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Five Tips to Improve Business Cash Flow

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Running a business is hard work – juggling priorities while simultaneously reacting to shifting market conditions and demand. And, it’s likely the first priority is to make the business successful, which includes optimizing the company’s income/expense ratio.

To help adjust to the business’ liquidity needs, take a look at the following tips for improving cash flow.

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  1. Improve your forecast: One of the best strategies for improving cash flow is to develop a forecasting model and method that works for the business. In order to predict the amount of income it will have over the course of the year, it’s important to understand the ebbs and flows of the company’s purchase journey and the changes in the market that may impact customer choices. If the forecast consistently puts the company in a tight spot financially, dedicate some time to review process and numbers with a business banking partner.
  2. Consider your “float” timeline: Balancing supplier payments with receivables is tricky, and can make even the most seasoned business owner nervous. Many companies choose to pay suppliers with a check, which provides a 1-2 day “float” period before the money is debited from the business account. If that is all the time you need, that’s great, but some businesses prefer a longer buffer. To extend that timeline, you can pay suppliers with a credit card, which allows you 30 days to collect receivables before the cost hits your account. However, make sure you can adequately manage payments to minimize interest charges.
  3. Take a closer look at competitors: If it feels as though the company should be bringing in more sales income, that inclination may be correct. Conduct a competitor review: how do their product lines or services compare? Is pricing similar or way off target? If the company is selling for substantially less or more than competitors, it may be damaging chances to maximize income. Try to maintain fair market value for goods—pricing items too low can mean missed profit, but pricing items more than they are worth to the consumer likely means fewer sales.
  4. Clean house: If cash flow is top of mind, take a look around. Is there old, outdated or obsolete equipment that can be sold, refinanced or salvaged? Spend some time reviewing assets to determine how they can help the business work smarter and gain back some liquidity. If the business is inventory-based, assess supply regularly. Are there enough of the essential items? Is there too much inventory of something that sells inconsistently or seasonally? Holding on to supplies can constrain cash supply, so order carefully and clean out frequently.
  5. Review bank relationship: If this hasn’t been done lately, it may be time to evaluate all of the tools and tricks the bank can provide to help improve cash flow. For instance, if receivables are slow enough to cause concern, review payment solutions to make sure customers are able to quickly and easily pay. And, check for interest-earning accounts for business accounts that carry larger balances so the company can earn more over time. In addition to these options, there may be other cash management tools the bank offers that can help optimize monthly income and expenses.

Positive cash flow can help maintain operations, adapt to changing business needs and ensure the company continues to run smoothly. Use these tips to improve business cash flow and keep the company nimble for the next big thing that comes through the pipeline.

This article originally ran in Tulsa Business & Legal News and AZ Big Media.

Interested in learning more about UMB Business Banking Solutions? See what we mean when we say, “Grow with Confidence.


Dominic is a executive vice president for the Business Banking division at UMB. He joined UMB in 2013 and has more than 20 years of experience in the financial services industry.



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Business Owners: Planning a Roadmap for Success in 2017

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We are almost halfway through 2017, which means it is an opportune time to revisit business goals set at the beginning of the year. Conducting a mid-year check-in allows business owners to evaluate if goals for the year are being met as projected and whether plans need to be adapted to help optimize future success.

Several questions business owners should ask include:

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Is the business prepared for rising interest rates?  

Rising interest rates and Federal Reserve sentiment are in the news regularly, with the public continuing to watch rates gradually rise after years of stagnation.

With the country steadily rebounding from the recession, the Federal Reserve increased the interest rate for the second time in three months in March 2017 to a range between 0.75 percent and 1.00 percent (most recently they elected to maintain this rate in early May).

Interest rates are important to business owners to consider as they look at items such as loan terms and evaluating leasing versus purchasing for commercial real estate.

Is refinancing a business option?

As rates fluctuate, it is critical to evaluate refinancing options. This could be the time to consolidate debt or secure a better rate for a loan. Refinancing could open the door for a larger purchase later in the year or allow for a different goal to be reached more quickly.

Additionally, refinancing into a fixed rate loan may provide some peace of mind for business owners who are nervous about the impact of rising rates on an existing variable rate loan. A fixed rate offers something that business owners crave – predictability.

Do you have the right product for your needs?

It is also important for business owners to ensure they understand all the aspects of the loan. Take time to research the different terms, and make sure they are still in line with business goals. There are several different financing options available to small businesses, and it might be time to explore a different type of product that better suits the needs of that particular business or the current business environment.

Make a list of business goals, and discuss these options with an experienced banker, as they should be able to help clients prepare and best navigate any economic environment with sound lending advice.

