How a long-term relationship with a banker facilitates business longevity

Among the keys to business longevity is getting good, sound advice. While there are many sources of advice, having a trusted banker for guidance is a benefit to any company.

“A good relationship with a banker offers business owners a connection to someone who understands their business, the financing options available and the market, and can ultimately serve as a guide not only when times are good, but also through challenging times,” says Matthew Berthold, executive vice president and chief operating officer at Westfield Bank.

Bankers, he says, learn from the experiences of their clients. That gives them knowledge of broader trends and approaches to opportunities in the market that they can then share, helping business owners grow.

Smart Business spoke with Berthold about the keys to business longevity and the benefits of a long-term relationship with a banker.

What, generally, are the keys to a business’s longevity?
It’s important for growing companies to understand the indicators that influence their success. These indicators, which are unique to each industry and each business, give companies a sense of the level of risk they face and their performance against industry or internal benchmarks.

Companies also need to understand their competition and what is needed to be competitive among them. For instance, if technology is having an impact on a company’s sector, that technology should be researched, and if applicable, incorporated and built upon, in order to keep up or stay ahead of the competition.

But a key ingredient to success is people. It’s critical that companies have the right people in the right positions. Always work on building your talent pipeline.

In that same vein, succession planning is central to a company’s continued success. Whether a plan is created internally or with the help of outside advisers, companies need to have people ready to advance within the company and help it grow. It also means having a plan to replace someone who leaves so there are no setbacks in the company’s strategic plans.

Who do the more successful businesses turn to for advice?
In addition to consultants who may be brought on because of the expertise they bring to a specific project, companies often put tough decisions before an advisory board.

These boards are comprised of business leaders, often from companies outside of their industry, who have a pulse on the market, offer a different perspective and who understand the business’s needs. An advisory board can help companies understand the broader market and serve as a source of advice on the best path through tough challenges and growth.

How do established companies use bank financing successfully?
Determining the best way to fund your business is paramount. Bank financing is an effective way for companies to grow their business. Successful companies have an understanding of their financial needs and the options available to them.

It’s unfortunate to see companies locked into repayment terms that impede their ability to grow. It’s an error that can be avoided if owners are willing to talk through their needs with a banker to find the best solutions for the long term.

Business owners understand their business, its mission and products very well, but not all of them understand the best way to finance their company’s initiatives or special projects. This is where a partnership with a bank becomes critically important. Businesses with a strong banking relationship can lean on their banker to determine how best to structure loans, or if a loan is even the best way to finance a project.

What is the benefit of a long-term relationship between a business and a bank?
It can be frustrating for business owners to tell their company’s story over and over if they switch banks or get assigned a new banker at a bank plagued by high turnover. By having a consistent banker working alongside the business owner throughout the company’s life cycle, the business owner only needs to update the banker as things change. It’s one less thing for business owners to think about as they work to grow their company for the long term.

Insights Banking & Finance is brought to you by Westfield Bank

How the new tax law could impact donors’ philanthropic strategies

The 2017 Tax Act, passed into law in December, is one of the most complicated new laws in tax history. In addition to changes that affect individuals and businesses, there are also noteworthy changes that will impact charitable giving.

Smart Business spoke with Karen S. Cohen, CPA, vice president and trust officer at Home Savings Bank, about how the new law is expected to impact charitable giving.

How is the act’s passage affecting charitable giving and planning?

In 2018, married couples will have a standard deduction of $24,000. Itemized deductions are now limited mainly to taxes, mortgage interest and charitable contributions. The first $10,000 of deductions may be absorbed by the state, local and real estate tax deductions. That means the charitable contributions and mortgage interest together would need to exceed $14,000 to make itemizing deductions attractive.

Because of this, many advisers suggest ‘bunching’ deductions — giving big enough amounts to actually get a tax benefit in one year and then taking a year or two off from giving. That way, the average total of gifts is the same, but there is a tax benefit for at least some of what was given to charity.

Others have recommended opening a donor-advised fund with a community foundation. The donor makes a big enough gift in one year to benefit from the tax deduction, and then allows the community foundation to manage and distribute donations to charities over time.

What should donors consider in developing their giving strategy?

Consider giving appreciated publicly traded securities to charity instead of cash. When giving stock, the donor doesn’t have to pay capital gains tax in order to turn the stock into cash. The charity gets more, as the donor doesn’t have to hold back money to pay taxes on the stock sale, and charities don’t pay tax when they liquidate the stock.

