Survey Finds Hidden Gold in Micro-Businesses

Contrary to popular belief, owners of businesses with fewer than 10 employees and only $500,000 in sales can be very profitable bank customers, according to a recent survey.

"There are so many micro-size businesses that the segment represents a huge profit opportunity," said Michael Anzenberger, BankAmerica Corp. vice president for small-business marketing.

Traditionally, one-person consulting businesses have been considered synonymous with laid-off executives, and banks felt they couldn't make money by offering them commercial accounts.

But bankers who have devised accounts for this segment have discovered a healthy source of revenue from the business and the personal financial relationships.

"If you match them to the right products, they can be very profitable," said Brian Connolly, senior vice president and director of business development for Boston-based Fleet Financial Group. "The challenge for our bank and all others is to develop the right products."

That view was reaffirmed by a recent study that found 60% of those small-business owners use only one bank for the bulk of their personal and business finances. Such a strong bank relationship means the entrepreneur uses multiple products and services, and generates more revenue for the bank.

Also, more than 87% of the 940 business owners surveyed had bank relationships for their business finances. Twenty percent also use mutual fund companies and 12% use brokerage companies.

The entrepreneurs also tend to use leasing and commercial finance companies for their business needs, and use insurance companies for retirement plans, as well as for property and casualty insurance.

Almost all the small-business owners surveyed blur the lines between their business and personal finances. A quarter used personal loans, such as home equity loans, to finance their businesses, and 63% have business loans secured by their personal assets.

But Maria Erickson, vice president of Tampa-based Payment Systems Inc. which conducted the study, said few bankers are aware of which of their customers use both business and personal services from the bank.

Ms. Erickson estimated that banks could at least double their revenue by serving the business and personal needs of affluent entrepreneurs. Another study, by NBW Consulting in Westport, Conn., found banks could triple their revenue by cross-selling their services.

"There is a definite opportunity to cross-sell bank products," Ms. Erickson said.

Mr. Anzenberger said BankAmerica can match entrepreneurs with their business bank accounts to determine what product to recommend. For example, he said computer banking services are very popular with these entrepreneurs.

"When you have invested the time to understand what the business owners' needs are, you want to be able to serve all their needs," Mr. Anzenberger said.

While micro-businesses may require some extra effort in the start-up stages, many of them grow into much larger companies and require more financial services.

"When you get them when they are young, they become bigger and make more money, and we make more money," said Raj Madan, director of marketing for business banking at Barnett Banks Inc., Jacksonville, Fla.

The PSI study also found the business owners split into two camps, with the largest group more interested in preserving their standard of living than growing their business. Only 8% said doubling their business size was their primary financial goal.

Bankers said business owners interested in maintaining their standard of living would be good candidates for investment and trust services. Entrepreneurs with growth businesses, on the other hand, would have a greater need for credit products.

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