‘Buckets’ come into play when considering how things should be structured in your business 

I visit with many people looking to start new businesses. They have spent countless hours analyzing projections, vetting vendors and suppliers, haggling with leasing agents, crunching the numbers and crunching the numbers again.

I listen and ask questions and then ask them, “Have you been thinking about your buckets?”

Their common answer: “Huh?”

Many business owners come to their banker with a total amount needed to start their new business. They have not thought about how the total amount needed should be structured. This is where the buckets come into play. I ask them to think about startup costs in terms of different buckets.

Bucket 1: The long-term bucket

The funds in this bucket are used to purchase long-term assets such as real estate. The expected payback period of this bucket is 15 to 20 years.

Bucket 2: The mid-term bucket

The funds in this bucket are used to purchase assets such as vehicles, furniture, fixtures, equipment, and location finish-out. The expected payback period of this bucket is 4-7 years.

Bucket 3: The short-term bucket

The funds in this bucket are used to facilitate a business’ normal operating cycle. These funds are normally structured as a revolving line of credit. As the business experiences cash-flow needs throughout its cycle (timing of receivables and payables), it is able to draw on the line when funds (working capital) are needed and pay down the line when excess funds are on hand.

Bucket 4: The purchasing power bucket

Businesses need to purchase many things, all the time. Having the correct purchasing structure helps the business hold onto it cash longer, as well as take advantage of incentives that come with corporate and purchasing cards. 

I never want to see customers carrying a balance on their corporate/purchasing cards (funds from bucket 3 are usually used to pay off the card balance at the end of the billing cycle), but maximizing a business’ spend on their card can result in holding onto cash longer and utilizing the incentives (awards, cash back).

As I talk about these different buckets, I can see some of the customers thinking, “Why does this matter?” It matters because it determines the structure of the proposed financing, and it also allows the business to more accurately project what its working capital needs will be in the future.

You wouldn’t want to finance a new dump truck or piece of machinery on your line of credit. That financing piece needs to be longer term with set, predictable payments. 

Matching financing structure (loan terms, maturity, etc.) to financing needs is critical to projecting and analyzing the business’ cash-flow needs.

As you work on your budget for your new business or expanding your existing business, think about the four buckets and how you would fill each one. Working through this exercise will provide greater insight into your future working capital needs and will set the framework for proper bank financing.

Joel Maneval is a commercial banker for Arvest Bank. He can be contacted at [email protected].


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