A good time to get business' financial house in order

Filed under: Focus |

Most economists predict Colorado’s economy will pick up – even if only slightly – in 2004.

Certainly any improvement after two years of job losses and stagnant growth is music to business owners’ ears. But is your business financially prepared to take advantage of a recovering economy?

If you’ve been riding out the “economic storm” by cutting staff, making do with outmoded equipment, or limiting necessary investment, now’s the time to re-evaluate those decisions in anticipation of better days to come. Putting your financial house in order can help improve productivity, free up or obtain necessary capital to fund improvements and expand inventory, and generally set the stage for a more profitable 2004.

Specifically, what should your company do to strengthen its financial wherewithal to better compete and take advantage of a growing economy? Here’s a list to get you started:

n Hold a formalized stategic planning meeting. Whatever the size of your firm, key personnel along with your banker and other professionals you rely on should gather together for a formal review of your 2003 financials. This can take anywhere from a few hours to a few days, depending upon the scope of your business. Consider what went right in the year as well as what could have used some improvement. While important, this review should only be a piece of the planning puzzle. The majority of your time should be forward focused, taking into account what is needed in the coming year to support sales growth and more efficient operations.

n Create a specific financial plan for 2004. The concept here is to know what you can afford – both in terms of resources currently available and through appropriate financing. Clearly, you don’t want to be left on the sidelines of an economic recovery because you didn’t adequately plan for sales growth. Do you need new equipment, new facilities, expanded inventory and/or new hires to take advantage of emerging opportunities? Do you have the right financing mechanisms in place, from revolving lines of credit to more permanent types of loans, to accomplish this? Determining these needs and the proper financing required to provide for them will put your business plan on solid footing.

n Evaluate purchasing versus leasing. If your plan for future growth includes the acquisition of new equipment, choose a financing strategy that makes sense for your business. If cash on hand cannot cover the cost or is needed elsewhere, leasing might be the answer. Leasing generally does not involve a sizable down payment or equity investment, freeing up valuable cash. Additionally, a lease can help you assign a direct cost to the equipment’s operation, which simplifies related budget projections. Finally, leasing can offer tax advantages that you should discuss beforehand with your tax advisor.

n Consider refinancing owner-occupied real estate. With interest rates still quite low, small business owners who own their worksites might find extra savings by refinancing their loans. This simple process could yield substantially lower monthly payments as well as a sizable reduction in the overall cost of the loan. Additionally, you might free up working capital in the business to bring payables completely current and/or fund needed acquisitions. Finally, by fixing the interest rate at these low levels you shift the interest rate risk to the bank for the next three, five or even 10 years.

n Streamline your cash management. As part of your forward-looking strategy, you should be thinking about how to best manage your cash. This is an area where many companies fall short, leaving themselves vulnerable to cash flow problems or simply failing to make the most of money on hand. The right mix of cash management tools can offer several benefits including increased staff productivity (who spend less time on mundane financial tasks), additional payment security and the opportunity to maximize company funds. Specifically, you should consider innovations in online check depositing, potential improvements to your payroll system and the addition of a low-cost bank courier service to eliminate trips to the bank, reduce cash handling risk and possibly get cash into the company account sooner than otherwise possible. Finally, take advantage of the many benefits offered today through Internet banking, where among other things you can keep close tabs on your daily deposits and easily transfer idle money from non-interest bearing accounts to interest-bearing ones.

Getting your company’s financial systems in good working order will pay dividends for your business whether or not the prognosticators are right on the money.

Steve Ingham is Vectra Bank Colorado’s Market President for the Pikes Peak area. Vectra Bank is Colorado’s sixth largest bank, with total assets of $2.6 billion. The bank focuses on meeting the financial needs of Colorado’s small- and middle-market businesses. The bank’s Web site address is www.vectrabank.com.