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August 2018

What’s the Best Debt-Equity Ratio for Your Company?

Debt means different things to different people.  Most entrepreneurs and company owners view debt as an exceptionally valuable tool. However, they may struggle with the question of how much debt they should prudently absorb, relative to equity. 

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That relationship is called the debt-equity ratio. To determine your company’s debt-equity ratio, divide the amount of debt owed by company book value, or assets minus liabilities. A low debt-equity ratio of, for instance, 1, suggests your company is not fully leveraging the lower-cost financing tool of debt. A high debt-to-equity ratio of, say, 10, suggests the company is at risk from shouldering too much debt. Happy mediums between these extremes vary, depending on the type of company and its industry.

 Here are a few rules of thumb to help you determine the optimal debt-equity ratio to fund your company’s operations.

·     If your company is operating in an unsettled, even volatile business climate, it should aim at a lower debt-equity ratio. That’s because a sudden upheaval in the business environment could jeopardize ability to service debt.

·     If your company enjoys the benefit of holding long-term assets not susceptible to unpredictable value fluctuations, it can take on a higher debt-equity ratio. Examples of such assets include buildings and heavy equipment.

·     Your industry also can affect optimal ratios. If yours is a technology firm that invests in research, a ratio of 2 or lower is advised. Ratios between 2 and 5 are acceptable for manufacturing and publicly-traded firms.  Ratios higher than 6 are usually acceptable for banks and other types of financial companies.

 In general, getting debt and equity in optimal balance can help you gain needed loans, because bankers carefully review debt-equity ratios.

Would you like any additional information on the optimal debt-equity ratio?

For related content, check these articles:

·     The Commercial Loan Term Sheet: An Important Step Before Getting a Loan 

·     Signs It’s Time to Invest for Business Growth


Don’t Let Security Measures Vacation While You Do.

The weeks before Labor Day are peak times of the entire year for family vacations. For many, that means taking along a laptop or notebook computer, and perhaps leaving behind an unattended computer back in the office.   18-LB-555 blog photo

Unfortunately, while businesspeople nationwide savor late-summer vacations, hackers work overtime to steal their data, infect their computers with malware and access their private information over public Wi-Fi networks. If like many workers you intend to tackle even limited company business while traveling, these threats can result in sensitive company data falling prey to the schemes of the unscrupulous.

Happily, a few simple travel security tips can help ensure your security doesn’t embark on holiday at precisely the same time you do.  Use these strategies to protect all the mobile devices you take with you from encroachment via cybernetic subterfuge.

  • Use your devices’ locking mechanisms. Locks available on most mobile devices allow you to remotely disable them by using a PIN code. Make sure this lock is enabled, in case you misplace or lose your device.  
  • Lock your computer at work to prevent unauthorized access. Ask a fellow employee to occasionally check your computer to assure it’s not being used.
  • Practice Wi-Fi Wariness. Free Wi-Fi provided by a hotel or restaurant can tempt business or pleasure travelers.  Too often, though, hackers closely monitor the networks hoping to hack into sensitive company or personal data. Never use public Wi-Fi to work on your company’s business.
  • Avoid social sharing of location. Many people like to post photos and reviews on social media as they travel domestically and internationally. Hackers keep their eyes glued to these types of social media updates, enabling them to know when you’re away from the office or that a hotel room is unoccupied and ripe for invasion.

Along with updating passwords, operating systems and using the latest anti-virus protection, these steps can help ensure you savor a safe, secure summer sabbatical. 

What’s your favorite security step while traveling on business or pleasure? 

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Reassessing Treasury Management Strategy Pays Off


Why is this a critical time to re-evaluate your treasury management strategy? We can start to answer that question by
providing a brief example. Imagine a company that enjoys $50 million in annual sales and borrows at 5 percent. Simply by
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accelerating by two days the pace at which it receives payment on its accounts receivables, this company could trim costs by approximately $20,000 yearly.

Today’s rising-rate environment and more volatile economy add urgency to many companies’ goal of regularly revisiting treasury management strategies. Strengthening your cash position can boost liquidity, reduce interest expenses and enable the company to more readily obtain business loans.  Following are a few suggested tips companies should consider in reframing approaches to cash management.

  • Streamline payments. A critical step in reexamining treasury management strategy is ensuring timely collections. Make sure it’s as quick, easy and convenient as possible for customers to pay your invoices. To that end, institute prescheduled automated clearinghouse (ACH) debits to streamline collections.
  • Re-examine liquidity needs. Given the rising interest rates environment, it may be that your day-to-day operating cash, reserve cash and investment cash needs have changed. After all, rising rates impact your company’s money market deposits and interest earning checking accounts, as well as time deposits and sweep accounts. Bring your cash liquidity in step with today’s reality.
  • Upgrade your technology. One result of revisiting treasury management can be use of more advanced tech tools and information reporting. New tech options can deliver enhanced transparency and increased control.
  • Communicate about change. After revising your treasury management strategy, communicate your hopes and concerns not just to your team but also your bank. Business bankers can shepherd companies through rising-rate challenges.

The only constant in life and business is change. That makes ongoing re-assessment of treasury management strategies a business imperative.

How could treasury management strategy re-evaluation benefit your company?

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