DEBT is not just a four-letter word

Close-up of couple doing finances at home

By Alan Langeteig, SVP – Chief Lending Officer

To paraphrase Shakespeare: “To borrow or not to borrow? That is the question.”

Many people believe that debt of any kind is worse than no debt, but there may be very good reasons to incur short-term debt for long-term gain. There are situations when taking on debt can be a positive and strategic move for your business. In other words, the value of debt is determined by the return provided by that debt.

Without a doubt, a well-run business needs to control expenses in order to maximize profits. Interest expense is similar to every other expense in many ways. One major difference, however, is that while most expenses pay for regular overhead that is consumed in the normal course of business (salaries, rent, utilities, supplies, etc.), interest expense can represent an investment in the future.

For example:

  • Debt can be better than losing an opportunity. When your company has the opportunity to take on a large or unusual job from a new or existing client, debt may make sense. If there are upfront costs, such as hiring labor, purchasing inventory, or upgrading equipment in order to complete and deliver on the job, debt can help make that happen. Loan proceeds are used to fund the upfront costs. The debt is then repaid when the payment is received. Do the math, and make sure there is true profit at the end of the process. Don’t forget to include overhead beyond the upfront costs when calculating the profit.
  • Debt is often more desirable than giving up equity. While offering equity may seem like a simple solution to the growing needs of a small business, it means giving up a percentage of your business and, therefore, future profits that are a result of your hard work…forever. Debt can be repaid quickly when compared to equity, which can be permanent.
  • Debt can add stability to seasonal cash flow. A lot of successful companies are seasonal in their business and, as a result, seasonal in their cash flow. Debt can help even out the cash flow cycle, providing cash during the lean months while being repaid during the flush months.
  • Debt forces discipline and frugality. Having to make regular loan payments on debt helps keep you focused on cash flow. Without having those payments, an influx of cash might tempt a business to spend money on things beyond necessities. Lean businesses tend to keep on top of expenditures.
  • Debt may reduce your taxable income. While I’ve never understood the idea of paying the bank $1.00 in interest to save $.25 in taxes, interest is generally tax-deductible. So while I don’t think tax savings is a reason to take on debt, I do believe it is a nice benefit if a loan is already under consideration. The tax deduction is a potential benefit for all of the previously mentioned scenarios beyond the benefits mentioned in each situation.

Remember, when it comes to taking on debt, all loans are not equal. It’s important that you find a lender who understands your business, understands the reasons for the loan, is willing to lend you money at a reasonable rate, and can provide you fast, convenient, and personal service.

If you have questions, we can help. Contact us today.

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Cutting the Fat: Make the Most of Your 2017 Budget

By Paul Manchester, Senior Vice President – Business Relationship Manager

For many small to mid-sized businesses, the details of a budget can take a back seat to producing the best possible product or providing the best possible service. You’re profitable. You’re managing cash flow. And you have a big picture idea of where your money goes.

You can do better.

Controlling your expenses can improve profits, free up extra capital for growth opportunities, help you take advantage of tax benefits, and put you in a proactive rather than reactive mindset.

Understanding Expenses

The first step in developing a disciplined approach to budgeting is analyzing your profit and loss statement from the previous year.

  • What worked?
  • What areas went over budget?
  • Which months were your most profitable and why?
  • Did you have a slow period?

If you aren’t sure how to create or read a financial statement for the month or the year, consider reaching out to one of the many business resources in the area, such as UW’s Small Business Development Center, the online tools offered by the U.S. Small Business Administration (SBA), or your local chamber of commerce.

You also may want to think about outsourcing your financials to an accountant or bookkeeper. The expense of hiring someone to manage this part of your business is usually more than offset by the time and money you save over trying to do it yourself without the necessary expertise.

Tips for Finding the Fat

Once you have the information you need at your fingertips, the following areas are a good place to start looking for extraneous expenses:

  1. Efficiency. What’s your process for getting from A to B? Is each document passing through 10 people when it really only requires two? Understanding your workflow can lead to efficiencies that save time, money, and manpower.
  1. Where are your best customers coming from? It’s important to measure and analyze the return on investment for your marketing efforts. Don’t forget to maximize some of the no-cost or low-cost opportunities available via social media and public relations.
  1. I read somewhere that most people use about 10 percent of any given technology’s full capabilities. If you’re paying for the technology, consider investing in some training for yourself or your staff to take advantage of its full power. In addition, there are tools that might replace traditional ways of doing things. For instance, face-to-face meetings are important, but not necessary every time. Look into online meeting technology to manage travel expenses.
  1. Accounts Payable. Turn your vendors into partners. Find out if there are incentives for paying quickly or paying in a certain way, such as PayPal. Could you pay for the year all at once for a discount? I’ve seen businesses get very good at reducing expenses by talking to their business partners and creating mutually beneficial arrangements.

