This story is part of a series about financial literacy for small businesses in the Ypsilanti area. It is made possible by University Bank.
Good financial health is a crucial part of running a business of any size. There are multiple factors to consider when evaluating the financial health of your business. Financial health can look different for each business owner.
Benjamin Bolen, a wealth advisor at University Bank, defines financial health with an equation: independence of time plus money plus your health plus your relationships.
“If any part of that equation is missing, you're really lacking in true wealth,” Bolen says. “You can have a lot of money, but if your physical health is broken, or if your emotional health is broken, or your relationships are broken, or you don't have any time for yourself, then something's going to be missing.”
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Rickey PortisBenjamin Bolen.
Ken Sprinkles, assistant vice president and business banking officer at University Bank, defines financial health for a business with a different perspective, focusing on debt, income, and good relationships—specifically with bankers.
“From my perspective as a lender, someone who has financial health in a business context would be somebody who carries a relatively low amount of debt. You don't want to be overleveraged in your business portfolio,” Sprinkles says.
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Rickey PortisKen Sprinkles.
This means avoiding excessive debt on property. A financially healthy business owner would ideally owe less money than the value of the physical property, such as a storefront, and less than the value of other business assets.
The second component Sprinkles attributes to financial health is having several sources of income.
“That could mean that you own multiple properties that produce income, or maybe that means that you have multiple income streams. Maybe you have outside employment with a different company and also have business ventures,” Sprinkles says. “It could mean that you have properties that are residential in nature as well as commercial in nature. So, you have a good mix of properties in your portfolio that you would use for an income-producing purpose.”
Sprinkles’ final component of financial health is good relationships with bankers and financial advisors. For many business owners, this could mean working with multiple banks that specialize in different types of businesses or revenue streams.
Once a business owner defines what financial health means to them, it is important to understand how to achieve and maintain financial stability. Developing a well-researched and thoughtful financial plan, reinvesting in a business, and paying off debt are three key recommendations for maintaining financial health and stability.
According to Bolen, a well-thought-out and researched business plan considers the personal, professional, and financial aspects of a business owner’s life.
“The first question I often ask is, what is your point A, and what is your point B? Where are you now, and where do you want to go?” Bolen says. “What are you spending? How much are you earning? How much and where are you saving? How much and where are you investing? Do you have insurance coverage? Do you have an estate plan?
“No matter their financial situation,” Bolen continues, “we always go through that foundational point A of where they are. Once we understand point A, then we can talk about point B. Where do you really want to go? What would give you better peace of mind? What would better support your family? What will give you better security? How can we use this to improve your lifestyle and create a legacy?”
Reinvesting in a business can take many forms. Often, business owners focus on revenue from selling products or services but may overlook the costs of maintaining their business. Expenses such as rent for a brick-and-mortar location, upkeep, and supplies are often underestimated, especially in the beginning stages of a business.
“I think it's important for businesses to have a very good mix of putting money back into their company and growing their company while also paying down debt and increasing profits by lowering the debt the business carries,” Sprinkles says.
Paying down debt and ensuring proper debt management allows a business to grow. Additionally, it increases liquid assets, which can benefit a business owner if the business closes or transitions to maintain a legacy.
University Bank offers several resources to support financial health. The bank provides a full suite of products, including wealth management, lending opportunities, and personalized care that allows clients to tailor services to their specific needs.
“Being a community bank, any of our customers can call directly—to my desk, Ben Bolen's desk, or any of our other lenders or professionals,” Sprinkles says. “You don't get a phone tree that sends you down the line to a bunch of customer service people you don't know. Personalized care is really the key at our bank.”
Bolen emphasizes the importance of personalized care and consulting with loan officers, tax advisors, and certified public accountants.
“When you have a financially healthy business, it creates more possibilities. Your business can grow and scale properly,” Bolen says. “Loan officers can refer clients to consultants and advisors. They bring their experience in the community and are aware of multiple resources.”
Financial health can be defined in many ways. With a well-researched plan, proper investments and reinvestments, and support from resources like University Bank, a business can begin in a healthy financial state and maintain that stability throughout its lifespan.