Another option is direct gifts to charity from an IRA. Donors can give up to $100,000 per year that way, so long as they are age 70-1/2 or older. The IRA withdrawal is not taxable to the donor, which keeps the donor’s total taxable income lower for the year. Because the withdrawal is not included in income, there is no need for an offsetting charitable contribution deduction.

Another option, which might be revived by the increasing interest rates, is the use of split-interest trusts. Older individuals who have highly appreciated assets can benefit from a charitable remainder trust. They would receive an income stream from the trust for the rest of their lives and whatever is left in the trust would pass to charity when that donor passes away.

What are some ways larger charitable donations can be managed?

When someone has a large taxable event in his or her life — the sale of a business, vacation home, or commercial real estate — thoughts often turn to making a large charitable gift to help offset the taxable impact of the sale. Donors should consider setting up a private foundation, which will allow the family to invest the large contribution and make meaningful annual distributions to other charities over the foreseeable future and often in perpetuity.

However, in the past 10 years there seems to have been a move away from funding private foundations. Private foundations require legal work to set up, have stringent rules about required annual distributions, are assessed an excise tax on investment income, and gifts have more limited deduction thresholds than gifts to public charities. Private foundations have to file a tax return each year with the IRS and, in Ohio, pay an annual fee to the state.

Donor-advised funds, on the other hand, have none of that complexity or administrative burden. Donors make a gift to open the fund, sign an agreement that spells out what should happen to the money, then the sponsoring organization — the community foundation — carries out the wishes. Donors can continue to advise each year about what distributions they would like to have made and where.

Donors should make sensible and mindful choices when they make charitable gifts. Getting good, one-on-one advice from a trusted accountant before committing to a large transaction will help make those choices easier.

Insights Banking & Finance is brought to you by Home Savings Bank

How companies can protect themselves against cyberthreats

Five years ago, cybersecurity centered on protecting confidential information — personally identifiable information, Social Security and credit card numbers, and personal health information. And it was largely retail, health care and higher education organizations that concerned themselves with it. Now, most organizations recognize their risk of cyberthreats and that the target may not be confidential information, but designs, processes and systems access, which can also be monetized by hackers.

Still, organizations struggle to comprehensively protect themselves from attacks, either not doing enough because they believe it won’t happen to them, or not recognizing gaps in their protections.

Smart Business spoke with Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, about the ways companies can protect themselves against cyberthreats.

What stops companies from addressing cyberthreats comprehensively?

For a long time, many companies didn’t believe they were at risk for cyberthreats because they didn’t think they had information worth stealing. That mentality has changed. Cyberbreach data shows smaller companies can be quick hits for hackers because they may not have strong IT security due to lack of resources, and larger organizations with numerous access points are vulnerable despite greater security protections.

It’s difficult to fully address cyber risk because there is no box companies can check that says they prevented all the threats to their system. It’s also hard to measure their network security return on investment. Most companies that haven’t had a breach don’t know if it’s because of luck or because their security held up.

What preventive measures should companies take to reduce their cyber risk?

The biggest impact companies can have on threat protection starts with training their employees. Cyber incidents typically start with someone within the organization falling for a phishing scheme, either by clicking on a link or downloading malware. That enables hackers to access an organization’s systems. Once that happens, it’s very difficult to prevent cybertheft from occurring.

One area to focus employee training is phishing testing, in which companies regularly send simulated phishing emails and see who can be tricked into clicking a link or opening an attachment from a suspicious sender. Once an employee fails a phishing test, they can be enrolled in additional training and then sent further phishing emails to see if they are better able to recognize the threats. Companies that regularly train their employees on cyberthreat issues are able to raise awareness and either reduce or eliminate the likelihood of an employee falling for the latest attack.

Another thing companies can do to reduce their cyber risk is to work with network security professionals to find and fix existing vulnerabilities in their systems. They may also do penetration tests to gauge how difficult it is to get into their system and utilize intrusion detection to quickly identify and shut down access by unauthorized users.

Companies should also utilize fraud protection, such as a business security suite from their bank focused on mitigating monetary fraud, and cyber insurance to protect the company from damages caused by a cyberattack when other protections fail.

How can companies mitigate the impact of an attack should one occur?

