It pays to regularly review your 2003 business plan. Compare the actual financial numbers to projections. If they aren't on target, decide which can be achieved and how to get there.
If there are goals that are out of reach, review why they weren't achieved and determine what can be done in the future to attain them. Categorize items according to those in your control, like expense reductions, and those out of your control, like the economy. Then take action on those within your grasp.
Making progress toward the goals is better than giving up. And start preparing projections of where you think the business will be at year-end so you can begin to develop accurate expectations for 2004.
Review and evaluate your business partnerships, including those with your banker, accountant, attorney and vendors. Consider your comfort level in meeting with them and asking for advice. Look at the fees you've paid and think about what you got for them.
Review pricing structures offered by your vendors, and the terms you offer your clients. If you're not pleased, consider new partnerships.
When evaluating your banking partnership, review your charges and rates, and make sure you're getting the most for your money. It's critical to the long-term success of your business that you value the relationship and advice you get from your bank.
Look at the products and services you're using, and determine if you need to make changes. If you haven't talked with your banker recently, meet to discuss new products you might benefit from, like online features for your deposit accounts.
Now is also the time to plan your expenditures for the remainder of the year and make sure they're in line with your goals. If one of your goals was to buy a building for your business, take advantage of low interest rates and look at real estate.
If you know you'll have additional equipment needs this year or next, consider the potential tax implications and benefits of purchasing now. There are immediate tax advantages to small business owners who make new equipment purchases, including machinery and computers. Additionally, recent tax changes increase the amount of deductions small business owners can take for such investments. Review the options with your financial adviser and accountant.
If you don't have a retirement plan, consider adding one for you and your employees. Check with your financial institution to see what options it offers. If you have a retirement plan, review it to make sure you're taking advantage of the best products. Evaluate what the administrator provides, including investment advice, education for employees and ease of making and changing investments.
It's not too early to begin planning for 2004. Identify practices that worked this year and consider continuing them. Re-examine the challenges you faced and consider changes to avoid or better prepare for them.
Successful business owners develop a consistent long-term strategy built on short-step incremental changes rather than on major revisions. Establishing a regular review of what's working and what isn't can ensure your business stays on the path to success. Jane Bittcher is vice president and manager, business development group, Fifth Third Bank. Reach her at (614) 233-4562 or firstname.lastname@example.org.
A business plan is a road map, plotting milestones that must be reached on the way to a destination. It should comprised several components, including financial statements on the business, financial statements on each owner, and projections and budget. Numbers should be based on actual historical figures from previous financial statements, along with what the owner wants and expects in the future.
In preparing a plan, owners should establish both short- and long-term goals that are realistic and attainable. Do you want sales to increase each year or remain even? What changes are expected that will affect financial performance?
Also consider the geographic and financial markets, any foreseeable changes that will impact the business either negatively or positively, and the competition.
Once the goals are set, outline the steps necessary to reach them and put them in writing. Include timetables if appropriate. Consider the outcome of reaching a goal to ensure the necessary support is in place. For example, if the goal is to increase sales by 25 percent, do you have sufficient sales and support staff to deal with clients once the increase is met?
Make projections based on the previous year's actual results, adjusted to reflect expected and desired outcomes. Make adjustments to areas of the business impacted by the results. For example, the goal of increasing sales by 25 percent would reflect not only an increase in sales, but also an increase in costs such as salaries and commissions, inventory, accounts receivable, accounts payable and various operating expenses.
It's helpful to complete several years of projections when planning for long-range goals. It may also be useful to run numbers for several scenarios.
Once the business plan is complete, it is essential that it not be filed away but actively used as a road map. Check off goals as they're reached, and review projections and compare them with actual numbers. Make changes to goals and projections as necessary.
Share the business plan with your banker, even if you're not in immediate need of financing. It is helpful for the banker to know where the owner wants to take the business, and what he or she needs to get there. The banker is then equipped to help when the time comes.
When used as a framework for the business owner to think about the business and its goals, a solid business plan can help ensure the business goes where he or she wants it to go. Jane Bittcher is vice president, Business Development Group for Fifth Third Bank. Reach her at (614) 233-4562 or email@example.com.
Regular business check-ups are important to ensure you are on target to meet the goals outlined for the year in your business plan, and they can allow for proper analysis and warning of what is working and what isn't. A review early in the year also provides an opportunity to modify your course of action, allowing you to take small steps as necessary rather than make major adjustments.
Some important points to consider when conducting a business review:
* Every business should have a team of business partners that includes an attorney, accountant, insurance agent and banker. Relationships should be comfortable, and trust in each partner is essential.
