Planning to Grow Your Business in 2020? Talk to your banker now.

The calendar may still say 2019, but businesses with big plans for 2020 would be wise to start the ball rolling in the coming weeks.

“Businesses should be thinking about their cash flow cycles, capital expenses and major changes they want to make in 2020 right now,” says Matt Adams, Vice President of Business Banking for North American Bank Company.

That makes the fall a good time to meet with your banker and accountant, especially if your plans for the coming year are going to require new financing. This might include a loan to buy or build a new location, capital expense financing for new equipment, increased lines of credit to cover higher inventory or new hiring, selling the business, adding a partner or retiring. If any of these are possibilities in 2020, it’s a good reason to sit with your banker today.

Harmonizing banking with the rhythms of business

Every industry has its own rhythm. In retail, the fourth quarter is when increased holiday sales pay for the inventory they ordered to stock their shelves months ago. Construction businesses, on the other hand, are cycling down and taking account of the just-ended building season.

In any industry, planning for growth or change requires synchronizing several streams of financing to make sure all the pieces are in place at the right time to generate profits.

“If you have a goal of X-percent sales increases, what will it take to reach that?” says Joe Arends, Senior Vice President of Business Banking for North American Bank Company. “More inventory? More employees? What have your margins been in the past? Those are important questions.”

Working with a banker who understands your business and its cycles is key. “Opening a new location for a business might take 12 months with due diligence,” says Adams. Once a business is convinced that the opportunity is worth pursuing, they should expect to be talking with their banker up to 6 months before they want to open a location’s doors.

Capital expenses, like buying new factory equipment, may be expensive, but offers unique financing and balance sheet opportunities. A piece of equipment that might last for 20 years can be amortized over time and will generate revenue for years to come, paying for itself, especially when interest rates are low.

If an expansion requires new staff, an owner needs to work backwards from when they want to open to ensure they can recruit, hire and train the people they need. This means owners should be thinking about how they will pay for next year’s hires right now.

How today’s conditions can affect tomorrow’s growth

As businesses plan for 2020, there are some unique factors in place today that should be taken into consideration when looking at expenses and opportunities: interest rates, the labor market, and international trade.

Interest rates are extremely low today, making real estate investments more attractive. A business that is leasing space may want to consider buying its own property.

The tight labor market might make expanding a business more expensive in 2020.In fact, it could even affect businesses that don’t have growth plans. “I always ask, what are your plans for key employee retention?” says Adams. “What if you have to increase salary 5 or 6 percent to keep them, where does that come from?”

Tariffs and international trade conditions could also trickle down to small and medium-size businesses in 2020. If the price of equipment, raw materials or imported retail goods fluctuate in the coming year, it will impact growth and profitability. Talking to a banker today can help businesses ensure they have the financial flexibility to adjust to pricing uncertainty.

The goal of early planning with a banker is to reduce uncertainty and increase flexibility. “When I sit with a client, I ask them to think about what might happen in the year to come and how it would impact them,” says Adams. “You don’t want to have a crisis.”

Tips to prepare businesses for the coming year

  1. Look to the Past to Plan for the Future: Plan a time to sit with your banker and accountant to figure out what it will take to reach your goal. Previous years’ performance can help you determine how much to invest, and in what, to grow profitably.
  2. Factor in Current Rates and Conditions: While previous performance gives you the baseline, you need to adjust your expectations for today’s conditions. Labor availability, interest rates, and current tax rates change the equation.
  3. Make Sure Your Business is Structured Correctly: Tax planning is a top consideration for a business looking at the year to come. A fourth quarter review offers a chance both to affect this year’s tax bill and change your status before next year starts.
  4. Plan for Big Changes: Plans to significantly change a business structure should be raised early with a banker. If 2020 is the year you plan to sell a business, pass it to children or take on a partner, talk about it now.

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