Stress Tests, Planning and Flexibility are Key
Ok, I give up. Bankers are supposed to know things like the direction of interest rates and if the economy is really getting better or worse. I must admit, it is becoming much harder to predict.
In the last few weeks we have seen the following quotes on Bloomberg:
· “Consumer spending in U.S. advances for fourth consecutive month.”
· “Case-Shiller National Home Prices rose 5.1% from June 2015.”
· “Federal Reserve Vice Chairman Stanley Fischer said negative interest rates seem to be working in other countries, while reinforcing that they aren’t on the table in the U.S.”
· “Manufacturing in U.S. contracts for first time in six months.”
A little mixed messaging perhaps. The Fed Chairman Yellen telegraphed higher rates in the near term recently but exactly when and by how much is not clear. Given that the above comments fall into the “uncontrollable by any of us” category, I would suggest that as business owners, we focus on the things we can control.
It is, of course, imperative that we try as best we can to read the environment. Your industry and the stage in your business’s life cycle are greatly impacted by the environment. While you may not be able to predict the future 100%, you might want to test how your business operates under various conditions. When we consider extending credit to a client, we run various scenarios to test how the business may perform under higher rates, less occupancy, reduced revenues or changes in industry conditions. We try to assess a company’s ability to perform under less-than-great economic conditions. You should do that too.
Business owners need to be flexible and innovative. Businesses that are able to take a punch and get back up with a more efficient or innovative way of doing things will always be winners in the long run. Be flexible, so you can deal with uncertainty and face challenges successfully.
Good planning is a big part of growing a successful business. As we move toward the fourth quarter, it’s a good time to begin thinking about 2017 and what challenges and opportunities might lie ahead. Start by talking with your Bank SNB banker about your views on your industry and business prospects. Chances are, we can offer some insights into how we are looking at your industry and what others may be seeing as well. We can help you evaluate your long-term and short-term working capital needs or the way you manage your cash flow before it becomes a crisis. Engaging your banker early is one of the best ways to operate successfully in an uncertain environment.
On The Mark was written by Bank SNB President and CEO Mark Funke.