As I write this article I find myself contemplating the boos and hoorays of last night’s town hall meeting in Gillette.  Senators Barrasso and Enzi both participated as well as a very good panel made up of several knowledgeable folks including our own Dan Perdue from the Wyoming Hospital Association. Last week Congressman Lummis also held a town hall in Gillette and took on tough health care questions. Initially I think it is important that we give kudos to all of our national delegation for their willingness to participate in town hall meetings across the state.  It may seem like a given that politicians listen to their constituents (all of them both Ds and Rs) but over the Congressional break, many elected officials across the country have chosen to hand pick their town hall attendance or just not go at all.  We have a unique environment in Wyoming which I believe celebrates democracy through its practice and not through lip service on the topic.

Health Care is a tough issue and there is a lot of emotion on both sides of the aisle.  Senator Enzi has been a diligent worker in the face of a very liberal committee to work on the issues important to us both as citizens and as businesses.  The decisions that are about to be made will certainly impact our nation for generations to come.  First let’s discuss some items on which we all agree.  We all know that we need some reform.  The chamber talks to a wide constituency from health care providers to small businesses to major corporations to attorneys to health insurance companies to concerned elderly and even single moms who walk off the street to register their concerns.  Everyone agrees we need reform of both health care and the insurance and legal systems that interact with health care.  There also seem to be some universal principles folks from all of these groups agree on including 1)  seamless coverage system for all citizens,  2)  control of escalating costs,  3) system with less bureaucratic red tape, and 4)  increased and timely access for all patients.   The question is “How do we achieve these goals?”

The answer to achieve these goals has come in two very different forms.  The first answer that has been floated in both house and senate bills has been the supposition that the only way to solve the current issue is to create a government plan (called the Government Program Option).  The second idea has been to overhaul the existing system by using some government underwriting but concentrating on the revision of the free market system to utilize competition for the solution.  The Public option has precipitated chambers across the country, including the Cheyenne Chamber, to band together through the CAHR (Chamber Alliance for Health Care Reform) to fight for a more business-friendly solution.  The causation of our decision is based on some of our most fundamental beliefs as an organization.  The first reason for push back from the public option can be illustrated in the form of a question, “Can you name a time where more government intervention and bureaucratic red tape has made your life better?”  I am guessing for most of you the answer is a resounding no!  Think of it like this, 40 years ago most everyone involved was happier with health care including doctors, patients, companies, insurance companies, etc.  Since that time a steady stream of regulation has weighed on the system until now 20-30 percent of every health care dollar spent goes to management of paperwork and legal wrangling. 
What is our answer then to this most regulated of industries?  Insert a massive amount of government intervention and regulation to solve the problem.  We are going to try to solve a problem all agree has been caused partially by poor government oversight by greatly expanding the amount of government oversight.  There is an old saying that the definition of insanity is doing the same thing over and over again and expecting a different result.  It seems as though some of our solutions certainly are trying to test this theory.  The government option does take many decisions out of the hands of patients and doctors and puts them in the hand of government, it will increase cost shifting (already 1,800 dollars per family) and will put a tremendous work force challenge on an already taxed medical provider community. 

A solution must be found to the health care challenge but it must be a solution that celebrates capitalism and minimizes government expenditure for the program.  A few things that business must stand firm on regarding the solutions at hand are 1)  do not support a program that unravels coverage for 160 million Americans.  We have heard a thousand times that we can keep our existing coverage, but the current bills do not reflect this in their verbage, and this is a huge problem.  2)  We must not have a solution that further slows health care delivery and rationing for the young and old. It is not an acceptable solution to solve slow system delivery.  3)  No solution should increase federal debt, federal deficit, or increase tax burden.

We have a very challenging task to reform health care.  We must include every American in the discussion.  Americans who are rich, are poor, are liberal, are conservative, who live in large urban areas, who live in rural areas who are Democrats and who are Republicans must be invited to the table for the discussion.  The problem is one that demands the best in us as Americans and we must demand that the partisan bickering in Washington that has clogged the ears of common sense come to an end immediately.

