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Underneath the day-to-day management of any business lies an organization that behaves according to patterns established by financial conditions beyond bank balances and credit lines. These conditions are a reflection of how well all the basic financial needs of a business are being met. Meeting those needs on an ongoing, strategic basis makes it possible for the organization to expand its ability to create value even as it grows physically.
These days everyone is in business to meet your needs. The next time your banker - or any banker - talks about meeting your needs, do us a favor and ask him or her what they are. That’s right, ask your banker if he knows what financial needs your business has. Chances are he’ll smile and say that’s what he’s there to find out.
If you put the same question to a First Midwest banker, he or she will tell you straight out that your business has six basic financial needs. They are:
- Cash Flow Management
- Financing
- Accounting
- Risk Management
- Fiduciary/Employee Benefits
- Financial Planning
We know, because every business has these same six basic financial needs. First Midwest Bank found out long ago that no business can succeed without paying at least some attention to every one of these areas. Meeting these basic financial needs creates value in an organization much the way meeting a slightly different set of financial needs does for individuals. What’s more, as each successive financial need is met, value is created at an increasing rate.
Meeting ALL six basic financial needs has a leveraging effect on a company’s ability to create value. Here’s how it works:
- Meeting the need for cash flow management produces greater, more consistent cash flows across the short term.
- Meeting the need for appropriate financing allows the value of this increased cash flow to build over much longer periods by funding periodic (inventory, seasonal cycles, etc.) or strategic (capital equipment, acquisitions, etc.) expenditures.
- Meeting the need for accounting essentially makes cash flow management and financing efficient by tracking historical costs and predicting future expenses.
- Meeting the need for risk management strengthens an organization’s assets by protecting them from loss and, therefore, reduces the degree of uncertainty in future cash flow.
- Meeting fiduciary needs takes advantage of tax-favored earnings deferment in order to provide for the future long-term well-being of the company’s workforce, therefore enhancing productivity and ensuring effective succession planning.
- Meeting the need for long-term financial planning enables the business owner to focus on strategic issues, maintain an objective viewpoint and translate business success into personal financial independence.
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