Consider the person's level of knowledge and experience with your industry and business size. Schedule meetings with each partner. Review costs and charges, and consider what each person has done for the business. Review fees being paid to each person, and consider if the return is comparable to the investment. If not, negotiate and, if necessary, shop for a new partner.
* Review your list of suppliers. Analyze the total value of the business relationship, including costs being paid to suppliers, and make sure they are still in line with the needs of your business.
Look at the timing of your payments and discuss potential discounts your business could receive for paying bills earlier. Conduct regular reviews of the relationship and consider sharing the results of strategic planning sessions with your most trusted suppliers. Determine if there are new suppliers that you should consider.
* Review your financial results with your accountant and your banker. It's easy to file statements away but they should be understood and reviewed. Evaluate cash flow and money management strategies. Ask your banker to propose products and services to ensure your best return on your money.
Consider your future lending needs and start the application process now if applicable. Also, compare first quarter financial results to those outlined for the year in your business plan. If numbers fall short, find out why, and determine what changes need to be made in expenses, structure and business partners to meet your plan goals for the year.
* Determine what additional services your banker can help with over and above traditional lending and deposit needs. Ask your financial institution to help with your investment, insurance and health care needs, including more complex investment solutions such as mortgage backed securities, as well as industry-specific knowledge and financial strategies that offer invaluable perspective and guidance to your company.
* Collaborate with your customers. Keeping the customers you have, and keeping them happy, is every company's objective. Now is an ideal time to review information about customers and potential customers, then use it to guide marketing, sales and customer service activities that identify, attract and retain profitable customers.
Take steps to improve customer relations so that you are always working toward the goal of satisfying your customers. By connecting your company directly with your customers' individual needs, you can potentially cut costs, increase revenue and provide your company a competitive advantage. Improved customer relations with existing customers can also help expand your client base to draw new customers, enabling you to create and enjoy more profitable, long-lasting customer relationships.
* Establish a timeline and measure your progress. Your business strategy has power once you establish a timeline with milestones and incentives for where you want to be and when. It may be appropriate to consider developing such a schedule in coordination with those of your customers and/or suppliers.
* Always look toward and plan for the future. Continue to focus on what is working well and make changes where necessary to avoid or better prepare for future challenges.
Now is the right time to plan and ensure your business is following a long-term business strategy. Regular reviews enable you to discuss, analyze and review options available for business planning.
This will help ensure that you continue to make informed decisions based on the best available information and are positioned for future success. Jane Bittcher is vice president and manager, Business Development Group, for Fifth Third Bank. Reach her at (614) 744-5562 or at firstname.lastname@example.org.
Prior to meeting with your banker, do some research and think about your needs. Be clear about the loan's purpose and the amount and length of time that it's needed.
Approval of small business loans are based on several factors, including how long the company has been in existence and its profitability. During the application process, most lenders review the previous three years of corporate and personal tax returns, and income statements and balance sheets on the business.
If you have accounts receivable, prepare an aging report of those receivables. If your company is new, you'll need a business plan and projections. It's common for lenders to ask for a personal financial statement from each owner and obtain a credit report on each.
Be prepared to explain the collateral available to secure the loan. The most common are the business's assets, and that includes filing a lien on the company's inventory, equipment and accounts receivable. Most financial institutions lend against a percent of the value of the collateral. For example, for equipment valued at $50,000, the bank might lend 50 percent, or $25,000.
When a loan is used to buy specific equipment, it can usually be used as collateral, and the percent of loan to value is normally higher. If your business's assets aren't enough to secure the loan, you may be asked to pledge personal assets, including a mortgage on your residence, stocks, mutual funds or other investments.
There are a variety of loan options. To finance the purchase of a fixed asset like equipment or vehicles, your banker might suggest a term loan. Term loans are for a specific dollar amount, have a regular monthly payment and are in effect for a certain time period. When the balance reaches zero at the end of the term, the loan is paid in full and any collateral held is released.
The draw note is a tool to use when expanding your business or making several purchases over a longer time period. It's written for the total amount you need to complete the project, and draws are made as you need the money to pay invoices. In most cases, you'll be billed only for the interest accrued on the amount drawn. When the project is complete, the total amount is converted to a term loan.
A line of credit is established for a specific amount and you can withdraw funds at any time. As principal payments are made, the line of credit becomes available again. In most cases, the monthly payment is interest only, giving you flexibility in the payment amount and providing additional funds to cover expenses.
The line can be paid down to zero at any time without being closed. It's often recommended that businesses obtain a line of credit before funds are needed so they're available when that time comes.
