Optimism is on the rise among business owners in 2014. This is the first year coming out of a down cycle in the economy, and businesses are ready to grow. They are looking to expand operations, hire new talent and purchase new equipment. But they also are searching for new strategies, financing options and ideas for better market penetration. In today’s economy, one of the best partners a business can have is its banker.
Bankers should be bringing more to the table than monthly reports or the weekly “how’s it going” call. They should be strategizing with business owners on how to expand operations, create more efficiencies and generate more revenue. More than any other business partner, bankers are the ones who should understand every aspect of a business, from cash flow to risk management and payroll to information technology services.
Here are a few areas bankers can help businesses strategically grow and profit in today’s economy.
How does your cash flow?Most business owners talk about the importance of cash flow, but not many go deep into the process and determine how to make it better. Businesses need to ask questions such as: How many days does it take to collect on receivables? How long are you paying on collectables? Are you getting discounts for paying early?
A lot of companies are operating inefficiently. They are duplicating internal steps or taking extra steps to receive money. It costs $2 to $5 to mail a check, whereas sending an automated clearinghouse payment costs less than $1. Businesses need to review how much time it takes to print, stuff and mail a check versus using a card or ACH payment.
By working closely with a banker, businesses can gain cash flow relief and create better efficiencies in their operations. Bankers also can help business owners create a profitable and logical cash-flow system.
Risky businessRisk management is exactly what it sounds like. Anything businesses can do to manage risk will ultimately benefit the bottom line. This includes having dual controls with employees, doing regular inventory checks, having different people sign off on checks and having a process to detect and deter internal and external fraud. So much risk can be diverted simply by paying attention to the small, everyday details.
Risk efficiency is something bankers also should discuss with businesses as it relates to items such as outsourcing payroll or return collections. Oftentimes there are functions that businesses can outsource to save time and money. One of the main things to be outsourced is payroll. A payroll provider may also accept tax liability so the employer isn’t responsible for tax penalties.
For companies with large receivables, it might be more efficient to have a lockbox or outsourced collection system. Bankers can greatly reduce time and efforts for clients that have high receivables. Another area to outsource is IT. Businesses can outsource their IT needs to a third-party group in order to save time, headaches and money.
Creating operational efficiencies Bankers understand cash and business cycles. They can help a business create operational efficiencies in several areas, including payments, cash-flow cycles, commercial cards and reconciliation.
One example is the process of purchasing equipment. As businesses expand their work, make repairs or replace units, they may find themselves making multiple purchases throughout the year. Rather than go through the process of taking out a separate loan for each investment, companies should map out their anticipated needs for the year and take out a line that will cover all potential investments. Not only will this save time, but it also provides flexibility to buy new or used equipment and to proactively plan for capital expenditures to make during the year.
Purchasing cards might also be considered from a processing standpoint. Not only does the right program provide valuable rewards, but it also cuts down on check writing and provides increased flexibility in cash flow.
Additionally, it creates a more streamlined tracking system for accounting departments. By allowing job numbers to be attached to specific expenses, companies can easily allocate costs to the appropriate projects, which results in more effective planning and budgeting.
By working closely with a banker, businesses truly have the opportunity to expand and grow through creating efficiencies in areas they never knew could be improved. Any operational, cash or risk management improvement will ultimately improve a company’s bottom line and its outlook for future growth opportunities.
Nate Bibens is a treasury management officer at UMB Bank in Springfield. He can be reached at Nate.Bibens@umb.com.
