Money and access to funds are currently more expensive than they have been during the past 10-15 years—and that is not likely to change anytime soon. While we have been enjoying historically low rates for longer than many can remember, the reality is businesses and owners must operate within today’s environment.
There tends to be more financial flexibility when money is “cheap,” which makes a strategic review critical for all businesses. Evaluate and understand the areas below to determine where you may have opportunities to optimize and maximize.
Look at debt load and see what is maturing
Many companies are managing different types of debt with varying terms, interest rates, etc., and managing them is key to reaching your financial and business goals. Some effective ways to do that are not only to take stock of your accounts and their statuses, but also to explore options to consolidate or pay down where it makes sense, freeing up future borrowing capacity down the road. Do you have any ballooning debt that will impact your long-term plans? Does it make sense to right size that debt now with excess cash?
Evaluate capital expenditures (capex) and what your future needs look like
With such unpredictable swings during the last year, it’s impossible to time capital expenditure purchases, so determine how the elevated expenses fit into and affect your plans.
Do you need to replace or purchase equipment now to enable planned growth, or does your current equipment meet your needs? What other expenditures are critical to your business plans?
This is a category that can significantly affect your expenses, but also your success, so be intentional and objective in this review.
Prioritize to achieve more bang for your buck
Review your projects to ensure you are maximizing results and implementing them efficiently. Confirm you are prioritizing ones that are integral to your strategic plan and will have the largest impact. It is common for “easy” initiatives to trump ones that are more complex, even if they are less important. Take the time to make sure your resources are focused where they need to be for both short- and long-term success.
Plan for the next 3-5 years under today’s conditions
Looking at or referring to rates from the past 10-15 years doesn’t help planning in today’s economic landscape. It’s best to operate under the assumption that rates will be 7% for the next three to five years to ensure your business can handle the ups and downs of future cycles.
One way to manage through these these conditions is to increase payment efficiency to free up cash to support future growth. Leveraging payables solutions includes optimizing business credit card programs and rebates, cutting down receivables timing, and improving automation to streamline the payables process.
Be proactive on reviews and opportunities
Don’t wait for annual reviews with your banker to address concerns or to review your long-term plans. Regular check-ins to discuss factors such as wage and labor pressure, rates and debt structure, among others, better sets you up for long-term success.
Your banker can also help you assess whether the timing and environment are right to reinvest in your business. Whether its cash flow, workforce retention, supply/demand volatility or technology advancements, understand how your business strategy, industry outlook and financial plan align.
Some common areas of capital reinvestments for businesses include:
Benefits of a multipronged approach
With so many factors outside your control, it’s best to keep an open mind and explore options within the confines of the current environment. From looking at existing debt to analyzing what new debt you should take on, your banker can help you utilize strategies to adjust to the current—and future—conditions of “expensive” money.
If you are interested in learning more about how UMB can help your business, visit our website.