Mark Green: The Forcht Group today has 93 business entities spread across 12 divisions – by any measure a large business enterprise. How many employees do you have today and how has that number changed in the last five or 10 years?
Terry Forcht: We have approximately 2,100 employees. It does vary with part-time people we’re not counting in the 2,100. Employee numbers grow as we’ve acquired, but IT, particularly in banking, has cut down on the number. So employees have been holding pretty steady.
MG: People speculate about the value of the Forcht Group. The banking-sector numbers are available going through the FDIC (deposits were $934.5 million and total assets were $1.252 billion as of March 31, 2019), but do you make public your revenue or asset numbers for the group?
TF: The banking figures, of course, are public; we are (chartered as) a national bank and the largest private national bank in Kentucky with approximately $1.2 billion assets. But we do not make any other figures public.
MG: You are 81, an age where nearly 100% of the population is retired, but you maintain a six-and-a-half-day, 60- to 70-hour a week schedule. How and why do you do that?
TF: Number one, people only work as much as (the example set for them) and if you’re not around…I try to be around, six and seven days a week. It’s good for one’s health if you continue doing what you enjoy, and I enjoy working, enjoy getting up at 3:25 in the morning and reporting in at our Corbin office at about 5:30. Then, making the trip up here to Lexington. During the 90-mile drive I am continuously on the phone checking in with (division leaders) as I am heading north. You get a sense of utility that is very satisfying. I go to bed early, at 7. If I’m going to be out late, I generally take a nap and I’m pretty good at snoozing for 10 minutes.
MG: How do you manage your time and apportion your energy? Is there a lot of routine?
TF: Yes, it’s been with me ever since growing up that you stay on a routine – you don’t have to think about what you’re going to do; you only worry if you can’t get the routine accomplished by the time you set forth. I do have a routine in everything that I do and plan the routine. I don’t look too far ahead. I have a calendar that goes through the year, but I make no real effort to plan out beyond maybe a week ahead, just a short time.
MG: The initial cornerstone of today’s Forcht Group was a small legal practice with tax and real estate work in the 1960s. When you started, did you aspire to the growth outcome you have achieved today?
TF: No. I just took it a step at a time and went about my routine. As a youngster I was always working jobs: delivering for drug stores, working in grocery stores, catching and selling night crawlers, operating concession stands in parks, delivering the weekly West End News in Louisville. I stayed busy and I like to save. I had an Avery book (at Avery Savings and Loan, acquired by Fifth Third Bank in 1982). I enjoyed working and saving.
MG: When you were growing, did you use financing or your own money as you grew?
TF: We did finance what we were buying. The first things were single-dwelling houses; we’d have the down payment and borrow the mortgage. We stayed within what we could handle, always paid on every loan every month and still do; set it up so it amortizes, and that lets you know right away whether you’re doing good with what you’re engaged in. We started with that, then continually added to the dollar volume and the bank loans and other loans we took out.
MG: Under what circumstances would you advise a business leader to use financing for growth and/or operations?
TF: You want to be very selective in what you’re financing and have a backup to help pay the loan if you get behind in the business you are involved in. You want to have a good down payment and make a payment on that loan every month rather than just borrowing to be borrowing with no payback schedule.
MG: Is banking your biggest and most significant sector?
TF: It probably is by volume. I worked at the Federal Reserve Bank of St. Louis branch in Louisville when I was going through night law school at the University of Louisville. I’ve always enjoyed banking and understand that well. Health care is the other sector we have a lot of volume in – operating nursing homes and things attached to it. But the thing I like best is banking.
MG: Do you, or does the Forcht Group, ever take investment positions in other people’s businesses?
TF: Short answer, no. We like to operate what we have in the way of ownership. If you’re into (investment positions in) other companies, then you may not have the same control that you would have. We do invest occasionally in other companies by buying stock that is listed on exchanges. But we do not operate in conjunction with anyone else; when we have a shareholder’s meeting, we know what the outcome is going to be.
MG: You have made a lot of acquisitions over the years. What are your essential elements of due diligence in evaluating a company being considered for acquisition?
TF: We see if it would fit our premise of maintaining the lines of communication with companies; we basically stay in Kentucky. We occasionally have gone outside Kentucky with acquiring a bank – we acquired one in Ohio recently – and we’ve acquired a radio station or two in Indiana and Illinois, but we want to be able visit what we own within as short a drive as possible. Also, cash flow is very important. We have to figure out if this is going to pay for itself; we look at earnings and cash flow, the monies coming in.
And most important, we look at management to see if they would have an opportunity with us, and if they would like to stay with us.
MG: Businesses generate wide varieties of cash flow – the grocery business is 1.5% while others can be 50% or more. Do you have a threshold cash flow number for a potential acquisition, or does it just have to be able ‘to pay for itself’?
TF: That’s the main thing, to pay for themselves. We look (for a price) in the area of six to 12 times earnings. In other words, we’d like to pay for something within six years or at the most 12 years when we’re acquiring (a business). Real estate would be longer, of course. If something has a lot of real estate then there may be a longer cash flow than if it’s an operating situation like in radio stations or something like that.