Is it time to make a large purchase?   

Mid-year is the perfect time to evaluate what is needed to help business owners navigate the rest of 2017. Since interest rates are unpredictable and have been on the rise, it is important to understand how a purchase now will impact the business down the road. For example, it might be worth considering owning instead of renting equipment or property.

Real estate is also a key consideration for business owners, as it is often one of the largest expenses they face. Purchasing a space instead of renting could be a better long-term solution, given rents in many cities continue to rise at a pace that makes long-term agreements a less attractive option.

Ultimately, the window for low rates seems to be closing, so moving to a more entrepreneurial mindset and investing through capital expenditures may be beneficial. Bankers can help owners evaluate these options for the short- and long-term.

Be in regular communication with your banker.

Finally, it is critical to maintain regular communication with your banker. Business owners should consistently share what is happening and ask the tough questions to see what changes can be made for the time ahead.

Bankers are here to support owners and to help businesses succeed—having the full picture will result in sound advice and recommendations.

Interested in learning more about UMB Business Banking Solutions? See what we mean when we say, “Grow with Confidence.


Dominic is a executive vice president for the Business Banking division at UMB. He joined UMB in 2013 and has more than 20 years of experience in the financial services industry.



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Focus Items for Small Business Owners

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In December, the NFIB Small Business Optimism Index‡ had its highest reading in 12 years. In the report seven of the 10 index components rose, including small business owners expecting better business conditions and higher sales.

Optimism is currently at a high point allowing for owners to focus on their next big idea, their bottom line and how they can make things better for their employees. Their bankers should be thinking about those things, too.

If you’re a small business owner, make sure you’re talking with your financial partner about these business-critical items as you venture into 2017 and beyond.

Top Talent Identification and Retention
Companies requiring vocational talent can face challenges finding the right type of employee. As businesses look to expand, growth can be difficult without a sound workforce and could potentially force companies to outsource to other cities or move operations entirely.

As part of their talent acquisition and retention efforts, small businesses should ensure they are offering solid compensation and benefits to build and retain a strong workforce.

Business Growth
With an ultimate goal of growing their company, small businesses need to evaluate what other potential clients exist and if there are new segments where they can introduce their product or service.

Companies that did not survive the 2008 economic downturn left behind certain voids that need to be filled. Existing companies should evaluate this as an opportunity to expand to a new business target.

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Employee compensation and benefits
Currently, there are two big issues that could pose a threat to small businesses: the minimum wage discussion and health care. If minimum wage increases, many businesses will face challenges with revenue and cash flow, particularly if they employ lower-wage workers. With no offsetting revenue increase, this would affect a company’s cash flow and could create unprecedented challenges within the business.

The other topic of note for business owners is healthcare. The rules and regulations of the Affordable Care Act may change with the current administration discussing extensive healthcare reform. This could mean an extra expense without incurring any additional revenue for small businesses.

Fraud and Protection
Fraud continues to be a top concern among business owners, and the latest statistics prove it is a legitimate fear. In the 2016 Association for Financial Professionals Payments Fraud and Control survey, 62 percent of companies were subject to fraud during the survey period, and wire fraud has nearly doubled from 14 percent to 27 percent.

The truth is, businesses can plug one gap and another one opens up somewhere else. The key is to stay vigilant with your employees, train them and understand the latest tactics that are being used to commit fraud.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Dominic is a executive vice president for the Business Banking division at UMB. He joined UMB in 2013 and has more than 20 years of experience in the financial services industry.



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UMB Insights: Being Bankable

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What does a bank look for when you’re applying for a small business loan? Here are some insights from a lender’s perspective.

  • Cash flow
  • Liquidity
  • Collateral
  • Character

To learn more about small business loans and SBA loans, check out more on the blog.

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Dominic is a executive vice president for the Business Banking division at UMB. He joined UMB in 2013 and has more than 20 years of experience in the financial services industry.



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Don’t let tax credits fall through the cracks

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How can you get a bigger refund when filing your taxes? These tips can help:
tax credit tips
Even if you’re dreading the process of filing your taxes this year, taking the time to know what you’re doing can equal a bigger refund check. Everything from plugging in your electric car to adopting a child can be considered for deductions, so don’t miss out on refunds this year.

The IRS offers several federal tax credit options designed to lessen the burden of taxpayers. This is especially true for low- and middle-income households, which often retain a higher percentage of their annual salaries for basic living expenses than high-income households.

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Earn tax deductions with a retirement plan
Some of the best tax deductions tend to be linked to retirement plans. With these deductions, you save money on annual taxes and invest in your future.

