Elevating projections for success
When running a business, it is easy to get bogged down in day-to-day operations and lose sight of the bigger picture. But, successful businesses must invest time to create and manage budgets, prepare and review business plans and regularly monitor financial performance.
Business planning is most effective when it is an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they’ve happened.
There are a number of benefits to drawing up a business plan and budget. For example, it can help you manage your money effectively, allocate appropriate resources to projects, monitor performance, meet certain business objectives, improve decision-making and identify problems before they occur, such as cash flow difficulties.
But before making “best guesses” when it comes to your financing needs, consider talking to a banker. They can help project cash flow and borrowing needs, while identifying the right products and services for your business.
First, discuss your company’s overall operating costs and cash flow projections. In this area of business planning, borrowers need to be as accurate and realistic as possible. This is particularly important if you are looking to maintain or increase your credit. Give a practical depiction about your company’s profits and cash flow going forward.
For example, when a manufacturer in Carlstadt needed help refinancing an existing loan, we reviewed their financials and were able to help with a better rate and loan term. The refinance helped the company recapitalize its balance sheet, save money, improve cash flow and provide an increase in borrowing capacity.
For businesses looking to secure financing for seasonal start-up needs, bankers can help determine how much is needed and customize flexible terms and rates. The reality is that every industry needs a different level of working capital. Some businesses may have unique needs due to seasonality, vendor payment terms and continued pressure on accounts receivable collections.
Review your current performance against last year and current year targets. By looking at backlogs, you can make a fairly reasonable guess as to what will turn into revenue, and what areas may continue to be challenging. For example, if accounts receivables are getting stressed, what will that do to your working capital? A banker can help business owners take a look at these scenarios and help find a financial solution.
Another area where bankers can be valuable is evaluating a business’ cash flow cycle—from payroll and supplies to anticipating new project needs. For certain businesses, this may be an ongoing challenge each year. A working capital line of credit is an ideal solution for covering operating expenses during this time. However, it is important to use this financing for short-term needs only and to set expectations about repaying the debt.
Bankers also can provide valuable, industry-specific insight for your business planning. They can recommend cash management tools, such as remote deposit capture and sweep accounts to help contractors save time and money. These financial products should be part of overall plans and projections. Good cash flow management is essential and can make even the most successful company that much more profitable.
This is a busy time of year for many companies to meet budget goals and execute developed business plans. While it is not always easy to predict a company’s performance in an uncertain economy, having an up-to-date business plan is key to keeping your business on track.
Looking ahead, remember to involve your banker as you update your business plan and budget for next year. Whether you are considering construction loans, working capital or equipment financing, lenders can be a valuable source of information to help you remain competitive.
Wm. J. Ruckert, III is senior vice president of middle market lending at Provident Bank. Ruckert oversees commercial financing for companies with sales of $15 million or more. He holds a bachelor’s degree in business administration from Loyola College in Maryland.