Companies should take a close look at what their business does today, where they want to go in the future and identify the cyber risks inherent in their strategic plans. So often, insurance programs are renewed year over year without much thought to how their business has changed. But because of the proliferation of cyberthreats and the interrelation of cyber to other types of insurance policies, cyber is changing the way insurance companies evaluate risk and should equally change how companies think about cyber insurance.

Digital threats are demanding that a company’s insurance policies work together to ensure there are no gaps in coverage in event of a cyber incident. Companies need to work with an insurance broker who specializes in cyber risk to build a total insurance solution that mitigates the cyber risk associated with their operations.

Insights Banking & Finance is brought to you by Huntington Bank

How a long-term relationship with a banker facilitates business longevity

Among the keys to business longevity is getting good, sound advice. While there are many sources of advice, having a trusted banker for guidance is a benefit to any company.

“A good relationship with a banker offers business owners a connection to someone who understands their business, the financing options available and the market, and can ultimately serve as a guide not only when times are good, but also through challenging times,” says Matthew Berthold, executive vice president and chief operating officer at Westfield Bank.

Bankers, he says, learn from the experiences of their clients. That gives them knowledge of broader trends and approaches to opportunities in the market that they can then share, helping business owners grow.

Smart Business spoke with Berthold about the keys to business longevity and the benefits of a long-term relationship with a banker.

What, generally, are the keys to a business’s longevity?

It’s important for growing companies to understand the indicators that influence their success. These indicators, which are unique to each industry and each business, give companies a sense of the level of risk they face and their performance against industry or internal benchmarks.

Companies also need to understand their competition and what is needed to be competitive among them. For instance, if technology is having an impact on a company’s sector, that technology should be researched, and if applicable, incorporated and built upon, in order to keep up or stay ahead of the competition.

But a key ingredient to success is people. It’s critical that companies have the right people in the right positions. Always work on building your talent pipeline.

In that same vein, succession planning is central to a company’s continued success. Whether a plan is created internally or with the help of outside advisers, companies need to have people ready to advance within the company and help it grow. It also means having a plan to replace someone who leaves so there are no setbacks in the company’s strategic plans.

Who do the more successful businesses turn to for advice?

In addition to consultants who may be brought on because of the expertise they bring to a specific project, companies often put tough decisions before an advisory board. These boards are comprised of business leaders, often from companies outside of their industry, who have a pulse on the market, offer a different perspective and who understand the business’s needs. An advisory board can help companies understand the broader market and serve as a source of advice on the best path through tough challenges and growth.

How do established companies use bank financing successfully?

Determining the best way to fund your business is paramount. Bank financing is an effective way for companies to grow their business. Successful companies have an understanding of their financial needs and the options available to them. It’s unfortunate to see companies locked into repayment terms that impede their ability to grow. It’s an error that can be avoided if owners are willing to talk through their needs with a banker to find the best solutions for the long-term.

Business owners understand their business, its mission and products very well, but not all of them understand the best way to finance their company’s initiatives or special projects. This is where a partnership with a bank becomes critically important. Businesses with a strong banking relationship can lean on their banker to determine how best to structure loans, or if a loan is even the best way to finance a project.

What is the benefit of a long-term relationship between a business and a bank?

It can be frustrating for business owners to tell their company’s story over and over if they switch banks or get assigned a new banker at a bank plagued by high turnover. By having a consistent banker working alongside the business owner through the company’s life cycle, the business owner only needs to update the banker as things change. It’s one less thing for business owners to think about as they work to grow their company for the long-term.

Insights Banking & Finance is brought to you by Westfield Bank

How to limit the risk of identity theft for yourself and your business

The risk of personal identity theft is a fact of life for everyone, and business owners are no exception. However, criminals have a lot more potential targets for fraud when someone owns a business.

“Business identity theft is like regular identity theft — they get as much cash upfront as they can under the business’s name and then disappear. It’s hard to catch these criminals, that’s the unfortunate part,” says Jamie Kibler, chief compliance officer at Richwood Bank.

Smart Business spoke with Kibler about how business owners might be targeted with identity theft and what they can do about it.

In what ways could a business owner be at risk with regard to identity theft?

While individual identity theft is the most common, a business can be targeted, too. Criminals might steal details about the business and/or business owner to open a loan or account in that business’s name with no intention of paying on the debt. They could use stolen information to set up a fake company to obtain credit in the existing company’s name. Then the criminals can buy retail or sell stolen property, leaving the legitimate business owner liable for their activities and perhaps stuck with business expenses or tax obligations. This in turn could make it difficult to make payroll and pay the bills to keep the legitimate business running, especially if those loans have personal guarantees.

