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Posted: August 02, 2012

Use your capital wisely

Take the strain off your balance sheet

Brad Bayless

While we are faring better in Colorado than other markets across the nation, there is a still a sense of hesitation with some business owners to make long-term purchasing and hiring decisions. The outlook remains uncertain for many business owners with fears about what the market will do, how consumers will spend and who will win the election. 

At the same time, Dun & Bradstreet has reported that banks are becoming more stringent in their lending requirements for small businesses.  Among businesses with revenues under $5 million, nearly 65 percent reported difficulty getting financing. This has restricted their ability to grow and 55 percent said that this is limiting their hiring plans.

For those of us in commercial finance, our advice to business owners today is:  invest in the necessary resources to grow your business without over-leveraging and keep cash readily available for your operational needs.  Obtaining outside financing, for those who can, and keeping working capital on hand is a must for businesses looking for stability and long-term growth. The availability of working capital certainly influences your company's ability to remain financially viable.  

Working capital is defined by the SBA as the difference between current assets and current liabilities. Current assets are the most liquid of your assets, meaning they are cash or can be quickly converted to cash. Current liabilities are any obligations due within one year. 

One alternative to traditional bank lending for companies is the independent lessor.  Since independent lessors are not subjected the strict regulatory standards that banks and their leasing companies are today, they can offer a wide range of products and structures to small businesses and allow for the conservation of capital.

Not tying cash up in depreciating assets allows you to use your capital creatively for short-term liquidity needs and takes the strain off of the balance sheet.  

The following are a few tips for how to use your capital wisely in these current economic times:

• Cover payroll during times when your receivables may be slow
• Meet trade and short-term debt obligations
• Pay short term creditors in a timely fashion
• Use for marketing and advertising efforts to promote new business opportunities
• Hire new employees or consultants who may help move the business in a positive direction

While executives and business owners can’t ignore the context of what’s happening with the economy and political scene, the solution does not lie in immobility.  Making more conservative choices and remaining optimistic about the future will allow for forward movement while still leaving companies protected.
 

Brad Bayless is Vice President of Dynamic Funding, Inc.  He has more than 20 years of experience in the commercial finance industry and is a former small business owner.  Contact Brad at 303.754.2007 or bayless@dynamicfundinginc.com.

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Readers Respond

I agree with Nathan. We've used the Boardroom Executive Suites for about 5 years now (which is Nathan's company). It was a huge weight off of us to not have to keep up a copier, our own kitchen, our own receptionist, etc., etc. It is also environmentally much more responsible. Think of the resources we waste by everyone having to have a copier, a printer, etc. The Boardroom has been great. While an executive suite is not for everyone, I believe it works for most small businesses, giving them flexibility and, often, a better grade of copier, printer, receptionist and so on than they could get on their own. By John Heckers, MA, CPC, BCPC on 2012 08 03
Brad, I'd like to add an item to your list of suggestions... "Minimize your use of office space." For many businesses, office expenses are typically the 2nd most costly item on their P&L - right behind payroll. In today's day and age, company's have to take a look at their occupancy costs and see if there are ways to mitigate these expenses. Telecommuting, alternative workplace design (ie: more open space / fewer dedicated offices / less space per person), and the use of shared workspaces like virtual offices and coworking facilities can save companies thousands of dollars a year. These alternatives to the traditional office environment can also normally be signed up for on a shorter term basis than the standard 5-10 year lease for office space, meaning that companies have greater flexibility to contract or expand in response to market demands. By Nathan Jansch on 2012 08 03
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