Ask your lender to consider government programs to assist in financing, especially when purchasing fixed assets. Some programs offer lower rates if you add employees during the loan's term. Others allow smaller down payments and longer terms. Lenders may be more flexible on collateral requirements if a government guarantee is involved.
Your banker should provide you with options and be your partner in tailoring the right lending product to fit your specific needs, helping your business achieve long-term success. Jane Bittcher is vice president, business development group at Fifth Third Bank. Reach her at (614) 233-4562 or email@example.com.
But you can also turn to your banker for advice and assistance. Here are some ways to ensure your banker becomes your partner.
Know your bank
Research your bank. Consider its financial strength and plans for the future.
Determine if it plans to increase its size and market or if it's waiting to be purchased by a larger organization. Find out if there is a dedicated group of relationship managers and products specifically for small businesses, and ask about plans for the future of the group.
Ask about caps on loan amounts. Additionally, determine your bank's involvement with and knowledge of government programs. Make sure it can meet your business's needs.
Give some thought to your business's long-term plan and what you'll need from your bank to help you get there, and evaluate whether your current financial institution will be able to meet those needs.
Know the process
Ask your banker to explain the loan approval process and the sales process for other bank products.
The trend is for banks to handle credit requests for small businesses through a centralized process. This process generally relies on credit scoring and a cookie-cutter system, allowing little room for flexibility, creativity and out-of-the-box thinking.
A centralized lending group can work fine if all aspects of the business, its financials and the request are black and white, but it leaves little room for variations and gray areas. Also ask about pricing and structure for other bank products, including deposit and treasury management products.
Determine if all costs and features are fixed or if they can be tailored to meet your needs.
Know the decision-maker
Find out if your banker has the authority to make decisions on loans, pricing and other issues that could affect your business.
If he or she has little or no authority, ask who does and request a meeting with that person. Make sure the decision-maker understands your business, its history and your plans.
Know your banker
Find a banker with whom you're comfortable and whom you can trust. Find out if your contact is dedicated to working with small businesses or if the position is just a stepping stone.
Determine his or her level of expertise, not only about the bank but about the economy, the community and small business needs and opportunities.
Ask yourself if your banker is proactive or reactive. Do you only see or hear from him or her when you initiate the call, or does he or she call or visit you regularly? Do you have to ask about new products and services, or are they suggested and offered?
Make your expectations clear on issues such as frequency of meetings, suggestions and recommendations for products and services, and the level of involvement you're looking for.
Your banker is a great source of information and can help you network within the local business community. Most important, he or she can be your financial partner in helping to ensure your business is successful. Jane Bittcher is vice president, business development group, at Fifth Third Bank. Reach her at(614) 233-4562 or firstname.lastname@example.org.
One area to consider is equipment and fixed asset purchases. Carefully review all purchases of depreciable property during the year, and if it is consistent with your overall timing strategy, plan to accelerate depreciation as much as possible into the current tax year. If you need to purchase equipment or other fixed assets, do it before year's end. Low interest rates provide attractive financing packages in addition to tax assistance.
With interest rates at their lowest in a long time, this is an ideal time for business owners to consider purchasing a building instead of renting. In many cases, mortgage payments can be the same or lower than rent payments, and interest paid on the mortgage, along with closing costs, can be taken as a tax deduction.
The end of the year is also a good time for small businesses to consider establishing a retirement plan. Along with providing a tax break, it can help attract and retain employees. Retirement plans for small business include SIMPLE 401(k)s, SIMPLE IRAs and standard 401(k) programs.
Owners should check with their bank and financial adviser to select the best program for their business.
Small businesses can take tax credits for the start-up costs involved with establishing a retirement plan. Contributions to the plan reduce the net income of the business, resulting in lower taxes owed.
Small business owners should shop carefully and check for investment options, accessibility of the plan administrator and potential for training and advising for employees. The choice be based not solely on upfront costs and fees, but on the entire picture.
Another way to lessen your tax burden is through charitable donations. Businesses may contribute cash or property to charities. Consider maximizing your deduction by giving appreciated assets to charity instead of selling and donating the after-tax proceeds. The savings can be substantial, and will depend on how much in capital gains taxes you would have paid on the sale.
The end of the year is an excellent time for business owners to conduct a "financial check-up" with their banker and accountant to plan for 2003. Now is the time to finalize preparations to help with the current bottom line as well as your future one. Always consult a tax adviser regarding any complex transactions and best approaches for your company's particular tax circumstances. Jane Bittcher is vice president and manager of the business development group for Fifth Third Bank, (614) 233-4562.