I would encourage you to review the bills on the topic.  Although I would not expect you to read the thousands of pages in detail, I do think it is incumbent on each of us to garner the truth about what is being proposed through review.  I have read much of both the Senate and House versions and have learned a tremendous amount about what politicians think of our people.  The chamber has passed a resolution against the Public Option for health care, and we believe it is the right decision to push our country toward a more “healthy solution.”  If you have questions about the resolution and would like to know where to find copies of the proposed bills, please let us know.  The faith in our country’s founding principles and civil discussion of how these principles impact the future of health care are the catalysts that will drive us to a solution that will improve life for all Americans for generations to come.

Ronald Reagan stood in front of the Brandenburg Gate and said, “Mr. Gorbachev, tear down this wall.” The statement was the ultimate result of a strategic arms race that out-spent, out-maneuvered, and out-strategized the former USSR. It was the ultimate conclusion that peace would be obtained by the idea that freedom and democracy were inalienable rights for all mankind, and that those ideals, leveraged with the ultimate fighting force would make the world a kinder, gentler, and more peaceful place.

Fast forward more than 20 years. The debate is raging over the actual role that the US should play in maintaining peace around the world. More fundamentally, we are doubtful that those ideals of freedom and democracy are universal at all and perhaps there are some countries and cultures that are not prone to these ideas.

Cheyenne, Wyoming is far removed from most of the philosophical pondering and political maneuvering that is surrounding this discussion, and yet our community plays a pivotal role in the outcome. The center of the peace through strength dilemma is the 3rd leg of the strategic triad known as the ICBM force. Everyday, men and women from Warren AFB maintain and manage this force ensuring that it is ready for deployment 24 hours a day, 365 days a year. The ICBM force has been an important part of the peace through strength proposition for more than half a century and is a critical component for military success yet today. Recent discussions have challenged the validity of the ICBM force in the US. July 8 will bring a renegotiation of the START treaty which will ultimately decide the fate of ICBMs and their strategic role in the US military. QDR (Quadrennial Defense Review), NPR (Nuclear Posture Review), and a herd of other governmental boards and agencies will decide the fate of nuclear weapons and the balance of bombers, ICBMs, and SLBMs.

Response to the challenges of our nuclear force has been concise, clear, and consistent. Senators Enzi and Barrasso, Representative Lummis, and Governor Freudenthal have all worked to ensure a strong future for the ICBM mission. These elected officials in conjunction with the MAC and Wrangler groups here at the Chamber, are spreading the word about the importance of our leg of the triad. ICBM’s have many advantages in today’s current political climate. ICBMs are safer and more cost effective than any other form of nuclear weapon. They are stationed on American soil and they have provided an effective deterrence that has not been challenged in more than 50 years.

Peace through strength has been a successful deterrent and stabilizing force for the entire world. It has been a consistent thread of America’s success 150 years before the first Nuclear weapon was conceived. In today’s political climate, it seems more important than ever to maintain those policies, practices, and systems that have made us the greatest country in the history of our planet.

Always be sure to thank all of our men and women in uniform for their service to our great nation!

As Americans, July is the month best known for celebrating Independence Day and remembering those things that makes our country great. In Cheyenne, we’re fortunate to have a chance to celebrate our western heritage, which has played a significant role in making America the country it is today.

For many of us, Frontier Days is the apex of the summer season, a chance to host out of town friends and relatives, and an opportunity to indulge ourselves with world-class rodeo, parades, and entertainment.

The roots of Cheyenne Frontier Days go back to 1897 when a fine gentleman from the East had an idea that Cheyenne should put on a celebration that would represent the abilities of individuals to ride horses just off the range. This idea was met with enthusiasm by Col. Slack and Mr. Richardson who gathered a group of business owners to create the birth of Cheyenne Frontier Days. The first CFD lasted only hours of one day and was deemed a success.