The Saver’s Tax Credit (previously known as the Retirement Savings Contributions Credit) is for those making eligible contributions to a 401(k), IRA, or other workplace retirement plans such as a 403(b), 457, or Thrift Savings Plan. If you’re contributing and are in a lower-income bracket, you can receive a tax credit up to $1,000 when filing alone and up to $2,000 if filing jointly.  This credit is on top of the tax advantages already associated with retirement plans, which might include pre-tax contributions, tax-deferred growth, or tax-free withdrawals in retirement.

Tax credits for small business owners
The IRS also offers potential tax credits for small business owners. One of the biggest deductions is through a home office credit.

More than 50 percent of U.S. small businesses operate at an owner’s home, according to the Small Business Administration(SBA). Unfortunately, many fear taking advantage of this tax credit will red flag an audit from the IRS. The good news is, that fear is usually unfounded.

To be eligible for a home office tax deduction, the IRS requires a portion of a residential property to be considered a legitimate home office. The home must be a primary workplace. If there is an additional office used, you cannot file a home office deduction. An exception can sometimes be made for those who work all day at an office part of the week and all day at home the rest of the week.

To figure out a home office credit, the SBA recommends calculating deductions by comparing the size of the home office versus the rest of the home. However, a business owner can also deduct expenses for a separate freestanding structure, which means a business owner can use a studio to conduct work, or a garage or barn for storage. But those freestanding structures should be exclusively for business.

Tax refunds as a way to save
Remember that getting a large refund may not always be in your best interest. It could be a sign that you’re having too much money withheld from your wages. If you have trouble saving on a regular basis, however, forced savings through tax withholdings is better than not saving at all. Just try to set aside all or a portion of your refund for the future. Some great ways to use your refund include paying down high-interest debt, building an emergency fund and investing for retirement.

 

Take a look at the IRS website for a comprehensive list of deductions, and ask a trusted tax accountant for advice on which ones apply to your situation so you can take full advantage of your options.

 

*This post is not meant to replace the advice of a tax professional.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Chen is a Vice President and Portfolio Manager for UMB Private Wealth Management. He is responsible for all aspects of portfolio construction, including asset allocation, security selection and mutual fund analysis for high-net-worth clients. He joined UMB in 2013 and has 10 years of experience in the financial services industry. Mr. Chen earned a Bachelor of Science in Business with an emphasis in Financial Management from Kansas State University and Master of Science in Business with a Finance Concentration from the University of Kansas. He serves on the board of directors for the Financial Planning Association of Greater Kansas City and the Kansas City CFA Society. He is a Certified Financial Planner® and is a CFA charterholder.



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The ABCs of SBA Loans

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Small Business Loans explained

UMB SBA loans

A loan from the U.S. Small Business Administration (SBA) could be a very useful option for your company, no matter if you are just getting started or if you have been around for years.

SBA loans often allow business owners who may not normally qualify for conventional commercial loans to obtain financing. This includes those who:

  • have less available cash flow,
  • are more leveraged, or
  • have little to no history in operating their business.

However, it is important to know exactly how an SBA loan differs from other loans, what types of SBA loans are available and what to consider when deciding to apply.

How do SBA loans work?

The SBA actually does not make direct loans to small businesses. Rather, when you apply for an SBA loan, you are actually applying for a commercial loan from a bank or another partner lender, structured according to SBA requirements and backed by an SBA guarantee. (The SBA agrees to pay a certain percentage of the loan if the borrower defaults.)

SBA loan vs. a traditional loan:

  • SBA loans usually have a lower down payment requirement, but higher fees
  • collateral requirements: SBA loans might access equity on a person’s home for collateral, which most traditional loans would not do.
  • SBA loans have longer amortization periods and terms. This can lead to a lower payment for the borrower.

What Types of Loans Are Available?

  • 7(a) loans – the most common offered by the SBA and include a variety of loan programs such as SBA Express and CAPLines
  • 504 loans – used primarily for real estate and equipment purchasing

Considering an SBA Loan

Many aspiring business owners are hesitant to go through the SBA loan process. The application process and associated costs seem too daunting. We recommend visiting an SBA Small Business Development Center or SBA’s website to learn more about loan options available and qualifications. These centers can work with applicants not only on loan options, but also can provide resources for business planning.

If an SBA loan seems to be a fit, we recommend working with a banker that is experienced in SBA lending and can help expedite the application process, as well as evaluate all other loan options.

 

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When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Dominic is a executive vice president for the Business Banking division at UMB. He joined UMB in 2013 and has more than 20 years of experience in the financial services industry.



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