All the thieves need is photo identification, a Social Security number, date of birth, a legal business name and a physical address. In most states, it only costs a few hundred dollars to create a new business, and the criminals could have the articles of incorporation and an employer identification number in less than a month. The new beneficial ownership rule adds another layer of security by requiring banks to collect information on more than one person, but it won’t deter determined criminals.

Another trend is schemes that focus on electronic wire transfers. People hack emails or use social engineering, which is when criminals trick their victims into providing the information, to gain the necessary material. Then, an employee at a company who usually wires $5,000 to a vendor every month might get an email that looks like it always does, but uses a different email address. So, the employee processes the $5,000 transfer. Then the bank gets another email asking to wire $50,000. While the second request might throw up a red flag because it’s out of the ordinary, the $5,000 is already gone.

How can business owners mitigate their risk for these types of fraud?

Make sure you’re reviewing any statements that may come through the mail. Monitor your business accounts daily. Online and mobile banking can let you see in real time what’s happening in your bank accounts. The bank can set up authentication controls to help make sure that fraudulent wire transfers aren’t being sent from your account. It can also help you set up alerts so if a debit card is swiped or a check is paid, you get a text, email or phone call.

Educate your employees about the risks. They need to read all emails carefully, pay attention to the details and make sure whatever they’re clicking on is legitimate. They also need to be careful when replying to emails because some criminals are now spoofing email addresses, so it still looks like it’s going to the right email address.

Emails that tell you to change your password are a concern. They may be trying to get your password — instead of changing your password within the email platform, you’re taken to another stream. Then, they can go through your emails, while locking you out of the account. If you get a message from someone who claims to be from your bank, asking you to verify your account number through a text message, email or by clicking on a link, it’s probably not legitimate. Banks are more likely to tell you to call them. If you’re unsure, look up your bank’s number and ask them. (Don’t call the number in the email.)

While you should check your credit scores regularly, you can also can get services that actively monitor your Social Security number and credit scores. Then you’ll know if a bank has looked at your credit report because a criminal is applying for a loan in your name.
It’s really a matter of staying vigilant and seeing the whole picture.

Insights Banking & Finance is brought to you by Richwood Bank

Technology tools drive efficient cash flow management

Payments modernization is underway. It’s being driven by emerging technologies such as artificial intelligence, real-time payments and data mining, which are helping companies with payments, reconcilements, cash forecasts, and other aspects critical to cash management.

“Given all the technological advancements that have been made in this area, it’s still incredible how many treasury departments are making and processing payments by checks and how much data is rekeyed from one system to another,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank.

He says getting from where things are today to where they’ll be in the future is going to take a lot of work.

Smart Business spoke with Altman about the effects that falling behind the financial technology curve can have on cash flow management.

What is it that tends to get in the way of efficient cash flow management in a treasury department?

Maximizing cash flow is a treasurer’s job. What gets in the way, though, is the disparate ways payments are made and what information from the source of payment looks like. Companies can spend a lot of time massaging data as it comes in from different sources to normalize it in the way they need to see it. That takes time and effort, which distracts from the core mission of maximizing cash flow. Inefficiencies lead to idle cash that doesn’t get invested, or over borrowing, which leads to unnecessary expenses.

Falling behind the technology curve can be costly. There are much better tools to manage the transaction processing activities and working capital of an organization. Companies that are still taking checks to deposit at a bank or putting checks in envelopes to make payments need to modernize their approach.

While there are tools that can be leveraged to help, treasurers often aren’t the decision maker who can make those investments. The CFO might be, but he or she is often concerned with the bigger picture and not the details. But not focusing on the details can obscure the bigger picture.

What steps should treasury departments take to address the issue?

Every task requires the right tool for the job. Treasurers should speak up and make the case to leverage the tools that are available in the marketplace. Take advantage of the investments banks and third-party providers have made to be as efficient as possible.

By leveraging relationships with banks and service providers, treasurers can stay educated on what’s available in the market and what is coming in the future. And it’s more than just using what the bank is offering. Treasurers can ask their financial institutions to connect them to other businesses that have similar challenges so they can network and understand best practices.