The Board of Directors, General Committee, and staff personnel are truly honored to be a part of the show, but the real focus is directed to those who give so freely of their time and talents each and every year to make this event what it is today. These dedicated people come from all walks of life and from all over the country just to be a part of Cheyenne Frontier Days.

The Chamber of Commerce is extremely proud of the close relationship we have with Cheyenne Frontier Days and remains committed to playing a role in its success. As Chamber members it is important to remind ourselves how vital Frontier Days is to our local businesses and the economy in general. We encourage all Chamber members and citizens to embrace this unique western celebration, and make our out-of-town guests feel at home in our community.

There is no better way to kick off your Frontier Days celebration than to attend the Chamber of Commerce July Luncheon, which will be held this year on Friday, July 17, at Frontier Park. The Chamber of Commerce welcomes both members and non-members. You may call the Chamber of Commerce at 638-3388 for more information.

If you have a little extra time after lunch, you may want to get a jump on the week by spending the rest of the afternoon at Frontier Park.

Have a wonderful July, a fantastic Frontier Days celebration, and be sure to take advantage of all that your Chamber and the community have to offer.

The Cheyenne Chamber is advancing with its advocacy efforts at all levels of government. The past months have been demanding, to say the least, with challenges to businesses both large and small at all levels of governmental activity. May was a flurry of activity with a delegation from the Cheyenne Chamber and the community going to Washington to advocate for issues ranging from military affairs to community beautification.

The millions of dollars in stimulus money that have been dolled out created the perception that worthwhile community projects are easier to fund than ever but the reality is one of a very tight governmental system that smiles on urban areas and concentrates on immediate social needs rather than the infrastructure and programs that can prepare our communities for continued growth. Wyoming is lucky, we have elected officials that fight for the needs of the state but also have the realization that there should be limits on the amount of our federal spending. We have been working on the Stimulus package through our Wranglers program since last fall and we have been fortunate in the projects that have been funded. Millions of dollars of stimulus have poured into FE Warren AFB, the Wyoming Guard, road projects etc. The program has provided a limited amount of funding to needed infrastructure. Challenges to Wyoming and other rural states come at every turn as an urban dominated political environment looks to large population centers first. It is a quite a challenging environment to do business in even for the most politically astute among us.

Into this challenging and complex environment our delegation from Cheyenne went armed only with the belief that a group of people banded together through a common cause can achieve much through our system of democracy. We are grateful to have had meetings with all of the Wyoming delegation on our trip. You can imagine that in today’s challenging political/economic climate that elected officials are extremely busy but our delegation always graciously takes a few minutes of their valuable time to meet with us. This trip to DC was highlighted by one project, the funding completion of the Squadron Operations building for the Wyoming Guard. The building has been an important centerpiece for us because it allows unprecedented development and sustainability for one of the most highlighted programs with them, the active associate program. It was great news for us to hear that our delegation is committed to making this building a reality for us and that the documents needed to secure the funds were in process. The funds are not in the bank yet but it was great news to hear that there was positive movement on the project.

The Chamber draws its strength through the federation of businesses and individuals that are our members. It is our honor to advocate for the needs of capitalism in our community not just for the sake of our members but in reality for the sake of the whole community. Business survival and prosperity are the crucial cornerstones for the advancement of quality of life for our citizens and the building of a positive future for our children. Business success equals success of the community so the Chamber diligently advocates business and military issues at all levels of our governmental system.

Dr. Robert L. Lanier has been practicing medicine in the areas of hematology and oncology for 32 years in Cheyenne and is being featured as July’s Business of the Month. Oncology is the branch of medicine dealing with tumors and cancer, and hematology is the part of medicine concerned with the study of the blood-forming organs, and blood diseases. Cheyenne Hematology and Oncology Services “specialize in the diagnosis and treatment of cancer and blood diseases” and the goal of the dedicated team there is to help people get well and stay well.