MG: What portion of potential acquisitions do not make it through your screening process?
TF: We stay with things that will fit within our organization, and we pass on very competitive types of businesses; restaurants for example. Most of what we have is banking, health care, insurance, finance company locations; for these you either have to have a charter or certificate of need, and that eliminates entry into the business (by many competitors). Pure competition does not appeal to us as much as having limited entry into a category.
MG: Would you explain the process you refer to as “base lining” to grow business?
TF: Base lining is basically when your businesses buy something, you think, ‘Can we do that cheaper for ourselves?’ And maybe by some type of setup we can both sell retail and serve ourselves. It works both ways, running the base line. For example, once we had ongoing activity in the nursing homes and banking, and we find it’s true in insurance, we were constantly getting furniture and renewing situations. So we developed a retail store here in Lexington (My Favorite Things provides furniture, home décor and interior design services) that sells to the public and we use that for refurbishing our needs or setting up new locations. We just recently opened a branch in St. Matthews in Louisville and (My Favorite Things) was part of that. They were part of our acquisition of a bank branch in Ohio in the last few months.
MG: Before entering business, you had a business bachelor’s degree, an MBA in finance, a law degree, and you’d taught college business classes. Was your training essential to the success you have experienced?
TF: Yes. The training has been very helpful. By the time I got out of law school, I was 26 and we had four children and teaching was something that appealed. I registered with an agency that sent me an opportunity in Wisconsin and one in Williamsburg, Kentucky. We visited both and thought Williamsburg was a good place to start. It was a small town and I got to know the people, and that was really a cornerstone of opportunity for us, the people that you meet along the way.
I was teaching and had a law degree and an MBA, and I did a lot of tax preparation work on the side. That introduced me to several businesspeople who didn’t like to worry about taxes or contracts or regulations, and that opened up opportunity. I’m a great believer in partners. I did that a lot in the business, but eventually if you stay in long enough you buy the partners out. That has worked well for us.
MG: Do you do anything differently that has led to a greater business success than most people experience?
TF: I think so. When you talk about starting a business, a lot of people have an idea they want to do or something that appeals to them and they start looking for backers, angel investors, some of the other things you can do. They want to get in with having stockholders and things like this.
We chose the route of trying to start small and work our way along. You have a partner occasionally who knows more than you do about the business, but you can help them with some things they need to know. But again it’s on a small scale. That works better than the approach of, ‘Oh, I’ve got an idea for a great new software’ and then going out and raising a couple million dollars to get this thing underway – which you might have to if you are in some businesses in which an entry situation would require a lot of money.
The businesses that I have operated, we have made the entry by what we can afford to put down payments on and working from there and not wanting to hit a homerun. Success comes from focusing on steady income that comes from whatever needs your attention at the particular time and not trying to be too big.
MG: You have contributed money to entrepreneurship education at the University of Louisville and University of Kentucky and donated to the University of the Cumberlands. Regarding entrepreneurship and business, what general advice do you give?
TF: My track is that you start with learning whatever it is you want a business to do. Going to school is one way you learn, and you learn by attending seminars. But you learn the most by doing. I like to use the example of a basketball game. I’d rather go to Rupp Arena and sell popcorn than watch a basketball game. You make money when you’re selling the popcorn. You’re paying money when you’re watching the ball game; I’ve never seen Coach Cal come up in the stands and give everybody $50 or $100.
You want to participate as an entrepreneur to gain experience, and experience can come from many different areas. You probably learn as much working at McDonalds as going to any type of school or seminar; you’re dealing with people and seeing what has to be done to make an operation a success.
My advice is to get in and learn what you’re seeking to do and then see if you can do it on a small scale rather than involving a lot of outside capital and business partners who want to tell you what to do. You should have a thing you feel strongly about and start small.
MG: Many entrepreneurs have very good business ideas, but how does someone assess whether or not they can execute an idea as a business? Is this part of what you’re saying with your advice to start small and do it yourself?
TF: Yes, I think so. You don’t start in a small business at the top and hope to get people to do the work. If you have an idea, you will be better off working that idea yourself in the beginning and then begin to add people and rise with the information and hard work that goes with you and other people. You can’t start at the top.
MG: You have tracked business and the economy closely for decades. What means do you use, and are there key metrics or activities you find most important to track?
TF: Yes. I faithfully read the Wall Street Journal, every day. And Barron’s and other financial publications. I listen to talk radio when I’m not making phone calls when I’m driving. I listen to books on CD and get ideas there. I watch certain indicators: the Dow Jones and Standard & Poor’s stock market averages, reports of the economy, on employment and things like this. But they don’t necessarily apply to someone in our (Main Street) position; there is an old saying, “Wall Street failed, but we didn’t realize it.” We have a smaller type of situation. Your business is not necessarily led by the bigger standards. You have to apply what has taken place in your particular sector. Oftentimes a good ‘indicator’ is just to be out and talk to people in different places. Maintain your habits of work and try to feed the other information back to what you’re doing.
MG: The current economic expansion is hitting a record length now at 10 years. Do you have a sense how long it might continue?
