking financing to gather information. Ask your lenders what they want to see before you apply for a loan. Manage, they're going to manage your expectations and you should manage your own expectations and manage their expectations. Develop a personal financial evaluation, it's a personal financial statement, it's just a balance statement. What do I have, what do I owe, and what's my net worth? And when you're a young entrepreneur, you're a student coming out of college, I'm not sure like me, I had bupkus, I had zero. I still remember for 10 years I made an $87.15 loan payment to pay back my college loans, and I was so stinking happy at the end of those 10 years. And I'm sure you have more than that, maybe your monthly payment will not be as close to $87.15 as you like. But that's what started my credit bureau, that's what started my credit score and that assisted me through all my aspects of life. 

Develop realistic financial forecasts. I already showed you the forms we use for income statements, cash flow and balance sheets for three years, forecast monthly for the first year. That's what I pretty much went over. This is just my contact information. I just want to share with you some of the things that I pulled out this morning, just talked about the attributes of an entrepreneur and this is from William E. Jennings, a profile of the entrepreneur. And the most important attributes would be perseverance like I mentioned, desire and willingness to take initiative, competitiveness, if you want to be an entrepreneur you have to be competitive, I don't care, because bottom line, you wake up every morning and you want to beat the other person doing the same thing you're doing. Self-reliance, strong need to achieve, self-confidence. When you go in with a business plan you need these attributes. It says good physical health, I will tell you that's so important in these last three years. I've had not only in the banking industry, whatever industry we are in, in order to be successful, you're working long hours. 

And you're managing stress by working out, by eating right, whatever the case may be. But my manufacturers, my wholesalers, because -- you know, they have been talking about jobless recoveries. Bottom line, in 2007, 2008, our customers were slashing expenses. They were laying off people. What they thought was an extremely efficient process at their company they found how to be more efficient and that's what is so great about America. We are kind of a do it, get up and do it, and find out. And they had to. They had families, they had families to pay and the like. And so all of a sudden what they thought was an extremely efficient manufacturing plant, wholesale distribution plant whatever, they found that they actually could be more efficient. And so that's why 2008, 2009, tough years, but then 2010 all of a sudden the economy started picking up. 

Inventories across the nation were at their lowest so people were buying stuff. And so inventories were being made again. The sad part of that, because of what our entrepreneurs and business owners found that they could be more efficient than even they had thought they were, yes, they're rehiring, but they're not retiring to pre-recession job levels. Ask yourself these three questions. Are you willing to work long hours and make the sacrifices necessary to get your business going. And that's what it is. It's the risk return. More risk, more return. Do you want to bear the responsibility for all business decisions, and responsibilities related to your company? And again, whether you're a flower shop, whether you're a restaurant, whether you're the Green Cab Company of Madison, whether you're a larger manufacturing plant-- One of my proudest moments is when I can help a customer start their company up, work with them, be a trusted advisor for years. And one of my customers was a wholesale adhesive distributor. 

And in the early 1990s he started his company. Two years ago he sold his company, I can't say for how much, but he did very, very well. And so from 1990, 1991, through 2009, I was his banker. And that is a relationship that he took seriously, that I took seriously. Hopefully you build up a friendship, but bottom line, I don't bank my friends, I don't bank my family. Hopefully my other bankers are banking my friends and family, I personally do not, because I have to have a break, because I have to make hard decisions for the customer. For good times or bad times for 19, 20 years, I helped the company employ approximately 20 people, financed his business, financed his home, financed his second home, financed his third home, financed his plant and that's where the risk and return come from. Are you independent, disciplined and committed to entrepreneurship? Are you ready to serve multi-roles within your organization? Networking, I was at a finance career day at Marquette University a couple weeks back and I was amazed how many young students, sophomores and juniors, already had calling cards, and some of them were the Marquette University stock, but then they had their name, then they had their address, you know, their phone number, their email address. Some of them were more creative. Some of them were a little busy, but that's all right. 

Again, it's the creative, that passion. My youngest son is a junior down at St. Louis University, he was home for spring break last week and he's in finance, he's in business and finance down there. And I mentioned to him, you know, this is a great thing for networking. Whether, wherever you're going to go, whether you're in fine arts, whether you're in business, whether you're in retail, whether you're in engineering, networking is huge. And you're never too early to start. Professional organizations within your own business school, within your own college school are so important to be part of. I think the schools are doing it, I know Marquette is doing a much better job getting us to network with our students now. We spent a day with them on a Saturday about 5 hours talking about careers in finance. And I'm sure you have that in the other different colleges. Dress up nice, put some good-looking clothes on, make yourself presentable and go to those things and get those, get those cards. 

