The Financial Planning Association of Canada | E128
The Financial Planning Association of Canada | E128
In this episode of Financial Planning for Canadian Business Owners, host Jason welcomes John Pelley, Co-founder and CEO of Colibri Financial Services Agents. John explains how Colibri offers fractional treasury manager services, diving into the intricacies of optimizing banking fees, loan structures, and merchant services for small businesses. They discuss why typical banking relationships are suboptimal and how Colibri provides a tailored review to unlock potential savings. John shares insights on how often businesses should revisit their financial structures and provides advice for small businesses on working effectively with banks. Tune in to understand the importance of competitive banking and the benefits of outsourcing treasury services.
Full Transcript
FPCBO 128 - IAFP
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Jason Pereira: [00:00:00] Hello and welcome to Financial Planning for Canadian Business Owners. Today on the show I have John Pelley, Co-founder and CEO of Colibri Financial Services Agents. Colibri is a outsource treasury service for small businesses and I brought John on the show today to talk about what that actually means.
Thanks. Thanks for coming
John Pelley: Thanks, Jason. Yeah, great to be here.
Jason Pereira: So, John Pelley of, uh, Colibri, tell us about what it is you do.
John Pelley: Well, essentially, uh, we provide fractional treasury manager services. So then you say, well, what's, what's that mean? So, um, uh, we produce, uh, savings for business owners and businesses in general, um, by reviewing all of their banking fees, interest rates on accounts as well as loans, loan structures.
Um, merchant services processing, uh, you name it, anything that runs through your bank [00:01:00] account, we do an analysis on it, uh, compare that to market rates, what we know is available in the market, and then provide you with a summary of the savings that are available.
Jason Pereira: Okay, so, let's dive into why it's necessary. I mean, you're talking about savings, that's important. So, talk to me about what the conventional relationship for a business owner in a bank looks like and why you think that's suboptimal.
John Pelley: Yeah, so essentially, uh, my experience, and it's been over 35 years of banking, uh, my side, a lot of business owners don't, they think they have a good relationship with the bank and that the banker tells them it's a good relationship but essentially, uh, they're just receiving pretty well standard rates on things, um, Uh, they don't understand the business owner or the customer doesn't understand various things about banking.
[00:02:00] Um, and they're relying on the relationship manager to them the best possible deal. But at the same time, they don't know what that deal is. So it really comes down to a point where it's very challenging to negotiate that you don't understand.
Jason Pereira: Well, beyond that, where's the incentive for that person to give the greatest, you know, incentive, or the best option possible, right? I mean, sometimes, unfortunately, incentives may be the opposite. But even if there wasn't, if there's no incentive, and it's just simply, okay, I need to get a deal done, this client needs to get something done.
The incentive is to get the work done, right? So, so where is the impetus for the best possible deal to happen coming from this other than benevolence? And if a system's designed to rely on benevolence, it's going to be suboptimal.
John Pelley: I fully agree, fully agree. one of the, I won't call it a challenge, one of the, uh, opportunities, uh, for business owners is to understand the bank prices things like loans, account fees, and that sort of thing. [00:03:00] Um, Banks rely on a very, um, complicated profitability model, and each customer is run through that profitability model. So while based on your financial position, you might qualify for a loan at prime, for instance. If the profitability model doesn't support that, um, then you're not going to get that rate. So, so they feed all of this revenue sources into it, um, and then they have a, a stated hurdle that they have to, to meet in order to be able to approve that, uh, that pricing for a particular customer.
Jason Pereira: And that makes sense. I mean, let's not you know, unlike most many Canadians seem to believe banks aren't charities, right? They're not there to do things for free. They are profit seeking and I would say fat margin businesses in this country compared to others. So it's not surprising they want to make money and nor should we begrudge them that the [00:04:00] question is how much money are they?
Going to make and is that fair?