As I entered the Cheyenne Community Cancer Center on 17th Street, my vision was instantly attracted to the various decorations that adorned the walls and shelf space in the comfortable waiting area. I was told that many pieces of décor in the office were created and/or donated by patients over the years, some celebrating survivors and others a tribute to those who succumbed to cancer. Certainly this is a genuine testament of the caring medical team working with Dr. Lanier. Elizabeth “Betsy” Lanier, the doctor’s wife of 20 years, is the Practice Manager. There are four employees at Cheyenne Hematology and Oncology Services P.C., and all of them have been with Dr. Lanier since he created his private practice in 2001. Carol Tafoya is the nurse, and she sees roughly eight to ten patients each day for their treatment needs. Cathy Rowe is the registered medical technologist. The pleasant appointment secretary is Gail Fibranz, and Sue Biggerstaff is the transcriptionist. When speaking with this team, the feeling I got was much more like having a relaxed visit with a tight-knit family than being in a sterile doctor’s office.

Dr. Lanier was raised in Littleton, Colorado, and before coming to Cheyenne in 1977, he attended the University of Colorado for both undergraduate work and medical school. He performed his internship and partial residency at the University of Kentucky. Following two years of service at the Richards-Gebauer Air Force Base in Kansas City, Missouri, during the Vietnam Era, Dr. Lanier completed his residency and fellowship at the University of Kansas. His residency, or specialty training, was in the area of internal medicine where he chose hematology as his more specialized fellowship study. Hematology and oncology go hand-in-hand, and Dr. Lanier stated he has always been interested in the field because hematology deals with cancer issues in both the scientific and humanistic parts of medicine. Dr. Lanier worked with Internal Medicine Group as his original practice in Cheyenne for 24 years until establishing his own private practice.

I received some education while I was at the Cancer Center, not knowing much more about blood disorders or malignant tumors than the simple fact that the word “cancer” can make a person’s heart pause momentarily just upon hearing it. Approximately 40 percent of the patients Dr. Lanier treats have a benign disease. Anemia is the most common one, which is a low red cell blood count. Polycythemia refers to having too many red blood cells or too little plasma. There are also white cell and platelet diseases. Of the 60 percent of individuals having malignant (or cancerous) diseases treated by Dr. Lanier, chronic leukemia is the most prevalent, followed by lung and breast cancers. There is a continuum of severity with leukemia, which is an uncontrolled growth of white blood cells. The mainstay of treatments for patients with these and other cellular or blood related illnesses include oral and intravenous medications to chemically change the growth patterns of blood cells, transfusions to provide additional blood and platelets, periodic phlebotomies to remove excess blood, radiation therapy for concentrated or localized cancer cells, and chemotherapy. The latter lowers the white blood cell count; this treatment is typically used for lung, breast, and colon cancers. Some blood testing is done on site at the Cheyenne Community Cancer Center, and some analysis of lab work is done at Cheyenne Regional Medical Center (CRMC). Although quite a bit of treatment is provided at Dr. Lanier’s office, transfusions are ordered through CRMC.

Dr. Lanier shared exciting plans (still in the early developmental stages) for the future with the hospital and Its physicians. He is helping to form an integrated cancer treatment center for the region. The intention is to have a separate building where all hematology and oncology services are integrated for diagnosis (lab work, x-rays, etc.) through treatment. Perhaps in two to three years Cheyenne will see the benefit of this cooperative project for improved health care for people with cancer and blood ailments.

Dr. Lanier stated he is happy to be in Cheyenne and is optimistic about the future of the city and medicine. He is excited about the possibilities for improved medical care for the community.

Around Cheyenne would like to thank Dr. Lanier and his team for the caring services they provide to our citizens. We are honored to recognize you as July’s Business of the Month.

