As businesses in many states begin to reopen, it’s time to be vigilant about your financial decisions and make ones to strengthen your company.
Listen to or read a summary below as Dan Heitmeyer, vice president of commercial banking at Minster Bank, offers expert advice for business owners. You can also click on specific topics to jump to that section in the text below.
Financial moves to make right now
Tips for improving cash flow
Signs of financial struggles
Should I start a business now?
Where to find financial support
Small businesses are now starting to open back up. What are some smart financial moves they should be making right now?
I think the biggest thing that they want to do when they reopen is make sure that they have sufficient liquidity, which is basically just cash or other liquid assets. This could be accounts receivable, inventory, et cetera, with cash being the biggest one, the biggest portion of that.
You want to make sure you have enough current liquidity available to cover your expenses for that particular month, and it should be at least a one-to-one ratio. Anything above that would be considered additional working capital and that’s where most businesses want to be. Even if they’re not reopening, the additional working capital is helpful.
When you have adverse conditions like COVID-19 or if we get into a recession at some point, you just want resources to be able to cover your obligations during that time period. And I know it’s maybe easier said than done for small businesses when they’re just reopening. But again, I think it’s very important that they plan for that to make sure they have just enough working capital when they do reopen so they can take care of their obligations.
What are some strategies for improving your cash flow?
I would say one of the first things you can probably do is prioritize your spending or your discretionary spending. You’re going to have some contractual obligations that you’re going to have to meet each month. Contractual obligations include things like your rent or your mortgage payment, or any other debt service that you may have, or utilities.
If you don’t take care of those things, there are other consequences. It’s the discretionary items where you may be able to take a look at those and say, ‘Well, I really don’t need this right now until things improve.’ If you have a membership somewhere, as an example, you just have to learn how to prioritize your needs versus your wants, what the business needs or you desire.
Another thing would be if your business does have some debt, I would encourage you to work with your bank. We’ve had some customers during this time that have approached us and asked us to do an interest-only portion on their monthly obligations on their payments for a period of time.
What are signs my business might be struggling financially? How do I fix these things?
I think most of them are probably pretty obvious to the business owner. Some of the signs as a bank that we could see occasionally – if one of our customers was struggling, you may see an increased number of overdrafts on their account where maybe they haven’t had any overdrafts historically.
Another obvious sign from the bank’s perspective would be if you see the delinquency on the account from a customer that’s never missed a payment historically. That tells you that at that point, they’re probably struggling a little bit with their cash flow.
Is now a good time to start a business? Why or why not?
I think a lot of small businesses in this country were started in adverse times – that seems to be somewhat historical. I know I’ve had customers that have told me over the years that they’ve made more money in bad times than they have in good. They might be able to take advantage of some opportunities that were out there when other people were either afraid to invest, or maybe the market contracted a little bit and they were able to get a good buy on something.
So, I think really any time for the right person can be a good time to start up a business. Obviously, if you’re thinking about a business that was shut down during the pandemic, it wouldn’t be a good time to start those types of businesses, but now things are starting to open back up.
If I need financial support for my small business, what should I do?
I would just tell customers if they’re struggling a little bit, or if they need some help, to reach out to their banker or reach out to their accountant for assistance. It’s always best to talk to your banker. If you’re struggling or having difficulty with a payment, or whatever the case may be, just sit down and talk to us.
As I mentioned earlier, our success is dependent upon their success. We’re not in the business to close businesses or to take people’s property back. We’re in the business to provide a service, either loans, deposits, wealth management, to help them succeed. As I said, that’s how we make our money. We’re a manufacturer. We’re not selling widgets; we’re selling financial services, and when they’re successful, we’re successful.
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