HELP PROTECT YOUR BUSINESS FROM COMMON FINANCIAL PROBLEMS

Many small businesses fail because of financial management mistakes. If you own or manage a business, you can steer clear of serious errors by remaining alert to some basic financial principles. In this Q&A, City National Bank Senior Vice President Jim Wullschleger discusses common financial problems and how to avoid them.

What are the biggest financial mistakes a company can make?
Wullschleger: Business owners often underestimate the importance of financial management. Many entrepreneurs are very skilled at what they do but neglect the financial aspects of their business. This is especially true for owners of smaller companies, who may lack training in managing company finances. Business owners often don't seek the expert advice they need. Most have accountants available to them who can act as their financial sounding board, revealing the impact of business decisions on financial results. Business owners should also reach out to their business bankers for a consultation. Having a good relationship with a business banker can provide long-term benefits when you take the time to share your business goals and objectives. For example, your business banker can provide guidance on improving cash flow with ideas on speeding up receivables and managing payables.

What are the basics of good financial management?
Wullschleger: Be realistic about your company finances. People tend to think they can accomplish more than they can. When projecting future sales, make sure your calculations are truly realistic. Dig down into the nitty-gritty of financial management. Have a clear picture of your sales and expenses. Profitable sales are more important than sales growth. Additionally, avoid confusing profit with cash. Business owners tend to think they're doing fine when they see sales and profit grow. Don't forget you need cash flow to support that growth. Make hard decisions sooner rather than later. It can be painful to lay off people when sales decline, but your company can easily go under if you don't cut expenses early enough. It's better to do the wise thing now so you can survive to hire those people back another day.

How often should you review your company finances?
Wullschleger: Do this at least once a month. If you don't have the training to examine a balance sheet, sit down with your accountant and business banker to go over it. Refresh your financial projections once a year or so. It's important to do these reviews yourself. Business owners often pay attention to their financial statements only when they want or need a loan. Lenders require this, but you should have deeper reasons for mastering the details. At the end of the day, it's your company and your responsibility, and you need to understand your company's financials backward and forward.

What should you do to invest in growth?
Wullschleger: It's important to invest company profits back into the business. This is the least expensive way to finance growth, since you're using your own money. Reinvestment also helps cushion your company against sales downturns. When you need outside financing, lenders like to see you have a personal stake in your business. It lets them know you're committed to the company and its future.

How else can you take advantage of a bank?
Wullschleger: A good bank will offer tools to help you efficiently manage your business. For example, make sure your bank offers a remote deposit service, which allows you to scan checks and make deposits from your office. You should have online access to your accounts so you can transfer cash and get an accurate, up-to-date picture of your finances at any time. Your bank should also offer fraud control services. It's a whole new electronic world out there, and your bank should help make it safer for you.

City National Bank provides a complete suite of treasury management services to help manage your money and boost your cash flow. Call (800) 773-7100 or request that a Relationship Manager contact you.