State Bank of Cross Plains has an entire team of professionals ready to help you add to your bottom line. From our business banking tools to treasury management consultation, we’re here to serve as your business partner, resource, and secret weapon.

Member FDIC

Watch Your Pennies…

By Stan Koopmans, Senior Vice President – Business Relationship Manager

Watch your pennies, and your dollars will watch themselves. Watch your dollars, and your hundreds of dollars will watch themselves. Watch your hundreds of dollars, and your thousands of dollars will watch themselves. You get the idea.

The Penny Rule Makes Business Sense

I remember when I first heard the “Penny Rule” as a small boy, I thought it would be a good practice with my personal finances. After all, I was just starting to earn money as a paper boy.  A short time later, I realized the greatly expanded application of the Penny Rule during a conversation with my dad.

Driving home from a farm auction we attended, I asked, “Why did that farmer need five hacksaws?” My dad explained that the farmer didn’t need that many hacksaws, but that he didn’t keep track or take care of his tools. So when he needed to use a tool  – a hacksaw, for instance – he would just run to town to buy another. In other words, he didn’t watch his business, and because of squandering and wasting money over the years, it ended with him having to sell out in a farm auction due to too much debt.

I don’t remember what my dad bought at the auction that day. What I do remember is realizing that the Penny Rule had applications to the business world, as well.

Good Examples of The Penny Rule

It has been many years since I first heard the Penny Rule, but it still holds true. As a long-term commercial lender I have had the privilege of observing numerous great managers and owners watch their pennies when leading their businesses. For example, I have an existing customer that needs several expensive specialty tools (much more expensive and complicated than hacksaws) on job sites scattered throughout the Midwest. Every tool has its assigned place on peg boards at the main office and must be signed out. As a result, tool costs are controlled, and time and money aren’t wasted searching for existing tools or buying duplicates.

Another way to watch pennies add up is energy costs throughout the year. Money and energy saving considerations can include:

  • Occupancy sensors that shut off lights in rooms that are not being used
  • Timers that turn the heat down during the night and back up again early in the morning
  • Fuel-efficient vehicles
  • Door closers
  • Heat tape
  • Solar panels
  • and more!

Going Overboard

Can frugality be carried too far?  Absolutely. Like most everything in life, balance is essential!  If taken too far, penny pinching can be considered extreme (even bizarre) with no real buy in except for ridicule from observers and participants.

Two examples from my days as a bank examiner come readily to mind.  A former co-worker would stop his car along the road to pick up one aluminum can because there was a 5-cent rebate. Another example happened when reviewing the official minutes of a bank’s board of director meetings. Only every other page made sense because the minutes were kept on the back side of “used” paper.  This was also the type of paper they loaded into the copy machine.

So I hope you think of ways to watch your pennies, tens, hundreds, and thousands of dollars, but with proper moderation!

Member FDIC


With the cost of borrowing increasing with each Fed rate increase, leasing the equipment your business needs may make more sense than ever. This is true for two reasons; First of all, leasing equipment means no down payment, leaving more cash available to move to better performing investment options that should follow the Fed rate increases and secondly, leasing requires smaller monthly payments to help guard your cash flow if your money borrowed with a variable rate of interest becomes more costly.

The real value of your equipment comes from operation-not necessarily ownership. With owned equipment, you’re allowed to deduct depreciation and interest expense from your taxable income, but not the principal payments. And the depreciation deductions follow a schedule set up by the IRS.

With a lease, you can deduct your entire lease payment as an expense, which will allow you to write off expenses quicker. This shorter period means a larger deduction each year, lowering your taxable income and decreasing your taxes.

Lease approvals and paperwork can be available in 24-48 hours for smaller transactions. You can complete larger transactions in about a week. For more information about which type of lease is best for you, speak with your banker and accountant.

-George Ohlendorf, VP Business Relationship Manager

Member FDIC