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Tag: UMB Bank

Batten Down the Hatches: Fine Tune Your Small Business Plan for Any Economic Environment

In recognition of the more than 33 million small businesses in the U.S., we are sharing helpful best practices to fine-tune your small business plan to weather economic shifts. 

Responsibly manage your business debt

Interest rate changes have significant impacts on business lending. To effectively manage your debt, consider these financial tactics before applying for a business loan: 

READ: Higher Interest Rates — What Does It Mean for Consumers, Bond Investors and the Stock Market?

Convert floating debt

Consider converting any floating-rate debt to fixed-rate debt, which flips the mindset from short-term financing to a longer-term solution that may be more suitable for your small business paln. Although many borrowers use their investment portfolio as a natural hedge for floating-rate debt, it may still make sense to lock in a low, fixed-rate now for any variable-rate debt you may have.

Consolidate debt

If your company has extensive overhead costs with bills and outstanding balances, debt consolidation could be a smart strategy to move existing debt into one streamlined payment. Debt consolidation can potentially provide a longer repayment period and/or lower interest rate — both of which can help improve available liquidity. 

Clean up your credit and tax liens

A tax lien is the government’s legal claim against your property when you fail to pay a tax debt. Make sure your credit and tax debt are up to date and tidy to ensure you’re getting the best rates available. 

Transition from alternative lending sources to conventional

If your business has alternative financing on the balance sheet, but you’ve been able to stabilize your profits and expenses, now may be the right time to convert your debt to more traditional loans and lending. 

READ: How Colorado Businesses Can Benefit from Nontraditional Funding and Private Equity Firms

Be honest with your banker

This may seem obvious, but you’d be surprised how many business owners inaccurately fill out loan applications whether intentionally or inadvertently. Filing for bankruptcy or having a tax lien is not an automatic disqualifier in the application process. With that in mind, it’s better for your relationship with your banker to be transparent about details. 

Strategies to improve income

If cash flow is top of mind, take inventory of your equipment and see if there is anything old or outdated that can be sold, refinanced or salvaged. Also, spend time reviewing your assets to determine how they can help the business work smarter and improve liquidity with your small business plan in mind.

If your business is inventory-based, assess your supply regularly and consider buying in bulk or shopping around to get the best purchase price. Another option is to restructure your pricing to align with the current market, inflation and competitors. However, be wary of aggressive price increases to avoid upsetting your current customer base. 

Another way to improve cash flow is to streamline your accounts payable and accounts receivable processes. Review timing, steps and ways to reduce your business bank account churn. 

Combat supply chain challenges

Small and large businesses alike are being impacted by supply chain disruptions like slow manufacturing and delayed shipping. As a result, we continue to see increases in shipping costs, storage expenses, delivery delays and logistics issues.

To combat the supply chain challenges, consider ordering material further in advance than typical so you can more confidently predict what you need. This can impact upfront costs, but can also help assuage concerns about products, parts and shipping timing. 

Implement employee-retention strategies

With unemployment in the U.S. at 3.5%, it’s important as a business owner to develop employee-retention strategies to not only keep your employees but ensure they are happy in their roles. With nearly historical lows and despite some recent softening, the labor market remains competitive.

READ: Navigating the New Era of Employee Engagement — Everything You Need to Know

Here are some financial considerations in today’s labor market: 

  • Invest in and strengthen your current team through talent development, wage reviews, internal promotions and hires to help retain your current workforce. 
  • Recognize that hiring costs have increased and plan accordingly. If raises and promotions are not in your small business plan, focus on benefits to make up any difference in salary or hourly pay.
  • Embrace the hybrid home-office schedule and provide flexible work environments. Consider how the work-from-home shift can help you cut costs if your industry allows for virtual or asynchronous work.
  • Be shrewd in your resourcing forecasts knowing you may not have the upper hand in resignations and new hire negotiations.

Maintaining an effective small business plan requires an immense amount of discipline and perseverance, even in the best economic conditions. In today’s volatile environment, this is more important than ever. As a business owner, you must be willing to adapt to any changes that come your way and pivot to ensure your business is successful. Strategize and plan well by having a strong relationship with your banking partner, managing your debt, improving cash flow, finding alternative financing options and focusing on employee retention.

 

Jake Hymes HeadshotJake Hymes is the senior vice president, director of small business at UMB Bank.

