How and When to Scale Your Business IN THIS ISSUE: TODAY BUSINESS STRATEGIES Total Money Management from the professionals at First National Bank PAID ADVERTISEMENT
Vincent J. Delie, Jr. Chairman, President and CEO F.N.B. Corporation First National Bank Over First National Bank’s 160-year history — a milestone our Company reached earlier in 2024 — we have thrived through a broad range of economic scenarios. Even amid some of the most turbulent times our industry has faced, we have grown from a rural community bank to one of the 50 largest bank holding companies in the U.S. by assets. As we will cover in this edition of Business Strategies Today, our experience positions us to support our clients’ growth through modern stresses, including the economic uncertainty that remains top of mind for business owners and decision-makers. An increased interest rate environment poses special questions for borrowers who are seeking to scale up their companies. The time feels right to take a business to the next stage, but can they afford to finance their expansion plans? Even if it delays carefully thought-out growth plans, would a wait-and-see approach to interest rates be prudent? The answers vary by the company, of course, but all businesses who have such questions should take heart that there are multiple strategies they can leverage to mitigate rate volatility. In the coming pages, we will take a high-level look at those approaches. However, growing businesses have more to consider than financing alone. They also must be sure they are ready to scale. This edition features a primer on what to consider prior to building a growth plan. Among those factors are operational updates, including upgrades to treasury management processes that are important to ensuring consistent cash flow — another topic we will explore in closer detail. As this issue suggests, when the time comes to execute a growth plan, it takes care and, often, professional assistance to add scale in an efficient, secure and cost-effective manner. FNB has the agility, experience and resources to enable entrepreneurs and executives to realize their dreams. If your business is ready for that next step, our experts are here for you. THE FIRST NATIONAL BANK DIFFERENCE First National Bank, the largest subsidiary of F.N.B. Corporation (NYSE: FNB), is a growing financial services organization with a long-standing tradition of helping our customers and communities thrive. Throughout more than 160 years of service, we have remained dedicated to providing total money management solutions for our consumer, small business and commercial clients. We have a core business concentration on middle and upper middle market companies and serve their needs as a value-added partner. MORE INSIGHT FROM FNB You can always look to FNB for expertise on the topics and trends that have the greatest impact on you and your business. In Business Strategies Today, experts from across our Company have covered a wide range of subjects, such as making the most of the economic environment, staying the course to innovation and planning for the future of your business. Just a few of the topics we’ve covered recently include: check International Expansion check Interest Rate Management check Payments Solutions check Wealth Management check Succession Planning check Cybersecurity check M&A To learn more about topics that may benefit your business, call us at 1-866-362-4603 or visit fnb-online.com/business 02
04 GROWING THROUGH CHANGING RATE ENVIRONMENTS ENABLE GROWTH BY BORROWING THE RIGHT WAY 08 06 WHAT TO KNOW BEFORE YOU GROW 10 UPGRADING TREASURY MANAGEMENT PROCESSES DURING EXPANSION FULL-SERVICE SOLUTIONS INSURANCE ▶ Property & Casualty ▶ Employee Benefits ▶ Personal ▶ Title WEALTH MANAGEMENT ▶ Trust & Fiduciary ▶ Retirement Services ▶ Investment Advisory ▶ Brokerage ▶ Private Banking Not FDIC/NCUSIF Insured Not Guaranteed by the First National Bank of Pennsylvania or its affiliates May Lose Value Not Insured by Any Federal Government Agency Not a Bank Deposit First National Bank of Pennsylvania does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. MARYLAND NORTH CAROLINA OHIO PENNSYLVANIA SOUTH CAROLINA VIRGINIA WEST VIRGINIA DISTRICT OF COLUMBIA FNB Branch/ATM FNB Planned Expansion Branch/ATM FNB Mortgage & Loan Production Offices COMMERCIAL BANKING* ▶ Corporate & Business Banking ▶ Investment Real Estate ▶ Builder Financing ▶ Asset-Based Lending ▶ Lease Financing ▶ Capital Markets ▶ Mezzanine Financing ▶ Treasury Management ▶ International Banking ▶ Small Business Administration (SBA) Lending ▶ Government Banking CONSUMER BANKING* ▶ Deposit Products ▶ Mobile & Online Banking ▶ Mortgage Banking ▶ Consumer & Small Business Lending ▶ eStore® Digital Banking Experience * Bank deposit products and services provided by First National Bank of Pennsylvania. Member FDIC. Equal Housing Lender. 03
04 ENVIRONMENTS CHANGING RATE GROWING THROUGH FNB-ONLINE.COM
Whether you are looking to maintain your existing position or efficiently grow your business, effectively managing your balance sheet is a good place to start. Make sure you stay aware of how and where your overall financial picture and business plan could be sensitive to changing rates and different levels of inflation. Finding areas to optimize operating expenses and exploring opportunities to refinance and/or consolidate debt obligations can offset exposure to rate volatility and reduce some uncertainty in your forecasting. It is important to know, too, how the existing economic conditions are impacting your clients and customers. For example, a building company may need to raise their pay as a direct result of inflation. That same company may also feel the impact of rising construction costs, which contribute to a slowdown in overall activity and available projects. Understanding how this scenario could also play out with a cooldown in inflation