Why an Annual Financial Check-ups Are Crucial

The Importance of your Banker As a Partner in Business Success

Most of us, throughout our lives, go through different stages of relationships with our physicians. As newborns, we have monthly check-ups to ensure our development is progressing. When we get older, we may visit the doctor once a year or only when we break an arm, get a cold, or need some remedy. In our later years, doctor’s visits may become significantly more frequent if we haven’t prioritized healthy habits throughout our lives.

Many business owners and entrepreneurs follow a similar relationship cycle with their banker. When they start or launch a business, they may meet with their banker more frequently to ensure they have all the pieces in place for growth. Then, as the business develops, they may only seek out their banker when something “breaks.” As the business reaches maturity, business owners may want to sell, maintain, or exit the business for a variety of reasons. Here we discuss how to avoid financial wellness pitfalls as a business owner with an annual financial check-up and what to review with your banker.

The Importance of Regular Communication During Volatile Economic Times

Volatile economic times can be, in essence, a “virus” to your business’s financial health. If you had a physical virus, you would start nursing it as soon as you saw symptoms. That is if you wanted to lessen the impact of the virus as much as possible. The same goes for nursing your business during volatile economic times. As a business owner, it’s important to lessen the impact of inflation, shutdowns, layoffs, and market declines as early as possible.

In the same way you vet your physician’s qualifications, a business owner should choose their banker based on these six areas of expertise. Communicating expectations for profitability, growth, taxes, work/life balance, money management, and efficiency is the foundation for business owners and bankers to navigate volatile economic times together. Here are some areas your banker can advise on in a down economy:

Review Debt: Inflation is at a 40-year high and is not expected to ease off until well into 2023. As a business owner, you will want to work with your banker to reduce the current debt you owe.
Increased Interest Rates: While some business owners may be looking to eliminate debt, others may want to consider taking out loans to meet the rising costs of business. Current economic conditions have made it more expensive to borrow money. Your banker can help makes decisions about the appropriate amount to borrow and advise on competitive interest rates.
Loan Approval Rates: Government pandemic relief is over for businesses and businesses, and loan approval rates are still half of what they were before the pandemic hit in February 2020¹. Business owners need to work with their bankers to find other sources for loans to gain the capital required to continue business operations.
Consumer Spending Dwindles: With mass layoffs and higher prices, consumers are utilizing more debt and backing away from spending. Your banker can help you as a business owner determine how to mitigate losses during this time.

Financial Metrics to Review Annually With Your Banker:

Cash flow: With rising costs of goods and materials due to supply chain issues and inflation, it is crucial to review your business’s cash flow at least once a year, if not more often, with your banker. Business owners in every industry are seeing price increases in product materials, especially in the wholesale trade, construction, transportation, warehouse, and food industries.
Upcoming Capital Needs: Continuing business operations without eliminating departments is critical during volatile economic times. If a business has its cash flow tied up in inventory costs, other expenses, such as marketing and business development, may be cut. Your banker will help you identify departments where you can restrict funding or create a feasible expense plan on a lower budget for the time being.
Financial/Revenue Goals: 47% of businesses said they were passing the cost of inflation in price increases to customers². Your banker will help you re-evaluate your revenue goals based on the current economic conditions. Do you want to lower prices once inflation drops? Will you need to continue your price increase after inflation eases? Will your customers pay these price increases? Your banker will be able to guide you through all of these challenging questions and create revenue goals that are feasible now and also for the long term.
Profit and Loss Statements: Weak profit and loss statements affect your ability to get a business loan. Your banker will help you navigate the volatility mentioned above to help identify and explain any weaknesses in your profit and loss statements.

As with your physical health, it’s important to perform regular maintenance on your business’s financial health and create a wellness plan before it is too late. Take a proactive approach to business ownership and prioritize annual fiscal check-ups with your banker to ensure a long and healthy life for your company.