Since 1963, the Small Business Administration (SBA) has set aside the beginning of May for Small Business Week to call attention to entrepreneurship and the importance of small businesses to our overall economy. At Webster Bank we sharpen our focus during May as part of our Business Banking Month to bring heightened attention through all our lines of business on meeting our business customers”™ needs.
As bankers, we understand the challenges businesses face throughout the year, and those conversations often center on three topics: cash flow, the future of the business”™s ownership and the economy in general.
All businesses worry about cash flow. It is a top concern for businesses with fewer than 50 employees, according to Fast Company magazine. Cash flow is at the heart of any business”™ well-being and critical to its life cycle. Simply put, working capital is essential to operating and growing a successful business.
Business owners should start with a comprehensive financial plan and forecast. They need to compare regularly their performance against their projections and make timely adjustments. Almost any business will experience peaks and valleys in revenues. Careful planning can smooth out cash flow ups and downs through either a line of credit from a bank or by applying personal resources.
If the business owner decides a line of credit best fits the need, it”™s best to be prepared. That means having the last few years of the business”™ financial statements and tax returns at the ready. Most likely the bank will ask for a personal financial statement and tax returns. Lines of credit are usually secured by the company”™s assets. If the business”™s assets are insufficient, owners might need to pledge personal assets for collateral or seek an SBA-guaranteed loan from their bank. Lower down payments and an extended time to repay can save additional cash flow to help grow the business.
Business owners also tell us that they spend considerable time thinking about the future of their businesses, especially as they grow older and start planning for who takes over after they leave. Perhaps they have ridden the recession-recovery roller coaster too many times and looking ahead, they are uncertain whether they can ”” or want to ”” ride out yet another.
If it is a multigenerational family business, discussions of succession take place around the dinner table and arrangements can be ironed out that allow the owner to leave the business to the younger family members and allow for an income or a payout that will carry through retirement. Your attorney, CPA and banker can help organize and formalize these discussions.
But one of the major concerns that keep owners up at night is whether the next generation is up to the task or even interested. Only half of family-owned businesses successfully transition to the next generation, according to Forbes magazine.
The owner then must consider a financial solution that entails bringing in an outsider or working out an arrangement with one of the company”™s employees. Complex issues must be addressed. Is the sale to be financed from existing cash flow, giving the owner a steady income over time? Or does the owner want a lump-sum buyout that the new owner needs to finance?
Finally, especially in Connecticut, the economic uncertainty surrounding the state”™s financial crisis is reaching deep into the small-business community and causing owners to be extremely cautious in making additional investments to grow and expand their businesses.
While job markets are tightening around the country, Connecticut businesses are putting off hiring decisions altogether, which helps explain why the state has recovered only 77 percent of the jobs lost in the Great Recession. The rest of the nation has not only recovered all those lost jobs, it has also added more.
They are not investing in their businesses, either. They are putting off expanding, buying new equipment, investing in plant or real estate. Businesses crave stability and predictability. They prefer zero-based budgeting. Deficit spending is worrisome. They need to be assured that state finances are solid and be confident that state policy is headed in the right direction.
Overall, businesses seem to be doing well right now. They remain in recovery or have recovered. But business people are cautious. The fiscal cliff that they see the state approaching is affecting the way they do business, how they manage cash flow, how they plan succession and whether they hire additional people or spend money on fixed assets.
Tim Bergstrom is Webster Bank”™s greater Hartford regional president and head of business banking for Connecticut. He can be reached at tbergstrom@websterbank.com.