TF: I don’t really, but I think the expansion will continue. We’ve got good leadership in Washington with President Trump and in Frankfort with Gov. Bevin. It could go on for any length of time … as long as we’re not overextending ourselves, whether it’s geographic, whether it’s finances, whether it’s getting outside what you really know how to do well. Be prepared; the Forcht Group was when we experienced the last downturn in ’07/’08. The economy can continue on (if we do not overextend).
MG: Kentucky enacted tax reforms in early 2018 to decrease its income tax and expand sales tax to more services. What is your view of what was done and do you recommend further changes in Kentucky’s tax structure?
TF: Kentucky is trying to be very attractive for business and has changed its tax structure for business. I recommend to look at the example of the state of Tennessee; it has no income tax. When you’re starting or having a business and bringing personnel in, those people have to pay tax in Kentucky. Even though the economy is good, it makes it difficult sometimes on the individual. It would help if we could get rid of the income tax, through either replacing it with a consumption tax or another thing – if everyone wants to allow gambling (to tax it for public revenue), then that.
Another area is the Kentucky inheritance tax. Florida doesn’t have any inheritance tax, so where do people go? They go to Florida and they spend years down there spending money. Gov. Bevin has said if we can get 2 million more people in Kentucky like Tennessee has and get them spending money, or if we could keep them in Kentucky, that works out well. These are things you have to look at, along with the incentives to bring business in. We’re doing very well on bringing in businesses, but we can do more. Compare Louisville to Nashville as an example.
MG: Although born and raised in Louisville, you went into business in a small town, Williamsburg, and have lived in Corbin nearly 50 years. Most of your business operations have been in smaller towns. What are the benefits of smaller towns?
TF: There are benefits such as the amount of investment you have to make. If you’re putting in a bank branch, which we did a lot of – about 10 – you don’t have as much invested as you would if you went into Louisville and really wanted to be a player. With a small town that meets your (business) profile, there is limited investment. And when you do get to know the people, you do a lot of personal activity – you give out ice cream and things like this. We believe in high school sporting activity and do this with our radio stations and other things. You don’t have as much competition to worry about with the Corbin high school team as you would with (marketing through) UK or UofL. You get to know the people, and it helps a lot; they give feedback to you.
MG: Forcht Group has significant financial business operations. Is personal knowledge of customers more important in that sector and are you better able to achieve it in smaller towns?
TF: I think so because you have more background (for business decisions). Even in Louisville versus Lexington, for example. Louisville has more neighborhoods as a result of ethnic groups that came in from different times – you have Germantown, Irish Hill and more – while Lexington is more homogeneous. If we go into a bigger town, we generally have to take a section that is our spot, that we want to compete for business in. Then in that section you want to work with the high school, work with the social clubs and things like that. You have a better opportunity to meet people in the small towns if you’re a small business.
MG: Many companies find the succession issue difficult to handle. How has the Forcht Group approached succession?
TF: We have 11 grandchildren. We have run a ‘boot camp’ for them when they get out of high school and have brought them in for the summer; that is one way you try to interest people in that. We try to interest groups of people who are very successful within our company to have a succession attitude, and you just work it along. It’s hard to say how succession is going to be when you get right down to it. We may eventually want to change our way of doing business and rather than being a private company become more public – and when you say “public,” you are saying listed on one of the exchanges like the NASDAQ. That is an option. But it’s hard. Many companies I’ve looked at have found it to be difficult. We just have to continuously keep it in mind. I’d like to think I’m going to live a few more years. We’re happy with the people we’ve got right now. We do have to do a little more thinking in that area, and we will.
MG: Do you have a closing statement?
TF: If you’re interested in entrepreneurship and starting a business, work in that area. Have something to offer people who are in that area. For example, I had a coal partner and he knew more about coal than most people have forgotten, but he didn’t like the taxes and contracts and legal work. Later I partnered with a doctor who was interested in going into health care, nursing homes, etc., and there is a lot of legal work involved there. If you’re interested, a good way is to prepare yourself to offer something to people who are in the business that you feel like you would like to get into.
It can be any type of thing, mechanics, anything you want to start. Work in what you are interested in – hands on – and take your time. Find something that people really need in that particular industry and make acquaintances. Start small and try to keep your ownership. ■
Forcht Group of Kentucky
Administrative office in Corbin and Lexington. More than 70 companies listed here do business with the public. A few more operations work only with other Forcht entities.
• Forcht Bank – 26 locations throughout 15 Kentucky community markets and in Cincinnati offering loans, mortgages, checking accounts and more.
• First Financial Credit – 20 locations in 20 Kentucky communities offering personal and other loan services.
• Nine health and rehabilitation centers in 9 southeastern Kentucky communities, Forcht Pharmacy in Corbin and Management Advisors in Hazard.
• Four companies in two Kentucky cities provide property, life and disability coverage. Cumberland Valley Insurance Management in London is an employee benefits brokerage.
• My Favorite Things in Lexington retails furniture, unique gifts, home decor and interior design consultation.
• Forcht Construction.
Mark Green is executive editor of The Lane Report. He can be reached at [email protected]