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Volume 8, Issue 2: March - April 2013

5 Silent Cash Flow Killers
by Kyle Enger, BBI Financial, Inc.

What business owners can do to improve solvency during a volatile economy.

Business owners looking for ways to thrive in an uncertain economy should look no further than their financial statements. As practitioners, it is easy to get distracted working in the business and lose sight of working on the business. In an economy where the stakes are increasingly high and cash progressively scarce, business owners must proactively manage the balance sheet and income statement or risk falling victim to the five silent killers of cash flow.

During the last several years, the number of businesses that filed for bankruptcy has seen a staggering increase. Astonishingly, a majority of these filings reported a net profit, yet had negative cash flow. Many times the warning signs that a company is in trouble go unnoticed until it is too late.

The solution is to think about how cash flows through the financial statements. A business can improve their liquidity and create long-term viability by looking closely at the following potential trouble spots.

Silent Killer 1: Mis-financing. Mis-financing is defined as borrowing short-term capital to pay for long-term assets. Purchasing equipment, leasehold improvements and other fixed assets with a short-term line of credit drains the cash out of a business and condenses the timeframe the asset has to pay for itself. Matching the term to the useful life of an asset increases the company’s cash flow and frees up the line of credit for seasonal working capital needs. The effects of improper debt structure can be debilitating to a business. Working with a banker in the early stages of mis-financing can help to mitigate the effects it has on a business.

Silent Killer 2: Inventory Management. Driven by revenue growth, business owners can easily lose sight of the gradual increases made in their inventory levels. Whether rapid or steady, inventory creep can begin to impair a company’s cash position. This phenomenon is more pronounced in today’s recessionary climate due to the extended growth that occurred in the prior ten-year period. Realigning with industry standard or moving to a just-in-time methodology of inventory management will greatly improve the working capital of a business. Finding the right balance between inventory and sales can drastically increase a business’ available cash.

Silent Killer 3: Expense Control. Everyone is aware of the importance of cost cutting during a down economy. The key lies in effectively determining the right level of controls to ensure the company’s critical functions are not impaired. One of the best methods for approaching expense control is the mirror technique. This approach examines the growth or decline of sales over a specific period of time and adjusts operating expenses accordingly. For example, if a company’s sales were to decrease by 25 percent during the projected period, operating expenses should also decrease by 25 percent. In order to remain viable and thrive into the future, a business owner must not lose sight of managing the nickels and dimes.

Silent Killer 4 & 5: Accounts Payable and Receivable Management. The final two impediments to a healthy cash flow statement are the most powerful when they are managed hand-in-hand. Controlling the speed that receivables are collected and payables are paid are tried and true methods for increasing cash within a company. While effective, these practices must be done with balance to avoid impairing sales through damaged client relationships or exposing the company to increased late fees. Offering early payment incentives for receivables and delaying payment to vendors will shorten the working capital cycle, ultimately improving the financial viability of a company.

With so many concerns to focus on in a day, business owners can never forget that cash is king when it comes to their company’s survival. Taking the time to proactively manage the financial statements of a business is the only way to avoid the five silent killers of cash flow.

Hills Bank will be hosting Kyle Enger, Principal of BBI Financial, for a two-day seminar that will share more cash flow tips titled "Managing the Closely Held Business" on September 26 and 27, 2013. RSVPs are currently being accepted online. Class size is limited.


Ooops, I've Made a Mistake on my Tax Return!

If you suddenly discover a mistake on the income-tax return you just filed, don’t panic. You can correct it. And you’re probably better off correcting it yourself rather than waiting to see if the IRS discovers the error.

Easy Fix
The IRS has a special form to correct mistakes — Form 1040X. List the amount you originally reported in the first column, changes to the amounts in the second column, and the corrected figures in the third.

If the error is the result of a corrected W-2 or 1099, attach a copy of that form to your 1040X. And if the error is due to a missed deduction, attach a copy of the receipt to your 1040X. The more documentation you provide, the better.

Don’t Delay
Generally, for a credit or refund, you must file Form 1040X within three years from the date you filed the original return or within two years of the date you paid the tax, whichever is later.


Defending Your Business Against Cyber Fraud Seminar

Cyber fraud is on the rise and the best way to protect yourself is to be prepared. Do not assume the government, IT professionals, hardware vendors, service providers, or your employees are protecting your business assets. Security measures must start with you, the business owner, and should be an integral part of your organization. Fraudsters know small business owners wear many hats and security may not be a top priority, therefore your business could be an easy target. Hills Bank wants to help you defend your business! Join us as Loras Even and Cassie Myers from McGladrey, LLP. shares key information on how to defend your business from cyber fraud and protect both your company and customer information.

Tuesday, May 14th
Choose the breakfast or lunch seminar.

Hills Bank and Trust Company
590 W Forevergreen Rd, North Liberty

Breakfast from 7:30-8:00 am
Seminar 8:00-9:30 am

OR

Hills Bank and Trust Company
3905 Blairs Ferry Rd, Cedar Rapids

Lunch from 11:00-11:30 am
Seminar 1:30 am-1:00 pm

RSVP by emailing Carrie Ebel at carrie_ebel@hillsbank.com, calling at 319-358-2272, or registering online.


Upcoming Events

Learn more or register for upcoming seminars from Hills Bank.

Disaster Recovery Seminar
Tuesday, April 23, 2013
12:00 - 1:30pm
Hills Bank, 590 W Forevergreen Rd, North Liberty

Buy Here Business Fair
Thursday, April 25, 2013
4:30 - 7:00pm
Holiday Inn & Convention Center, 1220 First Ave, Coralville

Managing the Closely Held Business Seminar
Thursday, September 26 - Friday, September 27
8:00am - 5:00pm
Hills Bank, 590 W Forevergreen Rd, North Liberty


Administrative Professionals Week

Don't forget that April 21-27 is Administrative Professionals Week with Administrative Professionals Day on Wednesday, April 24th. This isn't the only time of year you should show your appreciation to the administrative professionals in your life, but be sure to make them feel especially valued throughout Administrative Professionals Week. You will be amazed at how far a small gesture with a "thank you" or other kind words of encouragement can go.


Ask the Expert

Q. My business is very seasonal. What items do I need to prepare to get a line of credit available if needed?

A. As an existing business we ask that you provide the following information in your initial meeting with a Commercial Lender:

  • Last 3 years of fiscal year-end balance sheets;
  • Last 3 years of income statements;
  • Interim balance sheets and income statements;
  • Signed personal financial statement;
  • Last 2 years of federal tax returns on the business.

Preparing this information ahead of time will put your foot in the right direction to boosting your business.

Invest in your future with an Individual Retirement Account. There is still time to make an IRA contribution for 2012.

10 Second Tip

Sign up for Credit Card eStatement and Hills Bank will Donate $1 to Trees Forever
Since 1989, Trees Forever has been dedicated to helping individuals and communities improve and sustain the places where we live, work and play. Trees Forever strives to enhance and protect the environment we live in—for today and for generations to come. Join Hills Bank and Trees Forever by going to MyCardStatement.com to enroll in eStatement today!


Hills Happenings

Holiday Schedule

The bank will be closed on the following holiday:

  • Memorial Day
    Monday, May 27

Even though we will be closed, you can still do your banking at over 90 Hills Bank ATMs in the Corridor, Hills Bank Online, mobile banking, or through Push Button Banker.

See all the Hills Bank holidays.


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Hills Bank and Trust Company.
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