If you think crisis situations only occur to corporate giants, you are blind to reality and putting your business at risk. Take your head out of the sand and read the newspaper or watch the news. You’ll quickly see that a crisis can strike any business, large or small. When the tornado hit Windsor, CO, recently many small businesses were impacted immediately. Crisis can take many forms from natural disasters to industrial accidents or from a devastating fire to an environmental incident. Without warning, you and your firm could be thrust into a crisis situation with loss of revenues as well as unwanted newspaper headlines or television coverage.

In reality, smaller firms are typically more susceptible to crisis situations because they don’t have the professional staff and expertise to spot a potential problem area or situation and deal with it before it develops into a crisis. Likewise, smaller firms may not possess the insurance coverage or have the financial resources to recover from the financial impact of a crisis.

According to the 2008 Annual Crisis Management survey by the Institute for Crisis Management, headquartered in Louisville, KY, crisis management events created by outside forces only account for 18% of the total while executive and management are responsible for more than half of the crisis situations and employees the remaining 31%.

“While crisis situations appear random and sudden, it’s the failure to recognize problem situations and accept their probability of occurring that puts companies of all sizes in jeopardy. Two-thirds of all business crises are what we call “smoldering crises,” the kind of issues and problems that start out small and could be spotted and fixed before they get big enough and out of control. Companies need to take a proactive stance and use forward-thinking crisis management planning as a positive tool to manage their business,” stresses Larry Smith, president of the Institute for Crisis Management.

Here’s some tips to help prepare your business for crisis situations. The first step in a successful management program is a thorough review of your business and operations. Brainstorm the five worst possible events that could damage your company and plan how best to handle each particular disaster. Don’t consider only your own expertise. Talk to others in your industry or contact trade groups to tap their expertise and knowledge. Crisis management consultants can get you headed in the right direction. They suggest undergoing periodic audits to make sure you are still on track.

After you put crisis prevention and control procedures in place, check to see if they are functioning as planned. For example, if your operation is particularly susceptible to fire, such as a food operation with hot ovens and open flames, you should make regular inspections of alarm systems and equipment such as fire extinguishers to make sure they are in their proper locations and fully operable.

You need to take the next step also, communicating with your employees about the importance of crisis control and instructing them on crisis control procedures. It does no good to have fire extinguishers on hand if your employees do not know where they are located or are not instructed on how to use them.

“First and foremost, you need to acknowledge the crisis versus going into a denial mode,” advises Bill George, professor of management practice at Harvard Business School, former chairman and CEO of medcial technology company Medtronic and author of 7 Lessons for Leading in Crisis (Jossey-Bass, 2009).  George advises, “create a culture of candor by being open and transparent. If you don’t know the extent of the crisis say so. Don’t pretend everything is under control when future events will prove otherwise.”

Professor George’s book is a must-read for any business owner. It’s concise and offers a wealth of information backed by real life examples in a concise format. You can read it in one afternoon and derive years of benefit from its succinct advice.

Likewise, Smith advises being upfront with the media, truthfully answering all questions. “Make sure you appoint a company spokesperson to handle the media and public relations effort in order to keep the public and other interested parties properly informed. Tell it like it is and respond to all media calls immediately. The first forty-eight hours are crucial in a crisis situation. In addition, you have to consider all of your audiences (employees, vendors, customers, the public, your banker) and how best to communicate with them. It’s important to remember the media is not the audience, it is the conduit through which you can reach your audience.”

Crises do occur, and the best way to alleviate their impact involves preparing an effective crisis management program. With careful planning and implementation, the human, emotional, and financial costs of any disaster can be greatly reduced. Protect your business investment with a well-crafted crisis management program.

In the April 2009 issue of Around Cheyenne, we tackled the sole supplier scenario. This month we take a look at the importance of savoring your suppliers. Astute business owners understand the value of dependable suppliers and how developing strong supplier relationships fits into your strategy of building a successful business.

