Financial tips for business owners for the New Year

    We are in the process of closing the door to one of the most tumultuous economic times in our history. I’m sure many of us are hopeful 2010 will bring about some change for the better. While we cannot control all of the factors shaping our economy, we do have some power over our own financial situations. For business owners, especially, now is an excellent time examine your current credit and financial operations, improve efficiencies, consider some new options, and prepare for the future.     Start by taking advantage of opportunities scheduled to end on Dec. 31, 2009, especially the temporary increase in the Section 179 deductions and bonus depreciation. Enacted under the Economic Stimulus Act of 2008 and extended by the American Recovery and Reinvestment Act of 2009, both bring significant tax benefits. Section 179 allows businesses to deduct the full purchase price of equipment that is financed or leased, and it increases the limit on such purchases from $125,000 to $250,000. The bonus depreciation allows businesses to deduct an additional 50 percent of equipment purchase costs in the first year. Both the temporary increase in Section 179 and the bonus depreciation are scheduled to end with 2009.
    Federal legislation regarding U.S. Small Business Administration (SBA) loans effectively reduced fees for borrowers and provided higher loan guarantees for banks this year. However, the program was in such high demand that funds have been depleted, bringing an end to these two initiatives from the Recovery Act. Proposed legislation would extend these fee eliminations and higher guarantees, but the outcome is yet to be determined. Part of the American Recovery and Reinvestment Act, these measures made it easier throughout 2009 for businesses to get financing from SBA-preferred lenders.
    Beyond these time-sensitive situations, you would be wise to plan for the recovery, to consider when the recovery will have a tangible impact on your industry or business and to determine what capital investments would make your company more competitive.
    Investing in new equipment and technology infrastructure, as well as increased physical space, could support your company’s growth toward a more competitive future in a reviving economy. Once plans for growth are in place, it’s important to determine which improvements you may choose to fund and which you need to finance through your bank, bringing your banker in early for planning discussions.
    Every business has faced challenges during this difficult economic cycle, but not all of them have experienced deterioration in their credit. However, it’s important to maintain good credit: adapt your business plans to a changing future, keep your personal credit current and adjust your business expenses to fluctuations in the company’s revenue.
    Using credit to smooth over those fluctuations may involve lines of credit for short-term operating capital and term loans or leases for longer-term purchases, such as equipment, vehicles and real estate. Companies that use short-term lines of credit to finance longer-term needs may have trouble staying on a fixed repayment schedule to pay down the credit line. However, discussing with a banker what the company needs to finance can help avoid such problems by using the soundest credit vehicle for the purchase.
    Bankers can also help you improve the efficiency and security of your company’s financial operations. They can offer solutions to speed up the collection of cash and delay the outflow of cash as long as possible without damaging your company’s credit rating. They can also recommend ways to prevent fraud, which often rises during downturns.
    Cash management tools such as online banking, lockboxes, remote deposits and the automated clearing houses (ACH) can help your company help itself by enabling you to find and use the cash hidden in your own operations and providing real-time information.
    Remote deposit, for example, allows you to scan incoming checks in your offices as soon as you open the mail and then make deposits online. This expedites access to cash, and increases average cash balances in your accounts, which can facilitate internal financing for certain purchases. Remote deposit also reduces the likelihood of fraud or accidental loss, since every physical transfer of a check affords an opportunity for these problems.
    Combining high-technology systems with common-sense office safeguards, such as requiring multiple signatures on payments and physically protecting stocks of blank checks, can reduce in-house fraud. Computerized billing systems can be very effective in expediting receivables, especially when used with online banking.
    Online banking is constantly evolving as banks compete to meet customers’ needs. However, most business bankers are finding that customers benefit the most from having the right set of core banking products that have been provided for decades: checking and savings accounts, and credit – especially as their needs and financial conditions change.
    The downturn also turned things upside down. Many companies that had been cash poor now have cash reserves they don’t know how to utilize: Sweep accounts that invest cash surpluses overnight can help. Other companies that have historically run surpluses and invested in upgrading facilities and capabilities may now find that they need credit for these improvements: They need term loans. Even companies that feel cash-rich may be leery of making those investments today, and fall behind competitors as a result.
    Experienced business bankers, who have helped customers through multiple up and down cycles and who know local markets, can help businesses adapt to these changes.
    Every American business faced new and unprecedented challenges during the downturn, but now bankers and businesses can and should work together to capitalize on the recovery.
    Steven Gagnon is a senior vice president and oversees KeyBank’s Business Banking division for the northern part of Maine. His office is at 480 Main Street in Presque Isle, and he may be reached at Steven_L_Gagnon@KeyBank.com or 764-9419.