John Pelley: So just to your point, Uh, they are not charities, although, uh, I've started to say that a lot of people are donating their money to banks,
Jason Pereira: Oh, yeah
John Pelley: because it's just coming out of their account, uh, without any, any, uh, solid, uh, sorry, uh, without any, any type of, um, benefit being gained. My view is, you know, banks are a necessary evil, but at the same time, um, there's ways that you can and should, um, reduce that amount of evil. So, last year, to your point about profitability, last year, uh, the big five Canadian banks, I've got to expand this analysis to the big six soon, but at this point, as of October 24, the big five banks in Canada produced a net profit per minute of $102,000 [00:05:00] so that's, you know, every minute of the day, every day of the week, every month of the every week of the year they're producing over over $100,000 in net profit, and that's after fines and everything else.
Jason Pereira: Depends on how big the fine is, you know, looking at looking at you TD. Anyway...
John Pelley: Yeah. So, um, uh, you know, when, when you look at those numbers, you know, a lot of people say, well, you know, I'm not going to negotiate with my bank or I'm not going to move my business from bank because, you know, I like the guy who's there, whatever. Um, But at the, the reality is, you know, if you move your business from a bank, it's not going to impact that net profit that, that they're racking up.
Jason Pereira: Oh, as I like to say, when it comes to people comparing Canadian banks, it's, we're just comparing basically five different flavors of low grade vanilla, uh, at the end of the day, they all do something similar and you may have a good relationship, but we've also seen, I mean, I don't know about you, I'm on my third business banking rep in six years, [00:06:00] uh, you know, these people, if they're competent, get moved out pretty quickly and, uh, it's, you know, you're left to the next person hoping that that person is competent and we'll see what happens.
John Pelley: Yeah, you're rebuilding a relationship
you know,
every couple of years. Yes, it's good that you have a history with a bank, but to your point about being low grade vanilla, uh, I believe, yeah, their services are commodities right now. Yeah. And. And it's the same service, you know, they move money from point A to point B or they lend money. Um, and it's the same service across all the banks. They might call it something different or paint it a different colour from a branding perspective. But the reality is, is exactly that. It's a commodity. And what happens to commodities is you should be able to drive the price down.
Jason Pereira: Well, that assumes enough competition, which we don't have much
of that in this country.
John Pelley: Well, actually I would disagree with that in that there is a lot of competition at the street level for, for deals.
Jason Pereira: Hmm.
John Pelley: the business banking world. Okay. And the reality [00:07:00] is, you know, banks are tripping over themselves to try and get a deal. The way we structure this and provide the information to them, they love it, because one, they don't have, you know, the relationship managers don't have to go out and seek the business opportunity. And two, it provides them with all of the information that they need. One, to make it, you know, uh, their own opinion on the deal themselves. The vast majority of people that you're dealing with face to face at the bank have absolutely no authority. They've got to move it up the line to the next approval level to the next approval level and in order to do that you have to make it as easy as possible by providing them the right information and and some of that is market information... is there another bank down the street that's quite willing to do
Jason Pereira: this
Um
John Pelley: deal and guaranteed there will be. There will be, it's just for, for the average person, it would take a lot of work to pull that information together and to get the information needed from [00:08:00] additional banks.
Jason Pereira: Yeah. And to go back to your moving up the line conversation, the reality is, is it depends on the size, right? So like if you're a major publicly traded corporation, you know, they're bending over backwards, you know, they're, you're probably a multiple relationships going on. It's, you know, they have people full time doing this work and you have people at these banks dedicated to your account, whereas as you move down the line and you go down to the standard commercial banking, you still get people who are going to look at your business and actually understand your business when coming back to products, but when you get the small business banking,
you're on a checkbox system and it's utterly infuriating because if you don't hit every box on that checklist, even if you have the craziest, wildest, like awesome growing business that needs help with banking, sorry, we can't do anything for you because you're below a certain threshold.
John Pelley: Exactly.
Or you don't tick this box, or we're not interested in that type of business this quarter. But maybe next quarter, our sales totals could change and we might be interested in that.
Jason Pereira: Okay. So let's, let's talk about what an engagement with you looks like. Business comes to [00:09:00] you and says, John, help me out here. What can you do for me? I need, I need to have a better relationship and access to financing and account services.