In order for a supplier to qualify as a good business partner, it must have the capability to deliver the right product/service at the right price and at the right time. Two out of three factors just doesn’t cut it. A supplier offering the right product at the right price but who delivers too late for you to take advantage of your targeted marketing is of no use to you. In fact, the late delivery most likely costs you sales and profits. Likewise, purchasing from suppliers whose products and delivery schedules match your marketing efforts, but whose prices are too high, leaves you with reduced sales and hard-to-move inventory.

Each business owner must determine which combination of product/service, price, and delivery schedule fits his or her business goals. Once you find suppliers who can provide the right combination, it’s time to turn to other aspects of the supplier relationship.

Effective communication should be near the top of your list as a great tool for building mutually profitable supplier relationships. The better your supplier understands your line of business, your goals, and your problem areas, the less time he or she will waste “selling” and more time will be spent assisting you to develop your business and achieving your goals. After all, if you are successful, your supplier will be more successful.

Not only should your supplier be familiar with your business, you should make yourself familiar with the supplier’s business. Ask your sales representative for a tour of the supplier’s plant or other facilities. This can benefit you in several ways. It builds a personal rapport between you and suppliers. People tend to respond better to people they have met in person and who have expressed an interest in what they do. You are no longer just a voice on the other end of the phone. You become a real person with similar interests.

The next time you call to clear up a billing problem or inquire about a new product, you should receive more personable service. I can attest to the importance of personal visits. When I first began my writing career, I made it a point to visit editors in New York, Chicago, and California (my main markets). I know this generated a lot of assignments that would not have come my way if the editors had not met me in person.

Visiting your supplier’s operations gives you a good feel for the firm’s capabilities to solve your problems and meet your product/service needs. The sales rep may talk a good game, but may or may not have what it takes to deliver for your business as you grow. While your current delivery schedule may meet your needs, a disorganized supplier warehouse and sloppy workforce may point out potential future problems in terms of delivery and product quality. Your tour may also trigger discussions about better suited supplier products that your sales rep has not brought to your attention.

Expand your options by benefiting from your suppliers’ expertise, experience, and knowledge. Weigh each suppliers’ suggestion carefully and make an informed decision as to its merits. Tap each of your suppliers’ expertise and put it to use to improve your business. Bolster your market intelligence by reading industry periodicals which target providing timely information on new products and industry trends, as well as innovative marketing and pricing strategies.

Your supplier also represents a free source of business intelligence on market conditions, new products and services, overall industry trends, and even actions being taken by your competitors. For example, you may have a preference for one product brand that you sell, but industry data may reflect that another brand outsells your preferred brand in your market area. As a result, you may be hampering your own sales by putting your personal preference over that of your customers. A switch to the more popular brand can boost sales and reduce slow-moving inventory, all adding to your firm’s bottom line.

You and your supplier can both benefit from open communication and exchange of information. Consider forging strong supplier relationships as a cornerstone of your business.

Last month I discussed liquidity ratios and their importance in the monitoring and managing of your business. This month, I will delve into other key financial ratios that will help build good banking relationships. As mentioned before, financial ratios are useful barometers for comparing a company’s financial condition and performance results to those of other companies, industry norms or previous years’ results to help determine trends, and point out problem areas before they become critical or even fatal to the success of business.

Undoubtedly, the most important economic gauge of a firm’s financial pulse is cash flow. Without an adequate cash flow, business will be unable to pay trade creditors, repay bank loans, and will eventually be forced out of business. (For an in-depth coverage of cash flow see the Managing Cash Flow--Your Firm’s Lifeblood article in the January 2009 Around Cheyenne issue.) From a banker’s perspective, too many businesses fail to take an active approach in managing their cash and keeping track of key financial ratios.

To be safe, your banker will monitor your key financial ratios. Your banker is as interested in your business success as you are. If you are successful, the bank will get its loan back…with interest; however, if you fail, the bank runs the risk of losing its entire investment in your firm. Don’t think of your banker simply as a source of funds; consider him or her as a crucial business partner. If you develop your banking relationship properly, your banker can become one of your most valued advisors.