Tech used to be considered an enabler of efficiencies. More and more, it’s becoming a driver. Real-time payments and AI are really going to be driving efficiency in the industry. Companies will need to embrace that technology to stay competitive.

What does peak cash flow cycle management look like?

The best evidence that a company has reliable cash flow forecasting is the number of departments in the company that are using that forecast. If the treasury department is doing its job, it’s a financial center of excellence for the entire business. The more complex that business is, the more complex the tools will need to be to serve it. Businesses that are still using spreadsheets for cash flow management need to apply new tools.

In what ways can a bank help a treasury department?

Leading-edge banks developed many of the financial management tools that companies use and all banks continue to invest in technology. Businesses should take advantage of the investments that have been made because it’s too expensive for many businesses to do on their own.

The world is changing rapidly. Companies might not be able to get ahead of the tech curve, but they need to see the curve coming up in front of them to remain efficient and maximize value.

Insights Banking & Finance is brought to you by Huntington Bank

How banking locally benefits your business, the economy

You’ve probably heard of shop local campaigns, which are designed to help stimulate the local economy by supporting small businesses. But did you know you can also help your local economy by supporting your friendly neighborhood bank?

Banking locally can help both your business and the economy in a number of ways. Chris Massie, divisional vice president and senior commercial lender at Northwest Bank, has seen first hand the positive effect local banks can have on their customers and community.

“Banks have a tremendous impact on the communities they serve,” Massie says. “They not only provide resources for local businesses, they also serve their communities through volunteerism and contributions to organizations that benefit the community at large.”

Smart Business spoke with Massie about how banking locally can be a smart way for small businesses to make an impact on the area they serve.

What should a business look for in their local bank?
Your bank should be viewed as a trusted adviser that you can turn to for guidance and advice. A good banker should be familiar with not only your industry, but also your local economy. That puts them in a position to provide you with valuable insights you can use to run your business.

What are some common misconceptions about banks?
One of the most common misconceptions about banks has to do with the underwriting process. Many businesses believe only one individual, or underwriter, makes the final decision regarding their credit.

However, there’s more to it than that.

The credit process is actually more collaborative than you might think and involves the whole relationship between your business and the bank. The better your banker understands you and your company, the easier he or she can determine what type of financing makes the most sense for your needs. This can also help your banker uncover other potential opportunities that you may not have considered.

What should a business do before meeting with a bank?
Before meeting with a bank, business owners should have a meaningful discussion with their accountants and legal partners. Preparation is key and can help you through the loan process. Without proper preparation, your banker may not be able to help you meet your needs.

Banking locally gives you an advantage because your banker is easily accessible to answer any questions you may have. This not only can help speed up the loan process, but it also helps solidify a lasting relationship with your bank, which can be useful in the future when it’s time to expand your business.

How can a business benefit from a strong relationship with their local banker?
It may sound cliché, but good communication is key to a meaningful and long-lasting relationship. A strong relationship between customers and their bank is beneficial, as they can celebrate your successes with you and help you out during the times when you need it.

How do businesses and banks work together to improve the local economy?
A healthy local economy often results from collaboration between businesses and their banks. Because of their access to resources and shared interest in the community, they both often work with the same overall goal in mind.

They both also serve the same community — you’ll see them helping out with similar efforts like charitable giving, employee volunteerism and providing assistance to community members in need.

It’s this shared vision toward bettering their community that makes banking locally a smart choice for small businesses. Not only do you help by keeping money in your area, but you also can benefit from personalized service by having your banker close by.

Northwest Bank is Member FDIC. Equal Housing Lender.

Insights Banking & Finance is brought to you by Northwest Bank

Financing is a central, but not exclusive function of a bank

Beyond financial support, banks facilitate connections that help build strong teams of advisers — accountants, insurance brokers, bankers — to surround entrepreneurs with people who can help them succeed. They also facilitate connections between clients, matching vendors with potential buyers, etc.

“There are a lot of B2B connections that happen among a bank’s clients, and there’s something to be said about the institution’s realm of influence,” says Matt Sprang, president of agency banking at Westfield Bank.

However, busy entrepreneurs typically don’t have the time or interest to talk with their banks unless there’s an immediate need, which means they’re not taking advantage of potentially business-changing opportunities.

Smart Business spoke with Sprang about the benefits to entrepreneurs of having a relationship with their bank throughout the many iterations and stages of their businesses.

