Thinking about next downturn?

MAY 28, 2021 – BY CHRISTOPHER ADAM, Northwest Indiana Business Magazine

Banking experts say businesses should develop strategy to set up rainy day fund

It is no secret that the federal Paycheck Protection Program helped many businesses of all sizes keep their doors open during the pandemic.

PPP loans provided a direct incentive for small businesses to keep their workers on payroll.

The U.S. Small Business Administration said it distributed more than $500 billion in 2020, and Indiana received about $9.5 billion of those dollars. Most of it went to full-service restaurants, religious organizations, insurance agencies, real estate agents and brokers, and dentist offices, respectively.

As individuals, people are told to set aside a portion of their earnings into savings accounts for a rainy day, in the event of an emergency.

Businesses should be no different. According to the SBA, there are several important reasons for a business to have a rainy day fund:

Growing a business debt free: It takes money to expand or hire new employees.

The unexpected: The pandemic has proven the challenges that come with unexpected events.

Retirement: Small business owners need to have retirement plans in place.

But how does a business go about doing this? Financial experts agree it’s no easy task but not impossible.

Give them a call –BY CRAIG DWIGHT

Pick up the phone and call. This was the top piece of advice from Craig Dwight, president of Horizon Bank. He says business owners will be amazed at the help they can receive if they simply call their bank or financial adviser.

“I experienced this first-hand with our business customers here at Horizon,” he said. “We really are a strategic partner for business and want to help in a variety of ways.”

Dwight said Horizon worked with thousands of businesses through the Payroll Protection Plan. He said those business owners who had a strong network may have fared better in the beginning of the pandemic.

“A key piece of advice I offer is for business owners to have a team of experts to call upon before they need help,” Dwight said. “This network should include banking experts, financial advisers, insurance attorneys and other key contacts. If you have this network in place and a crisis hits, you are much better prepared to deal with it and have experts in place who already know about your business.”

Dwight said the primary goals for a business during an economic downturn are the preservation of cash and capital.

“You want to focus on balance sheet management in a downturn and protect your business’s cash,” Dwight said. “You may be able to work with vendors to extend or change terms to protect your cash, increase long-term debt and lower costs, (so) you definitely want to try and avoid pulling out equity from the business during a downturn (because) that will hurt you in the long term.”

Dwight said the banking industry, with its regulations and backup systems and processes in place, was likely better prepared than others for responding to a pandemic. He said consumers also seemed to generally fair better during the pandemic than businesses.

“I think it was mostly a situation where businesses had very little time when the pandemic hit and had to make big changes quickly,” he said. “On the consumer side, we saw a lot of mortgage customers ask and receive extensions, but many just wanted that piece of mind of having received an extension and were able to continue making their regular payments.”

Read entire Northwest Indiana Business Magazine article here.