Your banker can be an important source of new business contacts, can help you steer clear of potentially shaky clients or business deals, and be an invaluable source of economic information. Best of all, unlike most other consultants, your banker’s advice is free. If you are experiencing financial or operating difficulties, your banker may have contacts with specialists who can help turn your situation around.

Keep your banker informed on important aspects of your business by scheduling regular meetings and giving him or her copies of your financial ratio analysis reports with charts, calculations, and a discussion of the trends. If your banker is aware of your financial plans well in advance of your need, you may be able to structure financing deals to your advantage in terms of interest rates and repayment schedules.

Remember, a banker who understands your business and the nature of the industry you serve is more likely to support you during the down cycles of your industry or the economy in general. With the current economic downturn, you can be sure bankers feel more comfortable lending to businesses they know something about and owners whose judgment they respect. By providing your banker with your financial analysis reports and projections, you prove to him or her that you are an active manager of your business and have carefully analyzed the market and the options open to you. Demonstrating your ability to manage is definitely a plus when your loan officer considers your loan request. Likewise, if he or she has to present it to a loan committee, the more information you have provided the better he or she can represent your interests and obtain the loan you need. It’s important to cultivate a good banking relationship and keep your banker apprised of the financial health of your business.

The following operating statistics should provide insight on your business for both you and your banker. The gross profit on net sales ratio reflects whether the average markup on goods sold will cover expenses and contribute to profits. Tracking this ratio over a period of time shows you whether or not your overall profitability is rising or declining. To calculate the amount of the gross profit on net sales, divide net sales by cost of goods sold.

The operating income ratio excludes extraordinary items, such as profit or loss on sales of excess equipment, and shows the profits resulting from the ordinary conduct of business. It measures your success at managing your business’s main revenue and expense activities. To calculate this ratio, divide operating income by net sales.

The operating expense ratio shows how well you are controlling expenses in relation to changes in sales activity. This ratio is determined by dividing total operating expenses by net sales. The higher the ratio, the more sales are being absorbed by expenses, which is bad for your bottom line. If your operating expense ratio starts to deteriorate, investigating individual cost categories in more detail helps you pinpoint the cause and seek solutions.

Tracking trends in repairs and maintenance expenses also provides insight into current profits and future profit potential. Suppose your records reflect that the cost of repairs and maintenance typically runs around 10 percent of sales. For the current year, however, repairs and maintenance charges dropped to seven percent of sales. The change could be the result of several factors. It’s your job to find out the reason. Perhaps your new equipment is lasting longer than previous equipment. Or the new maintenance program is paying off in lower major overhaul costs. On the other hand, some major repairs may be just around the corner and the reduction in expenses is only temporary. Ratios and other financial statistics point out potential problems. It’s up to you to ferret out the reasons behind the numerical changes. That’s why you’re the boss.

There are a myriad of other financial ratios and indicators, including return on investment, return on assets employed, bad debt loss index, and past due index and total debt to net worth. Learn what each of these ratios represent and choose the ratios most relevant to your business. Keep track of them on an organized and regular basis and make your banker an informed partner. It helps if you keep on top of things which makes both of your jobs much easier.

Not many business owners fully understand liquidity financial ratios and the importance to their businesses. Why should you be interested in these numbers? First of all, these all-important numbers are what bankers look at when evaluating financing requests. Second, financial ratios give you a picture of the financial health of your organization. It’s like a doctor taking your pulse or listening to your heart beat to see if there are any underlying problems that need to be addressed. These ratios are even more important in today’s economic environment when many customers are stretching out their payments.

What are financial ratios? How can you use them to better manage your business? Ratios are useful barometers for comparing a company’s financial condition and performance results to those of other companies, industry norms or previous years’ results to help determine trends and point out problem areas.

Your business must maintain enough liquidity to fund current operations, capital expenditures and debt repayment. A look at your working capital reveals the size of funds available. That’s just one management tool. One of the most important measures of your firm’s ability to make timely interest payments and repay your bank loan are liquidity ratios.