What can a bank provide beyond financing to help a company grow, get established or expand?

Lending aside, the role of a banker is to be an adviser and help entrepreneurs connect the dots to get their companies to the next stage. One way to do that is by bringing people together, facilitating connections that can lead to sales opportunities, partnerships, referrals and more.

Sometimes those connections take shape as an advisory team. This group of knowledgeable, experienced professionals offer entrepreneurs real-time advice on the best next steps, and test out ideas so that those with little hope of success can be abandoned before time and money are wasted.

Peer analysis is another way banks can help entrepreneurs outside of financing. Their companies’ performance metrics are benchmarked against the industry to give a sense of how they stack up. Targeting the top quartile of the best-performing businesses in their industry enables an entrepreneur to aim to be among them.

In what ways does an entrepreneur’s banking relationship affect financing decisions?

When a bank underwrites loans and lines of credit, it matters that the bank knows the entrepreneur, understands the industry and is familiar with the business’s management team and how they perform to feel comfortable taking on the risk.

An entrepreneur may not be an expert in capital and debt structures. A banking partner provides that expertise. If there is an opportunity to expand in certain parts of the business, a targeted, smart deployment of capital can accelerate the process. Whether it’s a private equity investment or a line of credit, the financial injection can hasten the progress to the next stage of the business.

What is a bank’s role when a business owner decides it’s time to exit his/her company?

Many business owners who want or need to exit their business haven’t constructed a formal plan. It’s daunting, so they delay. Sometimes, something catastrophic can happen and the people left behind at the business have to pick up the pieces as best they can. That’s why when a bank builds a debt facility, it typically wants to know if the business has a perpetuation plan in place, or at least an insurance policy that can assist in funding the financial obligations that might arise from such an event.

Those entrepreneurs who are eager to move on and build their next business need to plan how they’ll pass the business on to someone interested and capable of maintaining it, or how they’ll profitably divest. Banks offer entrepreneurs ideas for structuring the potential timing of their exit and the associated debt facilities that may be required to pass ownership internally. There are many ‘right’ answers to solving the exit dilemma. The bank’s role is to match solutions within the context of the legacy the entrepreneur wants to leave.

Entrepreneurs should know they can count on a banking relationship for more than loans and deposits. A bank can provide analysis and benchmarking, connect them to crucial contacts to help the business grow, and make plans for the future. By investing a little time, entrepreneurs can expect a significant return from their banking relationship at any stage of their business.

Insights Banking & Finance is brought to you by Westfield Bank

How to make the best use of your balance sheet

Some companies are focused on driving sales. But a narrow focus on sales often means overlooking collection of accounts receivable or improperly managing inventory turns, which can lead to cash flow problems that can cause serious difficulties.

“There comes a time when the financial sophistication of the company has to be upgraded,” says Dan Culp, vice president and commercial relationship manager at Home Savings Bank. “Otherwise, sales might continue to grow, but margins stagnate or shrink.”

Smart Business spoke with Culp about the importance of a company’s balance sheet, and how to put it to best use.

In what ways are companies not making the best use of their balance sheet?

Many companies are not diligently monitoring accounts receivable and inventory, and converting to cash quickly, which can cause a cash flow crunch. When this happens, companies stretch their accounts payable to their vendors, which can potentially harm the relationship.

Another common practice that is not recommended is that many companies distribute nearly all of their profits to shareholders on a yearly basis. However, completely distributing earnings annually does not allow the capital base to grow on the same potential trajectory. If the company hits a road bump in future years, there may not be a nest egg to fall back on.

Also, stretching out debt over the useful life of any fixed assets can hinder the balance sheet. Companies should always want to be in a positive equity position on any income-producing fixed assets. Don’t buy an asset with a seven-year useful life on a ten-year loan or you’ll have debt left to pay after the equipment has been disposed.

What should companies do to make the best use of their balance sheet?

Keep some cash on the balance sheet. Although in today’s interest rate environment, that may seem unproductive, it is still wise to have a rainy day fund.

Focus on the conversion of accounts receivables and inventory into cash.

Maximize terms provided by your vendors, but always pay within those terms so the relationship stays strong. If a company is paying its vendors on an average of 14 days, but their receivables are averaging 30 to 45 days, the company becomes upside down from a working capital standpoint and a cash flow crunch will quickly ensue.

