St. Louis Small Business Monthly asked area bankers: “In your opinion, what is the financial outlook for next year? What should business owners in particular have in mind to secure financial success?”
The global economy will continue to recover in 2014, but progress will be slow and steady. A spoonful of patience now and then will come in handy as we wait for unemployment to decline and the number of new jobs and new housing starts to increase.
If the economy is recovering, does this mean it’s a good time for your business to expand? As the economy slowly and steadily recovers, now is the perfect time to take stock of where you are as a company and bolster your balance sheet. This is a good time to pay down revolving lines, retire short-term loans, and focus on activity that will reduce leverage and increase your company’s net worth.
–Marni Sorrick, vice president and business development officer, UMB Bank
In one word, uncertainty. While we have some positive economic steps occurring, like record highs for the Dow, we have a lot of warning lights going on as well. An example of one would be the aggregate value of the largest 5,000 U.S. companies has exceeded the U.S. GNP this year. Historically, this has been a sign that the stock market is due for a correction. Another example close to home is agricultural land values; after a large growth, they have started to level.
Small-business owners must be prepared for the idea that things may take a step back in 2014 before they take more steps forward and find opportunity where competitors don’t. Uncertainty can offer great opportunity to those willing to accept risk.
–Larry Cresswell, vice president of small-business lending, Bank of Washington
St. Louis MSA is considered a “moderate-risk” economy, in that we don’t really have any specific industry reliance that would create significant impact (positive or negative). We are in a moderate-growth Midwestern economy (diversifying), slowly moving towards a post-industrial future.
Most economists see the St. Louis 2014 income growth outlook as stable. Local service industries are expected to fill out the labor market needs (and, subsequently, support wage growth). Retail industry hiring continues to top national averages, and our housing market recovery remains on track. New permitting activity is also matching national averages (as well as housing price increases).
For multifamily owners/investors, we should expect rental rates to flatten out and cap rates to increase slightly, as there is pressure for borrowing rates to rise compounded by new permits well above the national average.
–Lansden McCandless, senior vice president and regional manager, St. Louis Business Banking, U.S. Bank
The economic environment is improving, and this is good for small businesses. With the prospect of a better economy, it’s a great time for business owners to refinance their owner-occupied commercial real estate as well as refinance or consolidate existing debt. It would also be a good time to consider new equipment purchases to grow their business.
Business owners should have a business plan that focuses on their future. Successful small-business owners see this plan not simply as a requirement needed to obtain financing but as a living document that guides decision making. Small-business owners should also keep an eye on cash flow. The biggest threat to small-business success is not a lack of profit. It’s a lack of cash flow. Successful owners know that managing cash flow means more than just having enough cash on hand to pay bills.
–Debi Enders , Commerce Bank
I would love to say the metropolitan St. Louis region will see a significant increase in economic activity, but I can’t. I’m sorry to say 2014 will mirror the slight gains of this year. Until our region sees stronger job growth, we will continue to lag the national results. Underemployment and the true unemployment rate continue to negatively impact consumer confidence and thus economic growth. Most private-sector development is centered in the health care industry and higher education. Until there is broader activity, St. Louis will continue at a slower recovery rate. Lastly, I fear any increase in interest rates will hurt the chance of significant improvement.
I have two thoughts about financial success in 2014. No. 1: Understand how the Affordable Care Act will impact your company’s income statement. I know in our company we are experiencing a significant increase in employee benefit costs. No. 2: Find true business partners for your company. What I mean here is business owners must develop a strong support network to thrive in a low-growth economic environment. Banking partners, legal advisers, accounting experts and insurance management will be critical to success in 2014!
–Mitchell Baden, executive vice president and chief operating officer, Royal Banks of Missouri
Q&A compiled by Julia Paulus Ogilvie
What To Look For In A Lending Institution
Accessibility. Accessibility is an important issue to consider when you’re talking about business loans. You want the assurance that your lender will be there for you as your company grows and you need assistance, or you’ll be starting over with another lender each time a new financing need arises.
Flexibility. Your lender should be able to offer flexible terms and conditions that will tailor a loan or line of credit to your business’s individual circumstances.
Wide Range Of Capabilities. Your financing needs may be simple and relatively easy to satisfy now, but in the future you could need more sophisticated financing services for challenges like a major expansion or taking your business in a new direction. Talk with a potential lender about the scope of their capabilities.
Sizeable Resources. A growing business’s need for financial support gets larger as it becomes more successful. A business owner can’t afford to be limited by a lender’s size, its lending limitations or the lack of understanding it may have about the nature of his or her business or industry.
Balanced Credit Decisions. You’ll want a lender who can provide a balanced credit decision that takes into account your total picture, including all of your business’s assets and potential. A lender with an in-depth knowledge of you and your business can look past temporary aberrations to make informed decisions.
The Ability To Advise. Because small-business owners need to make decisions about a wide range of issues—everything from what individual financing operations will mean for your business, to what kind of retirement plan to offer and what investment options to include, to cash flow management and investment of excess cash—you’ll be a step ahead if you have a lender who is also an experienced investment advisor.
Commitment. You want a lender committed to the small business market that has a history of providing financing regardless of the economic climate.
Developing A Relationship With Your Banker
When is her birthday? How many kids does he have? If you’re committed to the success of your business and want to develop a positive relationship with your bank, you’ll know this information.
How do you become more than a number to a bank? Once you’ve chosen a financial institution, make an appointment with a loan officer or bank manager. At the meeting:
-Provide the banker with your business plan, brochures, business cards and anything else that will give him or her a feel for your business.
-Describe your business, financial situation and plans.
-Ask about the scope of the bank’s services.
-Express an interest in your banker’s background. Ask about his or her family, hobbies and aspirations.
-Business owners should follow up with periodic phone calls, visits and lunches.
Why Companies Fail To Raise Capital?
The following are just a few of the reasons businesses fail to gain bank financing:
1. No formalized need. Entrepreneurs seeking capital need a formalized plan. Business owners should have a solid plan in place for how much financing they need, when the loan will be repaid and why they need the loan.
2. The company doesn’t know how much money to request. The utterance bankers hate the most is, “How much can I borrow?” It demonstrates to a banker that you don’t know what you need.
3. No formalized business plan. A poor business plan is one of the main reasons business owners fail to get bank loans. A good business plan shows you understand the business, the marketplace and the risks associated with the business.
4. Poor personal credit. As with any other loan, poor personal credit can damage anyone’s chances of gaining financing.
5. Management’s assumptions are unrealistic. A financial plan is only as good as its assumptions. Owners may fall into the trap of showing unrealistic revenue growth, such as growing almost overnight.
Submitted 10 years 329 days ago