and lower rates is part of a prudent business management strategy. Borrowers may have a tendency to consider the cost of debt before thinking about the financing instruments that are available to their business. For more on capital and lending strategies tailored to meet the unique needs and goals of your business, see “Enable Growth by Borrowing the Right Way” on page 8. Call 866-362-4603 to talk with an FNB representative about your company’s near- and long-term plans. With varying guidance and projections on what could be next for the markets, business owners and executives are left wondering about what type of economic environment they should be preparing for in the time ahead. Fortunately, there are steps that businesses can take to mitigate risk as they work to manage their overall financial picture. Amid falling rates, the temptation may exist to “ride out” rate drops to secure financing at a more favorable cost, especially if there is a chance credit availability may expand while you are working to grow your business. For some businesses, the wait-and-see approach may be feasible. For those who need financing more immediately, an interest rate hedge can lock in a lower rate for a fixed term. In the case of an inverted yield curve (where long-term interest rates are lower than short-term rates), hedging can also provide immediate savings to your company and mitigate risk associated with variable terms. When rates start trending lower, it may almost seem counterintuitive to lock in a rate when financing is getting “cheaper” over time. Consider, though, that the fixed rate you lock in with your hedge can account for market projections on future rate activity, increasing the likelihood that the cost of your debt remains favorable over time. Conversely, when short-term rates are low with a normal yield curve, hedging can still be a viable option if you do not want the unpredictability that comes with a variable rate. While the cost of swapping a variable rate for a fixed rate will come with a higher premium in this scenario, it also provides more predictability for your business’ cash flow. This can be especially beneficial when you are securing capital to support growth activity and need to control expenses. Talking with your trusted financial partner, like your banker, can help you stay on top of changes that could impact your business. FNB is well-positioned to assist new and existing clients in any economic environment with strategies and guidance that enable your company to grow now and into the future. 05 BUSINESS STRATEGIES TODAY • SPRING 2024
WHAT TO BEFORE YOU KNOW GROW +++ 06 FNB-ONLINE.COM
Expanding a company can bring excitement and uncertainty. A detailed business plan and comprehensive due diligence will be integral in determining if the time is right to expand. For any business that desires to grow operations, here are some important factors to consider and questions to ask yourself and your advisors as you formulate your strategy. 07 Call us at 866-362-4603 to get started. + + ▶ Stability and consistency are key. Does your business have a sustained run of success in different economic climates, or is your strong performance more recent? Lenders will closely examine historical financial performance and how that may correlate to future success. ▶ Know the competitive landscape. Ensure you have conducted thorough market research and analysis to understand the existing challenges and opportunities associated with the markets and/or products and services you are adding. ▶ Explore financing options. Your company’s performance, existing debt and term requirements can determine the various traditional and alternative forms of financing that may be available to you. The more detailed your business plan, the better prepared your banker will be to assist you in designing and securing an appropriate financing package. See “Enable Growth by Borrowing the Right Way” on page 8 for more on financing strategies to support expansion. ▶ Understand the impact of changes in ownership structure. Adding partners can be an option for injecting equity into your company, but also may come with different legal and tax implications. Be sure you fully understand those elements before finalizing any changes. ▶ Unlock value in your assets. Depending on your industry, leasing can be an effective way to free up working capital while maintaining access to the equipment you need. Learn more about FNB’s equipment financing solutions at fnb-online.com/equipment-financing. ▶ Anticipate additional expenses and time. Compensation and benefits packages for new staff to accommodate growth, as well as the additional equipment and resources that might be required when adding new services, can substantially impact your bottom line. Also consider the money and time that will be spent acquiring new customers and building new business relationships. If you are moving to a new space or building a new facility, account for potential construction delays or unforeseen issues that could arise during a renovation. ▶ Maintain cash flow. Interruptions to your regular business activity could impact revenue and slow or halt expansion efforts. Develop a plan that specifically addresses how your current operations will continue in conjunction with your growth tactics. ▶ Minimize client disruption. Eroding the confidence of your current customer base could be detrimental to your long-term success. Maintaining customer loyalty is critical for your revenue stream and for successfully introducing your business to new clients, customers and markets. To support existing staff, you will need a well-thought-out plan for prioritizing growth efforts along with daily responsibilities to ensure your business can operate without issue. ▶ Evaluate vendor and partner relationships. If your external partners do not have the capacity to meet your expanded needs, now is the time to begin exploring new or additional partnerships so that you have the necessary resources available at the appropriate time. ▶ Manage your corporate culture. Keep your company culture top of mind with a plan to build and maintain your employee experience. Consider how new employees, especially a substantial number joining in a short period of time, can impact your internal culture and overall workplace environment. Having a trusted team that includes your banker, attorney and accountant is vital in helping you navigate expansion and successfully grow the business you have worked so hard to build. At FNB, our diversified lines of business and local bankers have the knowledge and expertise to help you and your company take the next step. BUSINESS STRATEGIES TODAY • SPRING 2024