Our Economy in 2023 — What to Expect

In 2023, the Federal Reserve will continue to battle inflation and hike rates reaching its terminal rate in the first half of the year, while inflation slowly dissipates. This will cause economic activity to slow, perhaps to a recession-like pace, causing financial markets to be choppy, yet producing positive returns.

Will the economy experience a soft landing, as the Federal Reserve is suggesting, or will stubborn inflation and rising interest rates cause the economic landing to be a bit bumpy?

We think the economic landing will be bumpy, experiencing a short-lived, mild recession…prepare for landing.

READ — 2023 Will Be the Year of the Earndown: What Every Colorado Small Business Owner Needs to Know

The events over the past few years have led to an economic environment plagued with uncertainty. We expect the economy to slow significantly with a high probability of experiencing a recession. Real GDP may be negative in the second or third quarter, however we expect GDP to be approximately 0.6% for the year. In 2023 there are numerous reasons why we expect the economy to slow and enter a recession:

Inflation

Persistently high inflation continues to be a threat to economic growth. Even though there are signs that peak inflation was in the spring and inflation is abating, inflation begins the new year at a stubbornly high level. A consolation is that lower inflation and weakening economic growth will convince central banks to slow the hiking cycle, pause, and pivot, moving to cutting rates.

A material risk to our forecast is if inflation moves lower slower than the Fed or the market expects, or if inflation comes down and gets “stuck” at a level higher than the Fed target. This would cause the Fed to react and more than likely shove the economy into a recession.

READ — 5 Ways Small Business Owners in Colorado Can Survive Inflation

Aggressive Monetary Policy

The Fed’s interest rate hiking cycle that began in March has been extremely aggressive. Understandably, since the Fed’s goal is combating spiking inflation. Consumption has been resilient, keeping the hopes of a soft landing alive. High interest rates will eventually weigh on consumers’ consumption behaviors and investment, particularly, residential investment slowing economic growth.

Historically, the only way the Fed orchestrated a soft landing was to lower interest rates. That would suggest the Fed will be hiking rates early in the year and cutting rates in the second half of the year. Unfortunately, the odds of a soft landing are stacked against the Fed.

We believe that the Fed’s aggressive tightening campaign will be the catalyst for a recession. Fed action has a pronounced lag — the full impact on inflation and the economy will not be felt until Spring/Summer of 2023. US consumers have an enormous amount of excess savings, and balance sheets are clean, leading us to forecast the recession will be short-lived and mild.

COVID

COVID no longer appears to impact consumer consumption in the US. However, China continues its zero-COVID policy. As China shuts down regions, cities and ports, the global economy suffers due to shortages and inflation. If lockdowns continue, economic activity slows. However, it appears the Chinese will relax their COVID policies in 2023, this could be a positive catalyst for economic growth around the world.

Fixed Income

We think the Federal Reserve will continue hiking short-term interest rates, affecting the economy in 2023. We expect a step-down in rate hikes, back down to 0.25% per hike, and Fed Funds to peak at 5.0%. We then expect the Fed to pause and hold rates constant for the remainder of the year. Along the way, the Fed’s narrative may cause turbulence in the financial markets.

The long end of the yield curve believes the Fed will be successful in fighting inflation. The 10-year Treasury yield of 3.6% at the end of November suggests the financial markets believe that inflation will be transitory. The bond market experienced a difficult year in 2022, we expect the 10-year Treasury yield to end 2023 around 4.0% and once again see positive returns in the bond market.

Equities

The financial markets have been discounting a meaningful slowdown in 2023. In September of 2022, the S&P 500, being a leading indicator, was down 25% pricing in an economic slowdown or recession. Given the Fed is hinting at a softer rate-hiking approach, we believe that 2023 will see positive returns in risk assets.

We expect the S&P 500 to end 2023 between 4,200 and 4,400, or a 5-10% total return. We expect a bumpy flight, with market volatility.

The Bottom Line

Prepare for landing. The global economic cycle is transitioning from an environment of accommodative monetary and fiscal policy, supporting moderate growth, to restrictive monetary and fiscal policy, supporting a contraction in growth. We expect the economy in 2023 to be affected by the projected real GDP, which is less than 0.6%. Additionally, anticipate a short-lived, mild recession.