John Pelley: So there's, there's a couple of different things. Let's, let's look at just the account fees and loan pricing, for instance. And then we'll talk about the, um, funds or, or raising capital, um, as part B. So, uh, on the, on the fee side, a lot of businesses or a lot of organizations would call it a treasury services review. The important thing is, is your banker may tell you, hey, we'll get, we want to come in and do a treasury service review, but essentially all they're doing is reviewing the own, the services that they're providing you currently. And, and saying, yeah, you got it. You, you, you, you got a good deal. By our standards, um, and uh, you know, we can, you know, there's no more services that we can, we can sell to you right now. So what we do is we take, um, you know, we'll, we'll start with the [00:10:00] business owner, um, and then look at, try and determine, you know, what their purpose is. Are they looking to save money? Uh, do they just, I've had clients come to us and just say, look, I've had it with my bank. I need to go somewhere else. Find me a bank, right? Um, but let's take the case where it's like, okay, well, let's just review and see what kind of money you can save us. So we'll, we'll look at their financial statements. We'll do our analysis on three years of financial statements, and then we'll typically ask for three months of bank statements, um, and three months of merchant services statements if, if they're, if they want to go that deep. Um, so, I mean, you've heard the, you've heard the, the phrase that, you know, a company's financial statement is like a snapshot of their financial position on a given day. I take that a step further. We look at the snapshot, but then we look at their bank account statements. And I look at that, and it's more like a video. It shows us exactly what's flowing in and flowing out of that account every day. Um, and so, you know, [00:11:00] we'll look at the bank statements, um, and do our analysis around that. Based on the information we gleaned from those, those couple of reports, we'll do a pretty quick analysis to say, we think we can save you X number of dollars. Is this a reasonable amount to, for us to engage with, but also is it a reasonable amount for the company to say, yes, we would like to save that amount of money. What do we need to do next? So, so that's the starting point and we've tiered it in a couple of different ways so we can, you know, then we'll, we'll move into accounts receivable accounts, payable analysis and that sort of thing. All the while, um, just trying to, turn over the rocks and find ways for this company to save money. If you look at, you know, a company, every, every dollar of revenue that flows through, through a company has to hit the bank account at some point. Every dollar they disperse has to hit the bank account at some point. Every one of those transactions, whether it's based on a dollar amount or the [00:12:00] transaction itself, attracts a fee. So you don't want to reduce the amount of money you're putting through your account. You want to reduce the fee that's attached to that account. And the only way to do that is to provide the bank with competitive information that says, yeah, we can, we can get this at a better price somewhere else.
So let's start looking at that. So essentially once, once we've done our, our review and it's important to note as well, that we're very, we're independent, we're not engaged with any particular bank. We go out to all the banks, we have contacts at all the banks, and we just find the best possible deal, right?
We don't get anything. We don't get any form of payment from the banks at all. Um, and so the next thing is, is okay what about, you know, loans on interest rates? We'll look at that again based on, you know, the financial position of the company, what's available in the market, and also what, um, what we know is, is possible based on experience. [00:13:00] So, once we, once we do that review and the client says, yeah, this, this is interesting we, we'd like to do that. We'll, we'll write up a detailed report and we'll provide that to our various banking contacts. Uh, at this point we keep it anonymous. We don't tell the banker who the company is until they've shown interest and then, uh, as they send us back, um, proposals, we'll analyze all those proposals, stake them out, you know, them, one to five, one to six, whatever it's going to be. Um, and then come back with recommendations to the business based on, based on that information. So the decision is always still with the business owner or the business contact.
We don't make the decisions for them. We just present them the information, give them a recommendation based on our experience, but for the most part um, it's still their decision. They just haven't had to do the work to get to that point. Um, secondly, if they want to look at funding, whether it's for equity strips or [00:14:00] expansion, or they're just tight on cash, whatever reason, um, we'll look at that in a little different way. Um, but the same sort of thing. We'll gather all the information. Uh, we present it to our, our banking network, um, and, uh, ask for proposals. Right? Analyze proposals, come back to the client with with the options that are that would best suit them. On... in both cases, our fee is based on what we generate for the client, whether it's on the funds or on the savings, we don't...
it's not a flat fee by any means. And so the client is always paying us out of money that they've actually saved.
Jason Pereira: Okay. So we'll get into the compensation in a second. But, so the question becomes like, okay, you're doing this one moment in time to basically kind of audit everything, optimize it, provide better options. How often is this process, should this process be revisited?