The current ratio shows how your current assets compare to your current liabilities. While the amount of working capital you have is determined by subtracting current liabilities from current assets, the current ratio is calculated by dividing current assts by current liabilities. For example, a business with $60,000 in current assets and current liabilities of $30,000 has a current ratio of 2-to-1 (60,000/30,000).

In general, the higher the current ratio, the greater your short-term financial strength. Keep you finger on the pulse of your business by tracking your current ratio over time. A deterioration in your current ratio could signal future trouble in meeting your financial obligations unless corrective actions are taken or it may simply be a temporary, cyclical slowdown. Be sure you know why the ratio is changing so you can manage your business and be able to explain the change to your banker.

In addition to the current ratio, bankers typically look at another liquidity ratio known as the quick ratio (acid-test ratio). By removing the semi-liquid assets, such as inventory, from the current ratio calculation, the quick ratio compares the amount of assets which can easily be converted into cash to the amount of current liabilities.

To calculate the quick ratio, divide the sum of cash, marketable securities and accounts receivable by current liabilities. Let’s assume the $60,000 in current assets in the preceding example included $20,000 in inventory. The quick ratio calculates to 1.33-to1 (40,000/30,000) as compared to the current ratio of 2-to-1.

A further refinement of the current ratio is to use only cash and marketable securities in the calculation on the assumption that accounts receivable may take some time to collect, especially during an economic slowdown. Using the same example and assuming accounts receivable of $10,000, your calculation now reflects a 1-to1 ratio (30,000/30,000). This calculation is called the absolute liquidity ratio.

Knowing how fast your receivables turn over shows how efficient your business is in collecting outstanding accounts receivable and managing cash flow. Monitoring your receivables turnover ratio helps you pinpoint collection problems which may result in a cash-flow crisis down the road unless you take corrective actions. The receivable turnover ratio is calculated by dividing yearly credit sales by the current balance of receivables owed to your firm.

A related liquidity indicator tool is the average collection period on accounts receivable. Looking at two firms of equal size with comparable amounts of accounts receivable outstanding, any banker would feel more secure lending to a firm with a 30-day average collection period than to a firm with a 45-day collection period, especially if the latter firm’s average collection period has been deteriorating.

Two other financial indicators of how effectively your firm’s assets are used include the net sales-to-inventory ratio and the inventory turnover ratio. The movement of inventory is key to generating cash flow and keeping a business liquid. A low inventory turnover ratio may point to operating problems or inflated inventories, resulting in higher than necessary operating costs. If your inventory levels are too high, you may be maintaining higher debt levels than required, this boosts your interest expenses and cuts into your profit margin.

Likewise, it costs money to handle and stock inventory, money that could be put to better use elsewhere in your business. While the additional interest may make your banker happy, it may erode his confidence in you to run an efficient and profitable business. To obtain the net sales-to-inventory ratio, divide net sales by inventory; to calculate the inventory turnover ratio, divide the cost of goods sold by average inventory.

The debt-to-equity ratio indicates the amount of leverage your firm uses to generate earnings. By using leverage (borrowed funds or credit) effectively, you can increase return on capital invested. However, if you have too much debt, you will have high interest payments and your financial obligations may become too burdensome for your firm during declining markets such as you may be experienced in the current downturn in the economy.

Times interest earned represents how many times earnings will cover your fixed interest payments on long-term debt. To determine times interest earned, divide pre-tax, pre-interest earnings by the amount of interest payable on long-term debt. If you have to make periodic repayments of principal in addition to interest payments, you should also calculate the total coverage ratio. To accomplish this, divide your pre-tax, pre-interest earnings by the sum of your interest and principal payments. This will give you an idea of the earnings you’ll have left over to operate your business after you make the cash disbursements to service your debt.

Use charts to monitor your calculations and get a clear picture of your firm’s liquidity posture. We will cover other financial ratios in future issues.