Before buying a building, look at the payment. In many cases, you can buy a building and make a mortgage payment equal to what you're currently paying in rent. In most cases, banks want to see at least 51 percent of the building occupied by the owner.
Also consider offering rental space. This provides additional income and could allow you to buy a larger building than anticipated. However, you must be willing to assume the tasks of managing the building.
Secondly, consider plans and projections for future growth. While buying a building that is just the right size for now can be attractive, think about whether the business and its space requirements will grow. If you purchase a larger space, the portion that is rented initially can be used down the road to house the business as it grows.
A third issue to consider is who will own the building. It's common for it to be purchased in the name of the owner and leased back to the business. This structure can provide retirement income for the owner if he or she sells the business but keeps the building.
Often, a new entity is formed to own the real estate. An attorney and/or accountant should be involved in this decision since there can be tax, legal and financial consequences.
When financing, the bank will request several items from a prospective buyer. Typically, the required down payment is about 20 percent. The bank will ask for a full financial package, including at least three years of tax returns for the business and the owner, along with a personal financial statement.
If there is construction or renovation involved, plans and price quotes are required, as will copies of leases if a portion of the building is going to be rented out.
When approaching a bank for an owner-occupied commercial mortgage, ask that the application be considered from a credit and financial standpoint before expenses are incurred. Once both parties are comfortable with the numbers, due diligence can be completed.
Request an estimate on the total costs associated with the loan, ask for a written proposal and consider how long the terms and rates will be honored. For loans under $250,000, it's usually easy for the lender to get comfortable with a property value without spending a lot on a commercial appraisal. This can be done through tax values and previous appraisals.
If you do need an appraisal, ask the bank to get quotes and compare price and time frames. On larger loans, environmental issues become more important, and a phase one assessment might be required. Again, ask for several bids.
Most financial institutions offer 15- to 20-year terms on owner-occupied commercial mortgages. Rates can be locked in anywhere from one to 10 years. Consider the entire package when choosing the bank, including the rate, the term and the fees. How to reach: Jane Bittcher is vice president and manager of the business development group for Fifth Third Bank. Reach her at (614) 233-4562.
Being prepared and having a good, open relationship with your banker makes the process proceed smoothly. If you don't have that comfort level with your banker, it may be time to shop for a new financial institution so your banker can become your business partner in the loan transaction and in future business endeavors.
When applying for a loan, ask your banker to meet with you at your business, especially if he or she has never been there. Give him or her a tour of your operation and explain why you're requesting a loan. Be clear why you're seeking funds, as the reason could range from wanting a line of credit to needing money to purchase new equipment for expansion purposes.
It's helpful to have a complete application package prepared when meeting with your banker. You'll be asked to provide two to three years of business tax returns and/or profit and loss statements and balance sheets, along with your personal tax returns. Your banker will also want to see your personal financial statement.
Since the assets of the business usually secure lines of credit, you'll need to provide a list and the age of your accounts receivable, if applicable. If your business has equipment, you might be asked to provide an inventory list and value of each item.
If applying for a term loan to be used for a specific purpose, provide estimates, actual invoices or purchase contracts, disclosing the prices of the purchases. In most cases, banks won't provide 100 percent of the purchase price, so be prepared to show where your portion of the cost is coming from. This amount usually ranges from 10 percent to 20 percent of the total costs.
If you're seeking a commercial mortgage, you might be required to pay for an appraisal, and possibly, an environment assessment. Ask your banker to make a decision on your loan based on the financial information before you incur these costs. Ask for a list of projected costs that will be involved with the real estate loan so you're prepared for the closing costs.
Once you've submitted your loan package, expect your banker to be creative, providing you with rates, fees and payments. Your request might include a combination of needs. For example, you might need a line of credit along with a term loan for equipment purchases.
Make sure you fully understand the structure of the proposal and are comfortable with the terms and payments, and ask about prepayment penalties and whether your rate is fixed or variable.
If you've decided to shop for a new bank, you may want to move your entire business relationship to get better rates and fees. Ask the banker to provide proposals on all products you'll be using, including deposit accounts, cash management services, retirement plans, investment products and personal accounts. Make sure the bank you select offers products that will meet your business needs as the company grows.
The loan application process shouldn't be long. Once you've provided all necessary information, expect an answer in one to two days. Don't be afraid to negotiate the rates and terms of the proposal.
Having access to cash flow is essential for your business to expand and thrive. Together with your banker as your business partner, you can fulfill its responsibilities and make the most of new opportunities. Jane Bittcher is vice president, business development group, Fifth Third Bank. Reach her at (614) 233-4562 or email@example.com.