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Batten down the hatches: Fine tune your small business plan for any economic environment

By Published On: May 24, 20235.6 min read

Jacob Hymes  | 

May 24, 2023  | 

Reading Time: 6 minutes

Batten down the hatches: Fine tune your small business plan for any economic environment

In recognition of the more than 33 million small businesses in the U.S. ‡, we are sharing helpful best practices to fine tune your business plan to weather economic shifts.

Key takeaways:

  • Strategically assess your business lending options, both now and for the future, including reviewing consolidation and conversion opportunities
  • Take a close look at your business and personal credit and taxes to ensure tidy documentation and processes
  • Be honest with your financial partners
  • Improve income by evaluating equipment and assets, reviewing inventory, re-pricing and buttoning up your accounts payable and receivable
  • Implement employee retention strategies with wage reviews, promotions, benefits and workplace flexibility

Responsibly manage your business debt

Interest rates changes have significant impacts on business lending. To effectively manage your debt, consider these financial tactics before applying for a business loan:

  • Convert floating debt. Consider converting any floating rate debt to fixed rate debt, which flips the mindset from short-term financing to a longer-term solution. Although many borrowers use their investment portfolio as a natural hedge for floating rate debt, it may still make sense to lock in a low, fixed rate now for any variable rate debt you may have.
  • Consolidate debt. If your company has extensive overhead costs with bills and outstanding balances, debt consolidation could be a smart strategy to move existing debt into one streamlined payment. Debt consolidation can potentially provide a longer repayment period and/or lower interest rate – both of which can help improving available liquidity.
  • Clean up your credit and tax liens. A tax lien is the government’s legal claim against your property when you fail to pay a tax debt. Make sure your credit and tax debt are up to date and tidy to ensure you’re getting the best rates available. This is an important consideration for both your business finances and personal finances because both are reviewed to determine your creditworthiness.
  • Transition from alternative lending sources to conventional. If your business has alternative financing on the balance sheet, but you’ve been able to stabilize your profits and expenses, now may be the right time to convert your debt to more traditional loans and lending. Speak with your business banker to talk through the options and whether it makes sense for your company.
  • Be honest with your banker. This may seem obvious, but you’d be surprised how many business owners inaccurately fill out loan applications whether intentionally or inadvertently. Filing for bankruptcy or having a tax lien is not an automatic disqualifier in the application process. With that in mind, it’s better for your relationship with your banker to be transparent about details.

Strategies to improve income

If cash flow is top of mind, take inventory of your equipment and see if there is anything old or outdated that can be sold, refinanced or salvaged. Also, spend time reviewing your assets to determine how they can help the business work smarter and improve liquidity.

If your business is inventory-based, assess your supply regularly and consider buying in bulk or shopping around to get the best purchase price. Another option is to restructure your pricing to align with the current market, inflation and competitors. However, be wary of aggressive price increases to avoid upsetting your current customer base.

Another way to improve cash flow is to streamline your accounts payable and accounts receivable processes. Review timing, steps and ways to reduce your business bank account churn. One example of a strategy to implement is building in incentives for your clients to pay on time, or early.

Finally, take advantage of and embrace advancements in technology that can help further reduce costs without devaluing your goods or services.

Combat supply chain challenges

Small and large businesses alike are being impacted by supply chain disruptions like slow manufacturing and delayed shipping. As a result, we continue to see increases in shipping costs, storage expenses, delivery delays and logistics issues.

To combat the supply chain challenges, consider ordering material further in advance than typical so you can more confidently predict what you need. This can impact upfront costs, but can also help assuage concerns about products, parts and shipping timing.

Implement employee retention strategies

With unemployment in the U.S. at 3.5%, it’s important as a business owner to develop employment retention strategies to not only keep your employees but ensure they are happy in their roles. With nearly historical lows and despite some recent softening, the labor market remains competitive.

Maintain an “always looking” mentality and plan your hiring needs in advance. You don’t want to find yourself in a position where you have to fill a role immediately as this could result in a less-than-desirable candidate. Because low unemployment often results in high turnover, it’s also crucial you are offering competitive benefits to your employees. Here are some financial considerations in today’s labor market:

  • Invest in and strengthen your current team through talent development, wage reviews, internal promotions and hires to help retain your current workforce.
  • Recognize that hiring costs have increased and plan accordingly. If raises and promotions are not in the financial plan, focus on benefits to make up any difference in salary or hourly pay.
  • Embrace the hybrid home-office schedule and provide flexible work environments. Consider how the work from home shift can help you cut costs if your industry allows for virtual or asynchronous work.
  • Be shrewd in your resourcing forecasts knowing you may not have the upper hand in resignations and new hire negotiations.

Running a small business requires an immense amount of discipline and perseverance, even in the best economic conditions. In today’s volatile environment, this is more important than ever. As a business owner, you must be willing to adapt to any changes that come your way and pivot to ensure your business is successful. Strategize and plan well by having a strong relationship with your banking partner, managing your debt, improving cash flow, finding alternative financing options and focusing on employee retention.

Our small business specialists are ready to help you with your small business financial needs through guidance, support and service. We also offer a series of online tutorials to help your business succeed. We’re always adding new topics that we believe can help you build and manage your business. Explore our small business courses.

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.

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About the Author:

Jacob Hymes is senior vice president and director of small business banking at UMB Bank.
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