John Pelley: Uh, my recommendation is it should be done on a three year basis. No less [00:15:00] than three, no more than five. Um, and the reason being is, is, you know, you, you want to have some time with a particular bank to, to generate that relationship, whatever that's going to look like. Um, and, and, but also if you're, you know, your company's position changes, right.
Uh, every, every year. Um, and so you want to, you know, but again, it's, it's work to do this for, for a lot of people, so I wouldn't do it on an annual basis, uh, unless, of course, your relationship with the bank or, and is very, very bad.
Jason Pereira: Yeah, and it's worth to change also. It's not kid ourselves. It's a distraction from our underlying business to basically make these moves.
John Pelley: Yeah, there, there is some work involved. Now, you know, we also undertake with our clients that, you know, we'll, we'll project manage the changeover for them as well as, as part of our, part of our, uh, our service, um, and having done that from the banker side for many years with large corporates, um, you know, I've [00:16:00] got lots of experience in doing that and making sure we, we check all the boxes and, and keep everybody in line, uh, to keep to the deadline.
So it, it can be, it can be work. Um, it's, it's manageable for sure.
Jason Pereira: So, okay, talk to me about the size of business that you typically deal with. How big should a business be before they start turning to you for help?
John Pelley: Sure. I mean, we've we've run the gamut from companies that have, you know, $1,000,000 in sales up to $800,000,000. So typically for us, um, we, we, we would generally say a business that has sales over $2,000,000 is where we would want to start. Uh, and that's where we can start to see some some savings.
There's some sweet spots in there. It seems like where there's gaps in the banking coverage, um, or just the company has grown and they went from a million dollars in sales to 2 million to 5 million sort of thing. Um, and then there's, there's other priorities that they've been focused on [00:17:00] short and and sadly the banking side hardly ever becomes one of those priorities until it's a problem.
Jason Pereira: Okay. So, all right. And then let's go into compensation. How is it you're compensated?
John Pelley: Sure. Um, so so typically we will look at um the savings that we generate for the client when it comes to the treasury review side of things when you know fees and rates and that sort of stuff. We'll look at that and uh, we'll estimate the savings for that and we'll charge a fee based on those savings.
So so the fee ranges from you you know, 12 to 18 percent depending on the amount of work that's involved and how long they want to engage us. Um, I've had clients who just said, well, just give me the report. I'll take that to my banker and run with it from there, uh, to people who say, no, no, I need a project, need you to project manage this from start to finish. Um, and so we look at the estimated savings for three years, um, and then determine the rates, um, based on that [00:18:00] scale. Okay.
Jason Pereira: Okay. All right. So
John Pelley: On the funding side, sorry, uh, on the funding side, if somebody comes to us and say, I need a 5 million loan, uh, then we, we have a sliding scale that we, that we use for that as well.
The Lehman model is, is basically what we use, um, to determine compensation for that.
Jason Pereira: Fair enough, but nevertheless, they are ending up net positive for the effort.
John Pelley: Absolutely. Absolutely.
Jason Pereira: So I mean, that's for companies that you said, north of a million sales, you know, is there any advice you have for businesses who are starting out or below that threshold who can't, you know, where it's not a fit for your services, what should they be looking to do when engaging with the bank in terms of making sure they're optimizing their experience there?
John Pelley: Yeah, good, good question. Um, tell you what we did as a, as a company when we formed, uh, six years ago. Now, um, we made the decision, um, and, and, uh, both myself, myself and my, and my partner, who's actually my son as well. We both work with the same bank for a period of [00:19:00] time. I had 35 years in, he had five, and we both agreed that we weren't going to default to just say, well, let's just go to that bank and, and get their services. Um, so we actually went to the five banks represented in our, in our, uh, neighborhood here and, uh, with, you know, a small business advisor, um, in all cases. The and and asked for the information, all that sort of thing. The changes in levels of service, level of commitment and pricing levels were unbelievable
when we did our analysis, it was just amazing. Um, and so. that's the first thing is, is you want to go talk to various bankers. Just don't default to, well, that's the bank that I always, my, my parents used and I used and, and I'm going to do it. Um,
Jason Pereira: There is no loyalty in banking. Let's be honest. Yeah. At the end of the day.
There shouldn't
John Pelley: be any more. If, if you're loyal, you're paying a price for that
loyalty.