Risk-based assets are expected to produce positive returns and be one of the best-performing asset classes. Our S&P 500 target at end the year is between 4,200 and 4,400 or 5-10% total returns. We expect to see volatility in the equity markets, with corrections greater than 10%.

Interest rates will be on the rise and inflation is expected to subside. We think the entire yield curve will shift higher, Fed Funds will end 2023 around 5.0% and the 10-year Treasury yield will move modestly higher to close the year at 4.0%.

Prepare for landing…buckle up.

 

KC Mathews, CFA, is the Chief Investment Officer at UMB Bank.

Maximize Your Charitable Giving Donations: Aligning With Your Budget and Passions

If you have the means and desire to financially contribute to charitable organizations, it’s important to understand how and why you are allocating your funds to the causes you care about. Here are a few considerations and tips to ensure you’re making the most impact when planning your charitable giving.

Giving USA 2022: The Annual Report on Philanthropy for the Year 2021 reported that total charitable giving in 2021 grew 4.0% from 2020 to a total of more than $484 billion. As needs and donations increase nationwide with inflation on the rise and a potential recession ahead, it’s important to understand your personal goals and desires to ensure your contributions are making a meaningful impact on the causes you care about.

READ — Snooze Partners with World Central Kitchen to Support Ukraine

Pick Your Passion

With all the options to make an impact, it can be overwhelming to decide where to donate your funds. Consider the causes you are passionate about and identify organizations that match the cause.

From healthcare studies to humane societies, there is sure to be a charity that fits your passions. As part of your research, determine the organization’s public presence by reviewing annual giving reports, social media, press releases and partnerships. Also, review ratings given by third-party sources, such as Charity Navigator and other rating organizations. These ratings can help individuals understand how efficiently a charity will use its support, how well it has sustained its programs and services over time and their level of commitment to good governance and openness with information.

Spread the Love

You don’t have to limit yourself to one charitable organization. If you’re passionate about different causes, consider splitting your contributions between various charities to spread the love and make more of an impact.

You can also consider donating to one organization while volunteering your time to another. Giving back with your time can be just as meaningful to the charity and gives you a chance to develop a meaningful connection with the organization you decided to support.

Consolidate Your Giving

Rather than donating smaller amounts annually, consider consolidating your giving to every three or five years to make a bigger impact on one organization or cause. This could also help you reach the annual amount for a charitable giving tax deduction. For 2022 taxes, single filers may claim a $12,950 standard deduction, while married couples filing jointly can claim a $25,900 standard deduction. Compared to 2021, this is an increase of $400 for single filers and $800 for married couples. This method also provides a significant boost to your selected charity.

Budget for Giving

If you’re ready to begin consistently contributing to these causes, consider making charitable giving part of your budget. Using the spend, save and share budget method can help you create a formula that works for your personal finances. For example, you can allocate 50% of your take-home pay to your spending funds, 30% to savings, and 20% to sharing or donating.

While your personal breakdown might look different, the underlying philosophy for planned giving remains the same. Also, be sure to maximize your giving by taking advantage of any employer match programs your company may offer.

Take Advantage of Employer-matching Gift Programs

If your employer offers an employee matching gift program, be sure to review the criteria to ensure your cause and/or charity qualifies. From there, you can leverage your employer’s match each year to avoid leaving donation money on the table. These programs not only bolster your donations to do more good, but also help your employer contribute to worthy causes in their communities.

Involve the Whole Family

Talk with your family and children about your charitable giving plans and why giving is important. Include them in your plans and invite them to volunteer alongside you. Also, discuss what causes are important to them—especially if they are different from your own—and let them pick who they want to support. This will set a strong foundation of charitable giving and volunteering for them as they grow older.

Build your Legacy

Depending on your financial situation, ensuring your donations are continuing once you’ve passed is a great legacy to leave, but does require thoughtful planning. There are many options to achieve this. For example, consider including charitable contributions in your will or establish a dedicated memorial fund in your name where people can submit donations.

READ — Guest Column: UMB Bank — How to Select a Fiduciary

Wherever you are on your charitable giving journey, taking the time to think through where you most want to make an impact and what charities align with your passions is a great start to ensuring you are making the most of your dollars. Remember even a small donation can have a big impact on an organization as we navigate the cycles of the economy together.

 

Wendel AbbyAbby Wendel, president of consumer banking at UMB Bank.