Use debt as a growth tool, but do not become over-leveraged. Most banks will monitor debt levels and use covenants to make sure leverage is in line and appropriate for the company. Ideally, companies implement strategies that improve cash flow to a point where they are funding their own working capital and growth.

What should companies expect to see once they make better use of their balance sheet?

A company can expect to see improved cash flow, equity positions, overall health of the organization and value of the company. This puts less stress on management and the entire organization.

From a financing perspective, a stronger balance sheet will lead to more favorable lending terms for the company because the risk profile is lower. This can lead to lower rates and fees, longer terms, higher advance rates, or the reduction or release of personal guarantees. If the company can stand on its own merit, without the shareholder’s support in a downturn, non-recourse can be considered.

Having a strong balance sheet also shows a history of strong earnings. This gives the company more buying power as an acquirer or drives up its value/sales price as an acquisition target.

Once cash flow is not a stressing issue, the company can focus on other items — driving profitable sales, strategic growth initiatives, making other investments in the company — without the need for debt or expense reduction. It also takes a lot of stress off the owners and the organization when they know they have enough cash to make the next payroll. The entire energy of a company can change.

Having the right accountant, banker and a capable controller or CFO is critical. Having a strong team of outside partners is just as critical as the internal partners.

Insights Banking & Finance is brought to you by Home Savings Bank

Planning and consideration for executives near retirement

Executives tend to be very focused on their careers, working to drive profitability at the companies they lead. However, if some of that attention isn’t paid to funding their retirement, it may haunt them.

“A career in the C-suite is highly compensated, but it can be relatively short,” says Robert Klug, regional executive at The Huntington Private Bank. “The average executive’s tenure is five years at a particular company, and they’re usually between the ages of 53-54. These are peak earning years, so it’s important to save as much as possible for retirement, and minimize the risks facing those savings.”

Smart Business spoke with Klug about the retirement challenges facing the C-level.

What are the major retirement assets of high-level executives and what miscalculations might plague this group when it comes to funding retirement?

Usually the majority of C-level retirement funding is some form of company stock, be it shares held directly, restricted stock or stock options. There also are deferred compensation plans that pay out after an executive’s exit.

A surprising number of executives fail to exercise their stock options. C-suite professionals can get so hyper-focused on their job that sometimes their stock options go unexercised and are lost.

Another common problem is a lack of portfolio diversity. Instead, they rely entirely on company stock. They may have amassed significant wealth through restricted stock and stock options, but there comes a point when the executive needs to manage and reduce the risk of a position that’s too concentrated.

There’s also the timing and payout of deferred compensation plans to manage. An executive could miscalculate the rate of deferment, or elect to have it all paid out in one year and get saddled with a huge tax bill on the one massive payout.

Executives might feel they don’t have the time to get caught up in the details of their retirement plan. They may not recognize the risk of having their wealth tied to one company, which places their retirement plans entirely on its success. There have been cases where executives believe they’re on track for retirement, then the company’s stock takes a huge hit and the whole plan is blown. Very late in the game, these people need to rethink their entire plan and likely make sacrifices that delay or drastically alter their retirement plans.

What should high-level executives use as a guide to determine if they’re able to lead the retirement life they want? What adjustments can be made to ensure the money they have will last?

Just like anyone looking to retire, the guide should be the person’s expected lifestyle and spending habits. One way to calculate this is to look at average annual spending and divide by 4 percent. That is the net worth that’s needed before retirement.

Executives in their peak earning years should increase their savings rate. Some may need to extend their career by a few years to reach the number they need.

They may also need to adjust their projected spending. Take a close look at the lifestyle and cost of it and try to cut back. Even finding a way to reduce spending by a few hundred dollars per month could make a big impact over the long term.

Another option is to find ways to supplement retirement income with other income, such as through consulting work or serving on boards.

How can C-level executives ensure they have the retirement life they want?

More than anything, planning is key. Developing a plan with a trusted adviser can be a big help to busy executives.
A retirement plan isn’t something that can be developed in one meeting and forgotten. It takes oversight because circumstances change and markets fluctuate. An adviser can provide that oversight, keeping an eye on investments and giving regular updates to ensure the plan stays on track.

Work with a trusted attorney, CPA or wealth manager who can have a frank conversation about the executive’s retirement position. There may be challenges along the way. It’s important to work with some who can deliver difficult news and be trusted to find a solution.

It’s never too late to plan. Don’t go into retirement without one.

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