FBO Insight: The Value of Creating a Sound Balance Sheet
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Credit: getty images - blazic27
Multi-Part Series on The 7 Immutable Elements of Building Equity in Your FBO Enterprise
The fourth element in building equity in your FBO enterprise is creating a sound balance sheet to help determine financial performance. .
A main benefit for consistently creating a sound balance sheet year-in and year-out is to position your enterprise to safely navigate through any kind of economic environment.
It’s natural for companies to load up on debt during economic upturns, only to find it difficult to repay obligations in a down cycle. For FBOs, investments in infrastructure is an on-going budgeting challenge. For example, when demand for hangar space outstrips current capacity, you want to be in the best position to obtain the necessary financing to carry out building projects.
That’s why a sound balance sheet and good banking relationships are vitally important to the fiscal health of the company. In addition, a sound balance sheet works in an FBO’s favor when negotiating new or extended lease terms with an airport authority.
In simple terms, a balance sheet is basically a financial statement that recaps the organization’s assets, liabilities and ownership/shareholder equity. It provides an overview of what’s owned (assets) and what’s owed (liabilities.)
The term “balance” applies to the total assets when compared to the liabilities and the owner’s equity. A sound balance sheet would find its strength in the ratios and not necessarily in the numbers. Though a specific ratio is debatable, a sound balance sheet would reveal current assets being higher than current liabilities.
To take it even further, another test for a sound balance sheet is an investment grade credit rating which could attract outside investors if desired.
In strengthening your balance sheet, look at what you are doing with regards to improving the management of both working capital and cash. Take the lead in developing new strategies for capital structure and asset management
To recap, keep in mind the following benefits for producing a sound balance sheet:
1. Shows financial transparency into the enterprises assets and liabilities.
2. A business tool for obtaining loans and negotiating lease terms with the airport authority.
3. Provides a business snapshot of your FBO at a specific time.
4. Discloses the solvency of the FBO business to minimize investment risks.
5. Easily calculates financial ratios to determine the company’s fiscal outlook and profitability.
6. Helps determine credit worthiness for banks and investors in order to obtain loans and funding.
In our next blog, we’ll discuss how to determine the current ratio, cash-to-debt ratio and debt-to-equity ratio as well as understanding your FBO’s financial position and how to measure liquidity.
ABOUT THE BLOGGERS: John Enticknap (404-867-5518) has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson (972-979-6566) is co-founder of Aviation Business Strategies Group (ABSG) and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training.
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