Jason Pereira: Yes. Well, and the thing is, is that loyalty, [00:20:00] unfortunately, that loyalty when you need it most is not there because the old saying, was it the old saying, if you want a bank to give you an egg, you need to give them a chicken first. Right? So when you, uh, when things are tough, they're not going to bend over backwards.
They're about their own safety.
John Pelley: Yes, exactly. Exactly. So, so the loyalty there doesn't go both ways for sure. And I, and I've seen that, you know. Having
Jason Pereira: mean, I, I'm often surprised that people think that there is there something there. And they're like, well, I've been a loyal customer for 20 years. And my response is so what, like, they don't care, right? Like they're, they're a profit seeking enterprise that moves people out of that chair every three months, you know, they'll replace you with the other person
who's, you know, who's leaving their bank for being annoyed by the same things, right? It's just the way it is.
John Pelley: Yeah, exactly. And, and sadly, most bankers don't get, uh, compensated for customer retention on a, on a, on an individual basis. They may get compensated based on their portfolio, but only if it, if it's growing, right. [00:21:00] So, so it's always about the new business coming in um, and what can I do to make my life easier on a daily basis?
Right.
Jason Pereira: So bottom line is if you're starting from zero, don't take it for granted shop around. Be competitive, do a little bit of hustle. It will save you time. And it will save you money, especially in the early years when money is fuel. Right. So
John Pelley: Exactly. Exactly. We, we, we, we did the analysis. I actually built a calculator for the fees across the different banks. So we still use it today, but we saved ourselves, uh, I think at the time it was about 200 bucks a month in account fees from, from the top, uh, bank to the bottom bank. Right.
Jason Pereira: It's honestly nowhere near unsubstantial. It's, it's a, it's a valuable sum. Okay. So.
John Pelley: and, and you take that, you know, that's just in year one, right? You take that and multiply it out by however many years you're going to be in business. And that's
Jason Pereira: It adds up. It adds up a lot, quite honestly. Okay. So, uh, before we wrap up, uh, any kind of final parting thoughts on words of advice to give the average [00:22:00] business owner?
John Pelley: Uh, yeah, I think I got three key takeaways. I'd like to present. One is, you know, it's, it's challenging to negotiate what you don't understand. So first of all, a way to understand it. But as Drucker was fond of saying, do what you do best as a business owner and then outsource the rest. So if you can't understand it yourself, or you don't understand it, you don't have the time, it's, you know, it's not, it should be important, but it may not be important, given everything else that got on the go, then have somebody do it on your behalf for you, right? Um, the other thing is to appreciate and understand how competitive banking is, right? From, you know, door to door, as we said, the colours change, but the services are the same. Um, so you need to leverage that competitiveness. I've actually seen competition within bank departments for customers at different times, right? Um, so, so understand that, [00:23:00] leverage it as best you can. Um, The other, the other point is, is, you know, the people that you're dealing with have no authority. So you, you know, they're nice to your face and everything else. And yes, that's their job, get you in the door, talk to you. They can't make the decision that you need them to make, right?
And so as a result of that, you need to make it as easy as possible to move it up the line to get the approvals that you want. And the only way to do that is to have the information presented in a proper way. It's, it's one thing to ask for a better deal. It's another thing to ask for a better deal the right way.
Right. And that's all information based. So that's my big three, um, for anybody who, who wants to talk about and look at banking, whether they're small business or, you know, medium-sized business. Um, when you say we've, we've done deals for, for larger, uh, large corporations as well. Um, and our track record for, for savings has been excellent.
Jason Pereira: [00:24:00] Excellent. And where can people find you?
John Pelley: Sure. They can, uh, find me, uh, to find me on LinkedIn, uh, or you'll find us at, uh, john@Colibri-FSA.com. Same, the webpage is the same as that. Um, or you can give me a call. 902 483 2342.
Jason Pereira: Right. So that was John's, uh, pitch for why you need treasury outsourced services as a small business. And I think it was a great one. So as always, if you enjoyed this podcast, please, please leave a review on your podcast outlet. And if you're watching on YouTube, please like, and subscribe until next time.
Take care.
John Pelley: Thanks.
Jason Pereira: Thank you.