Nelson Nash’s Becoming Your Own Banker: Part V, Lesson 3: The Cost of Acquisition

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Content: Page 68, Becoming Your Own Banker ©

In a recent magazine advertisement, the company was making a point that it took seven people to buy the hammer that was shown. The hammer cost $17. The time of the seven people cost $100! It is the first time I have ever seen the matter addressed in such a manner. This is a matter that should be addressed daily in all business situations.

Even more strange is that all businesses recognize the fact that finance of the business is necessary—but they never address the cost of acquisition of finance! Some time ago I spent two years of contacts with a medical department at a prominent university before they would admit that the fact was true! It is a very significant factor in a business venture and its cost is often startling. Organizations that are supported by contributions are perhaps the easiest ones to quantify this cost because of their objective. Free money isn’t free! Donors have to be persuaded to participate. In many cases they spend eighty-five cents to raise a dollar! The most efficient ones spend at least fifteen cents.

In his book, IACOCCA, Lee Iacocca stated that he wouldn’t have become involved with Chrysler had he known just how bad off they were. But once it happened, what do you do but the best that you know how. The only way he could see that would work was to get a government-backed loan. Now comes the hard part—how do you get a government- backed loan?

You start by gathering your highest paid executives, accountants and lawyers and they all set up camp in the high-rent district inside the Beltway in Washington for the purpose of courting Lobbyists. (Are you beginning to get the picture?) Months later they announced that they had succeeded in their mission, and it was time to celebrate. Iacocca reminded them that they “only had the government- backed guarantee.

ow we have to go to the banks to get the money.” The negotiations here made the lobbying efforts look like child’s play! It was much more difficult, time-consuming, and thus, expensive. At the last minute the bankers always find that we need one more pint of blood! (Having been on the receiving end of such activity I found this to be very funny).

Once this was finally completed the Chrysler delegation wanted, once more, to celebrate. Iacocca then brought them face-to-face with the fact that the banks were not going to give them the money. They were going to get one-third of the money—and a bank employee with a long title whose sole function in life was to harass them during the period of the loan. When the next third was needed they had to go through more of the same. By the time the last third came around the Chrysler folks had received their education in corporate finance!

All of the above anecdote is the cost of acquisition of finance. The cost of finance, itself, was in addition to that. Question: Who paid for all this activity? Answer: Those who bought Chrysler cars, that’s who!

If you are in command of the banking function, you do not have to go through all this expensive erosion. The Infinite Banking Concept does exactly that! You can make timely decisions. There is no cost of acquisition. You are in competition with others who must go through the erosion that has been outlined. Guess who wins?