My son got cards through Vista Print for an extremely ridiculous low amount of money and now he'll be able to network down at St. Louis with whoever he comes across. I talked about friends and families and the like. I just want to step back real quick, I want to talk just about a couple personal notes from me to you, and again, if I sound fatherly, I apologize. But I have to tell you that you can make so many easy mistakes that are going to hurt you for a couple years. And my son, if he sees this, my sons are going to roll their eyes and going, lord, he's talking about Facebook again, he's talking about personal credit bureau again. So two things I want to talk about. Personal credit and Facebook. And then I'm done preaching. And I hope you don't mind just listening to me. Jeanan is not paying me anything so I'm just jumping into the fray. 

Personal credit. Timely payments, overdrafts and your personal accounts. Defaulting on a WPS electric bill. All that will follow you. So if you want to start a credit rating, now is the time to do it. Watch your credit card balances. I am amazed at how many credit card mailers my sons get still at home when one lives in Madison and one lives in St. Louis. I rip them up. Just be careful and that's all I've got. Just be careful. 

Do not spend any money that you can't afford to spend. Use your debit card, not your credit card, but don't overdraw your account. And lastly, Facebook. I will tell you that graduate schools and employers are looking at your Facebook pages. And my sons have heard my story. My sons, whether they wanted to or not, thank god they did listen to me because they got some of the stupid stuff off of there. And so I'm just telling you and I said this at Finance Career Day at Marquette University so you're hearing it as well. Don't think ill of me. But watch yourselves out on Facebook. That stuff can just hurt you, it can follow you, business is tough enough, graduate school is tough enough. 

Just give yourself every opportunity to succeed and keep away from the stupid stuff. All right? I'm sorry, that's it. I believe, yes, that's it. Any questions? I got three minutes for questions. Yes, sir. >> Hi. >> How are you? >> I'm good. >> I have a question about Facebook. >> Bruce, would you mind cutting down the lights so I can see the audience? Please, go ahead. >> Okay, it's like a two-part question. 

>> I'm not a Facebook expert but I'll try. >> Is it true some employers, even if you have your Facebook private, they have like an administrative kind of power to still look on your pictures and stuff if you have it private? >> You know, I'm not -- >> You don't know? >> I'm not an HR expert. I spoke with a professor at a local school here in Madison, not UW-Madison. I'm sorry, when we say UW, we do not just mean Madison. I don't know how they do it. But they can. I was talking to a friend of mine and he's got a friend of mine, he's got a Facebook that he has for his family and everything else, and that's under his name and nothing on there is stupid. And then he's got something else for when he's going up to the lake and he's being stupid with his friends. I don't know how they do it. I just know that they're doing it. 

The finance, the College of Business people at Marquette University, they tell me they can do it. And so, and I have heard enough stories that they can do it. I don't know how, but they can do it. >> Thank you. >> Is that the first or second part? My pleasure, thank you. Make me feel wanted. >> Thanks. So when creating budgets for business plans and grant proposals and requests for funding, a lot of times your values and stuff are estimates because they're projections of costs. Do you think it's better to overestimate, underestimate, or do sometimes people put a range, requested amount and idealized amount? >> Great question. When you do an analysis, when you're doing an industry analysis, depending on the industry you're going to, you can find, whether it's Robert Morris and Associates, book of industry averages and the like, you can find what your company with that specific product can service. 

What that gross profit margin should be, what the net profit margin should be, and the like. Great question. When you say overestimate, we call it blue sky. And when we see blue sky, when you tell us you're going to open a restaurant and making $300,000 net profit the first year, that's called a blue sky estimate. But you can have three estimates. You can have your low ball, the highball and what a range would be, but those ranges should be based on historical information from industrial periodicals. Does that help you, does that answer you out? Okay. I think you can have the best of times, the worst of times. Being conservative is not a bad thing because if you're conservative you will have limited debt to fund and to repay. If you do better than that, great. 

