The back and forth on future rate hikes, a recession versus a slowdown and uncertainty in the markets have led to changes in the way some businesses—and banks—are approaching growth and protecting capital. While times have been challenging, markets have remained steady overall as slowing has been orderly and “rolling,” allowing banks to be measured in growth while remaining open and receptive to business as usual.

This evolving working environment has been a reality check for business owners, and while many have to adjust their approach, it’s still possible to navigate these challenging times. There are many strategies business owners can employ to be smarter with capital. The key ways clients can upgrade their capital planning include:

  • Invest excess cash to take advantage of higher yielding funds. Take advantage of rising interest rates to help your funds grow, whether in money markets, sweep accounts or time deposits. Just be careful about locking up too much of your liquidity. Set a percentage that can be used to boost income and keep the rest at the ready.
  • Limit prepayment (or payoff) on low-cost term debt to conserve cash/liquidity. If you have the benefits of low-interest rate debt, don’t burn through your cash by paying it down quickly. Instead, stay steady on your required payments and make sure you have plans for reduced income or profit if the markets get bumpy.
  • Manage expenses wisely. Simply put—don’t spend more than you need to. Focus on operational efficiency and staying prepared while taking calculated risks when it comes to increasing debt, vendors or expanding.

In addition to these strategies, owners can also maximize capital by regularly performing financial plan checks and realigning budgets throughout the year as major market changes occur. Some areas to consider include:

  • Perform a competitor assessment to identify opportunities, gaps, etc. Where do opportunities in the marketplace exist and where should you invest your dollars?
  • Check forecasts and financial models as conditions change. Have swings in the market or specific sectors changed your outlook? Does your business need to pivot to weather those changes?
  • Tighten up cash flow processes for receivables and payables. Does it make sense to utilize a business credit card or utilize efficiencies in treasury management practices to keep more money in your pocket for business expenses?

Find the right financial solution for your business

Finally, it’s important to assess when and how to invest in your business. While it can be scary to put profit back into your operations during challenging economic times, if it’s opportune to do so, it can have a significant impact on short- and long-term success. A few areas/questions to consider include:

  • Are there new or ongoing opportunities or issues that require immediate funding or resources?
  • What is the risk / reward of investing or not investing in these projects now?
  • Can the business maintain or progress in either or both scenarios?

During these challenging times, regularly assessing your business and asking tough questions are crucial to long-term success. It’s essential not only to have a full relationship with your banker, but also to enlist one that is open for business and willing to explore creative solutions to help you grow—no matter what that growth looks like for your company.

This article is educational only. Please consult your financial and tax professionals. If you are interested in learning more about how UMB can help your business, visit our website.