ENABLE GROWTH BY BORROWING THE RIGHT WAY FNB-ONLINE.COM 08
That variability, however, points to an important piece in the business growth puzzle, one that all decision-makers should keep in mind: capital and lending strategies must be tailored to individual business needs. Scaling up often entails funding multiple elements unique to a business’ goals, such as new warehouse space, heavy equipment additions, expanded IT infrastructure, new vendor contracts or workforce increases. Relying on the same products or leveraging too heavily with a single lender to pay for those items can prove costly and hinder growth in the long term. But consultation with financial professionals can illuminate how to borrow the right way. Borrowing strategies and products to consider for scaling small- or medium-sized businesses: SENIOR DEBT: This is a firm’s highest priority debt, normally secured with a lien against a form of collateral, and it is the debt a business must pay off first if it enters bankruptcy. The primary advantage is the debt usually has a lower interest rate and carries less risk, which lenders also appreciate. MEZZANINE FINANCING: As a more flexible product, mezzanine financing may be perfect for an established company looking to fund a project with a short or medium time frame, such as an acquisition, buyout or ownership transition, or expansion, or for a company that does not yet qualify for senior debt. As a blend of junior, or subordinated, debt and equity co-investment, mezzanine loans provide funds that are secondary to other forms of lending, so the terms are typically longer than senior debt. SBA LENDING: These loans often are used to get a new venture off the ground, but they also can be leveraged as a business begins to grow. For organizations that qualify, these loans can provide favorable rates and terms to fund acquisitions, expansions, commercial real estate purchases, construction and more. EQUIPMENT FINANCING: Depending on the business, expansion may require new vehicles, heavy machinery or any of the wide range of equipment used to keep operations running smoothly. Specialized equipment loans or leasing programs can bring advantages over traditional forms of borrowing with flexible terms that match specific needs. Leasing, in particular, carries the benefit of freeing up cash by spreading out the cost of expensive equipment and avoiding long-term maintenance costs on equipment that may become obsolete. INTERNATIONAL SOLUTIONS: For businesses expanding operations into foreign markets, rules and financing tools become more complicated. Letters of credit assure creditworthiness when dealing with international sellers, multicurrency loans simplify banking relationships and shield companies from foreign exchange market fluctuations, and certain loans supported by the federal government can help establish overseas subsidiaries. As these examples highlight, there are right-fit financing solutions for any business in position to scale. Discovering and determining the best tools to make a business’ growth objectives a reality is a challenge, but experienced capital advisors and financing teams will enable organizations to find the path to success. When it comes to scaling a business, there is no manual or step-by-step process that anyone can just pick up and follow. Industries vary, reacting differently to evolving economic conditions; the same goes for geographic markets. Larger businesses may still be faced with a tighter-than-normal lending environment for traditional forms of financing. Based on size, credit history, performance, revenue and risk appetite, among other factors, sophisticated businesses may consider alternative strategies, such as bond financing — issuing bonds to investors and repaying them with periodic interest payments until the bond’s maturity date. This form of financing can provide predictability and consistency when used as a longterm, fixed-rate debt instrument. Another option for larger companies is syndicated lending, a specialized financing instrument that brings together a team, or syndicate, of banks to meet large financing requirements. As each institution provides a portion of the funding, one bank serves as the syndicate agent to administer the loan with one set of rates and terms. CONSIDERATIONS FOR LARGER COMPANIES Learn about FNB’s successful work in assisting businesses with SBA Loans at fnbsmallbusiness.com. Connect with FNB’s experts at 866-362-4603 to learn more about these options. 09 BUSINESS STRATEGIES TODAY • SPRING 2024
E X P A N UPGRAD I NG TREASURY MANAGEMENT PROCESSES DURING 10 For many businesses, expansion can be costly and complicated, particularly when interest rates are high. Expanding into new markets, adding employees, handling an increased number of transactions and managing more sophisticated relationships with vendors and financial institutions can all contribute to the challenge. As a business faces the prospect of taking on a large amount of debt, one solution to offsetting expenses is maintaining a consistent cash flow. FNB-ONLINE.COM
