When Microsoft founder and philanthropist Bill Gates studied startups, he famously concluded that timing accounted for 42% of their success. It’s a principle that resonates across businesses of all sizes — timing can mean the difference between seizing opportunities and missing them. For small and medium-sized businesses (SMBs), the year-end financial review is one such critical moment. It’s a chance to take stock of their financial standing and prepare for the challenges and opportunities of the year ahead. With well-timed guidance, community financial institutions (CFIs) can become invaluable partners, helping businesses navigate this pivotal period.As 2024 comes to a close, businesses are evaluating their revenue, expenses, and debt from the past year while planning budgets and cash flow for the next. For some SMBs, this process reveals shortfalls — whether it’s a lack of funds to cover taxes, capital needs, or unexpected expenses. Addressing these gaps might mean cutting costs, increasing income, or securing financing. By reaching out now, CFIs can proactively offer tailored solutions and expert advice, strengthening relationships and positioning themselves as key allies in their clients’ success.SMBs often struggle with financial organization, making it difficult for them to prepare critical reports. CFIs can step in to guide SMB clients and demonstrate their expertise, particularly in helping customers create the following:
- Balance sheets. Highlighting a business’s assets, liabilities, and owner’s equity as of a specific date.
- Income statements. Summarizing profits and losses over a defined period.
- Tax liability reports. Estimating what a business owes to the IRS, based on its earnings and deductions.
Helping SMB customers develop these documents isn’t just a value-added service — it ensures that SMB clients have the financial literacy and documentation they need for potential lending opportunities. CFIs can further stand out by offering educational workshops or connecting businesses with trusted accounting professionals.For their part, SMB owners may be surprised when they see any of these numbers. Owners may discover they’re generating more or less income than expected, or they might be surprised by their equity or tax obligations. Offering Tailored Funding OptionsYear-end financial reviews also provide an opportunity to proactively discuss tailored funding solutions. SMBs might need funds for tax obligations, upcoming expenses, or growth initiatives, and CFIs can help provide solutions.Here are a few suggestions you can make to SMBs to help them manage funding:
- Setting up an IRS payment plan. Businesses that owe less than $25K in combined taxes, penalties, and interest can apply for a federal tax payment plan online; owing more than $25K means filling out paperwork and putting it in the mail.
- Invoice factoring. This means exchanging the right to collect outstanding invoices for a lump sum that’s typically around 85% of the invoice total. This option can benefit businesses that have a lot of cash flow trapped in accounts receivable.
- Commercial real estate loans. Leveraging property as collateral allows SMBs to refinance an existing loan for better terms or to secure a new loan to expand operations.
- Lines of credit. These can provide a source of flexible, revolving credit for an SMB to address both planned and unexpected expenses.
If a new loan is appropriate for your business client, the effort you’ve made toward helping the business develop appropriate financial records and documentation will give the owner a head start in applying. If not, you’ve still strengthened your relationship with an SMB customer and increased the likelihood that this business will borrow from your CFI if and when it does need a bank loan.As 2024 winds down, it’s time for business clients to consider their revenue, expenses, and debt for 2024 and consider next year’s budget and cash flow. Tax season is a time when CFIs can build and deepen relationships with customers by understanding their needs and matching them with the right guidance and financing.
