As the U.S. economy slows, small business owners are facing tough financial times. The American Bankers Association (ABA) is offering ten tips for small business owners to think about in debating their financial moves.
1. In tough times cash is king. Carefully examine every capital purchase
that will require additional debt. Ask yourself if the expenditure will
generate the cash flow needed to pay for itself. If the new item can't
create enough new cash to pay for itself over a reasonable period of time,
defer the purchase.
2. Let a budget be your financial road map. You are flying in the dark
financially if you don't have a budget for all income and expenses. A budget
helps you maintain the direction of the business and must be updated
frequently. What about a budget for personal expenses as well? Many small
business owners do not track personal expenses and as a result they can
become an invisible cash drain.
3. Objectively look at your businesses financial position and performance.
Are you getting the maximum return from your investment? If not, why not?
Are your non-business assets generating a maximum return? Is it possible to
sell any assets that are not contributing to the financial health of your
business? Remember: in tough times, survival is the goal.
4. Examine how your debt is structured. Do you have an imbalance between
long- term and short-term debt? Is it possible to increase your long-term
debt to pay down your short-term debt? You may be able to increase your
monthly cash flow by spreading out your short-term debt over a longer period
of time. Be cautious when taking a loan against long-term assets such as
your real estate; it's like drawing against your "life" savings account. If
you're going to use your long-term equity, make sure the need is critical to
5. Prepare for your financial review with your banker. Have current
inventories, cash flows and balance sheets ready for your review with your
banker. Provide the information needed. Often bankers spend time with
customers looking for misplaced information instead of concentrating on
resolving important issues. If you are having financial problems, put your
thoughts about how to resolve them on paper so your banker can review them
6. Ask your banker about the Small Business Administration (SBA) guaranteed
loan programs. Your banker may be able to restructure your business debt
over a longer period if the SBA is willing to provide a credit guarantee on
your loan to the bank. If your business is located in a qualifying rural
area, your business may qualify for a Business and Industry Guaranteed Loan
offered by the United States Department of Agriculture's Rural Development
Agency. Many states also offer financial and technical assistance to small
businesses. Your banker is a good source of information about additional
financial resources available to your small businesses.
7. Review your hazard and fire insurance coverage. Increasing your
deductibles can lower your premium. Carefully review every item on your
inventory list and consider eliminating coverage on obsolete or low-risk
8. Carefully examine your life insurance policies. Many whole life policies
contain provisions that allow you to borrow against the cash surrender value
at low rates or allow you to deduct the premium costs from the cash
surrender value. What type of life insurance do you have? Is it worthwhile
to maintain a costly whole life policy when you could get similar coverage
from a less expensive term policy? Of course, you should never be without
life insurance. All key personnel in the business should be covered so that
the business can continue in the absence of any specific member of the
9. Deal with financial problems immediately. When an issue arises that
impacts your cash flow, be proactive. Talk to your banker early and often. A
good way to avoid serious financial problems is to identify and resolve them
early. Though discussing financial difficulties may be uncomfortable, many
problems are best resolved by a team. Create a personal "board of
directors", comprising people you know and respect, who can be your
sounding board. Make sure your banker is a member.
10. Maintain a clear perspective. One of the best ways to think through
business problems is to get away from them. For example, take a weekend
off--and not just to attend a trade show -- or resolve to see at least one
movie before it comes out on video. However you do it, it is important for
you to put your concerns aside temporarily and shift your focus to other
activities--it will make your home team and business stronger.