How healthy are your business finances?

Understanding Financial Health for Small Businesses

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.”

Financial Health Components

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.

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.

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.

Maintaining Financial Stability

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.

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.

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.

Resources for Financial Health

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. “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.

Conclusion

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.