S I O N However, sustaining cash flow levels during expansion can be complex. In the early stages of a business’ lifecycle, particularly when financial paperwork is largely limited to simple invoices and collecting checks, the basics of managing cash flow and duties related to the company’s financial health, or treasury management, may be performed as part of an owner or employee’s regular responsibilities. As the business grows, the bandwidth required to handle such work expands, meaning one person or a team might need to be dedicated to treasury management. Additionally, modern solutions, such as digital platforms provided by financial institutions that manage electronic transactions, are available to analyze cash flow and automate certain processes, driving the efficiency that becomes exponentially more important to a business as it grows. Automation, when executed properly, can cut down on “busy work” and enable employees to focus on more impactful duties that require critical thinking and close attention. It also can foster enhanced security and accuracy as transaction volume increases. Regardless of how an expanding business approaches treasury management processes, there are some points to keep in mind. MORE THAN COLLECTIONS A new business owner may not yet be a business expert, instead holding proficiency in the firm’s industry, but one lesson to learn early is that treasury management involves more than sending and receiving invoices and balancing a checkbook. Additional tasks include financial information reporting and analysis, forecasting cash flow, setting accurate budgets, managing escrow accounts, creating payment schedules to lenders and vendors, and more. Implementing digital platforms and automated systems, as well as collaborating with financial professionals, can streamline and consolidate these processes. COMMUNICATION IS KEY If your payment options are expanding or shifting to a more efficient online portal, are your customers and vendors aware? Connecting with customers about changing processes is crucial to sustaining cash flow consistency. For example, while digital payments are convenient and faster to process, unless you clearly share news about their availability through your known communication channels — along with necessary actions to engage with a new platform — there are likely to be delays. OFFER A PREMIUM EXPERIENCE Today’s storefront is a home page. Many prospective customers — whether they are seeking T-shirts or dental services — visit a website before stepping through the front door. With buying habits changing, expectations are for businesses to have a professional-looking website, a comfortable user interface and, certainly, an easy-touse and secure payment portal. Digital platforms can also provide more customized and sophisticated invoices that meet unique customer needs and enable a business to showcase value. A subpar online experience, much like a drab storefront, can deter visitors before they even engage with a business’ services, regardless of their quality. WHAT TO ASK During an expansion, a business may be focused on “big-ticket” items, such as new equipment or new locations. Largely behind-the-scenes processes like treasury management might be an afterthought, but they are key to maintaining cash flow, building efficient and safe internal operations and succeeding with customer retention during a transition. Decisionmakers must continually ask themselves what their cash flow needs are, whether they have the infrastructure to manage increased cash volumes, and whether customers are being adequately informed of upcoming changes to payment procedures. FNB’s Treasury Management team guides businesses to those answers and has a full suite of services to create a more organized workplace. TIPS FOR FORECASTING YOUR CASH FLOW Differing from a budget, a cash flow forecast is focused on projecting the amount of cash a business will have coming in and going out — and when. Amid periods of growth, it is especially important to understand this projection and identify expected changes or potential problems. Some tips when building a forecast: ▶ Don’t plan too far ahead. Forecasts become less exact and murkier the further out you go. Set a time period you can confidently project, or complete multiple forecasts that consider short-term and longerterm estimates. ▶ Account for tax payments and anticipated refunds. ▶ Remember annual payments, such as insurance premiums or subscriptions. ▶ Is your business activity seasonal? Recognize those fluctuations. ▶ Consider how new treasury management platforms change the timing of payments and collections. Learn more about FNB’s products and services or schedule an appointment at fnb-online.com/business. 11 BUSINESS STRATEGIES TODAY • SPRING 2024
160 Years Serving Communities Branches Across 7 States and Washington, D.C. Globally Recognized Digital Platforms Leader in Client Satisfaction for More than a Decade Top-Ranked Workplace There’s strength in numbers. 1600 ATMS More than TOP 50 100+Excellence and Best Brand Awards SINCE 2011 Nearly $46 billion Approx. $35 Billion in assets In DEPOSITS Largest U.S. Bank Holding Companies by total assets Coalition Greenwich Approx. 4200 EMPLOYEES Approx. 350 Branches President’s “E” Award for Export Service EQUAL HOUSING LENDER | NMLS #766529 | MEMBER FDIC Since our founding in 1864, FNB has been empowering businesses within our community to do more. We offer a broad array of sophisticated products and solutions, local expertise and excellent customer service to help businesses of all sizes achieve their goals. And with our superior capital position and experienced management team, FNB has the strength and stability to be there for our clients today, tomorrow and through all economic cycles. To learn — and get — more for your business, visit fnb-online.com. Data as of April 23, 2024 FNB10-262
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