But make your projections on something that's a true base that you can start with. >> Yes. >> My name is Ben. >> Hi, Ben. >> I was wondering, how hard has the city and the banking industry of Milwaukee been hit by the recession? >> It's been, our loan demand, I will tell you our loan demand is soft. Our customers in manufacturing in wholesaling, they're not adding new equipment, they're not building new additions or adding new manufacturing plants so our loan demand is down. Jobs are down. I think Milwaukee, for all intents and purposes, came through it pretty well. And again in the banking field, you know, we have had to jockey around. We have had to make different, you know, we have had a plan back when we give a customer a $3 million loan for a building back in 2005, and that pretty much went all to heck in a hand basket in 2008. 

So you have to go back to that business plan, what didn't work in that business plan, what is the new plan, how are we going from that point A to point B and how do we remodel that, if you will. But for the most part, it's all right. Loan demand in metro Milwaukee is soft. It's flat. And I think that's pretty much what you're seeing throughout. I think our customers are enthused about the future, optimistic about the future. I'm not sure they're confident about the future. And that, Ben, I think that's where it's going to come. Once they're confident of what's going to happen, then I think you will see more capital acquisition and the like. Good question. 

>> Hi. My name is Lauren. I was just wondering how you've been dealing with M&I being in the press, whether it be from the slack it's gotten from the protestors here in Madison, or I know there was some bad press about privacy rights for users and card holders. >> Privacy rights, as to who? >> I just read in the newspaper or on the Internet a couple weeks ago about there was some concern whether or not private information was being sold. >> I'm not sure I know about that. I'll address the talking points that I have. For a corporation to give monies to a candidate is against the law. We didn't give any money to any respective candidate. Our employees, whether they give to Scott Walker, Barrett, whomever they choose, they can give money to whomever they choose. And so that's what you see. 

And so you know, what we do, we keep on doing what we do. We are a good bank, we're a solid bank, we have had bad press, I will tell you that customers are supporting us on all levels. As to your second part, Lauren, I'm not sure what that necessarily is. I'm not positive, I don't think any of our systems were corrupted. I don't think anything was, I don't think any of our systems were corrupted or anything else. I'm not positive as to your second part. But as to your first part, we are weathering it. Did we have people come into our branches protesting, yes. Did we handle them with courtesy and respect, yes. Did they give them what they wanted, if it was a legal request, if it was CRA Exam, our CRA and CRE-- CRA means Community Redevelopment, and if it was for that, yes, we gave them that. 

If they asked for something that was not legal, we said no. But we handled them with respect. >> It was interesting and just one more sweep, anybody else have a question, because I have one. It was interesting hear you as a banker talk about the importance of networking and actually your kind of restatement of that provides me a great tee-up for the lecture I'm about to give on the importance of networking for entrepreneurs. >> Very much so. And it is so important, as I mentioned, you have to be a jack of all trades and master of none as one of the attributes were. But you need that attorney. You need a great business attorney. And you're going to find during your businesses you need a good business attorney, a good tax attorney, you need a good patent attorney, you need a lot of different attorneys and accountants, tax accountant, audit accountant, whatever the case may be, and besides those professionals, it's the business people in your marketplace. I belong to the Rotary Club of Milwaukee. 

It's one of the largest rotaries I think in the nation, definitely in the state. Approximately a little over 400 members, we get together every Tuesday at noon. It's the who's who of Milwaukee. And I've been in the business for, you know, 30 years. I'm 54 years old as of this past Friday. And that's why my son and I are going to have a drink. But it's amazing how much I still need to know, and when you're networking and you go to a dinner and I don't care if it's a business dinner here, college of business dinner, college of fine arts dinner or what have you, do not sit at the table. Do not sit at the table and talk with a friend that you have known for three years at school. Get up off your chair, get up off your fanny and go out and press the flesh, as they say, you know, extend your hand. Say hello. 

It's not what you get in networking, and this is from Mr. Joe Sweeney, if you want to read a great networking book, I'm sure if you have. >> I know what you're referring to. >> Joe Sweeney, it's not what you get, it's what you give. The more you give, it's the old Christian attitude, the more you give, the more you will get in return. That's what Joe Sweeney says. The more you give and don't look for networking to be something that you're going to get a lot of information, a lot of wealth or anything else. The more you give, the better off you'll be. >> Well, Keith, you have given us a great presentation today and wetted our appetites for more on financial business planning. Thank you so much. You're an official Badger now. 

>> Bucky Badger! Thank you very much, Jeanan. I appreciate it. >> Thank you. >> Thanks very much. (applause)