Smart moves now can set you up for business growth in 2011Written by James A. Hoffman | | firstname.lastname@example.org
Companies that have been tightening their belts, cutting costs, saving cash and strengthening their balance sheets during the past year are likely to be in a good position to grow the business in 2011.
Now is the time to take a hard look at where the business is today and where you want it to go. This means reviewing internal processes, evaluating business performance and putting some smart moves into your business game plan.
Improving cash flow reduces costs
Looking internally, how can you improve cash flow to reduce costs and save time? Are you aggressively pursuing and exploiting strategies that will enable you to:
• Optimize cash inflow/outflow?
• Minimize expenses and maximize liquidity?
• Mitigate risk?
• Manage credit more efficiently?
A well-executed cash management plan requires balance and control. Because the processes of optimizing receivables, maximizing liquidity and managing payables are inextricably linked, the cash management strategy—by necessity—demands an overarching vision.
Properly executed, cash management is a unifying and fundamental element that can drive profitability and ensure success in the ever-evolving marketplace.
Access to accurate, timely information is essential to cash flow forecasting. Comprehensive cash management and reporting tools can help you predict your cash position and enable you to make better-informed decisions. The best of these tools use real-time information to provide accurate information about receivables, cash balances and investments while simultaneously enabling users to control payables and optimize the cash management process.
Technology can quickly turn receivables into cash
Lockbox services and remote deposit technology can turn receivables into productive, available cash faster through the use of image-exchange technology. Automated clearing house (ACH) networks also accelerate the receivables process.
To optimize payment processes, controlled disbursement accounts (CDAs) enable the payer to specify when funds will be presented to the payee bank, with the ability to fund the exact dollar amount required on a same-day basis. This can help reduce the propensity to overfund disbursement accounts. CDAs can also help moderate interest expenses by reducing the need to borrow.
Credit as part of a financial strategy
For many organizations, credit is a primary component of the complete cash management strategy. Knowing when to access credit and when to pay it down can help maximize your cash position and the strength of your income statement.
If you plan to use credit as part of your financial strategy, effective cash management and forecasting tools can help demonstrate financial strength when securing working capital loans. Lenders view well-tailored, efficiently administered cash management processes as indicative of a capably managed organization with lower risk. This information is also invaluable in the sizing of credit facilities.
Demonstrate how your business is turning around
Typically, companies are reluctant to invest until they are confident their past financial performance will be adequate to get new financing. But how do you know?
If you feel your company is turning around, your banking partner can help you demonstrate it by examining sequential growth by quarter for sales, margin and backlog.
This exercise provides you and your bank with the confidence to move forward and take advantage of great opportunities for growth. In this environment, companies benefit from extremely low borrowing rates, good pricing for physical assets, acquisition financing at reasonable multiples and available human capital to expand and propel performance as the economy improves.
Businesses that need additional capital have a number of opportunities to consider: Some sell off noncore businesses. Others inject equity into the business or take on subordinated debt.
When to consider capital expenditures
If new equipment would help you move ahead of competitors or facility renovations would improve efficiencies and work environment, it could be time to think about capital expenditures.
Although it’s not an easy decision, given the economic realities of the past few years, a capital expenditure has the potential to catapult a business toward growth.
To determine whether to take the chance on a capital expenditure, conduct a cost-benefit analysis to minimize the risk. Your banker and accountant can help you with this.
Could an acquisition be in your future?
For some companies, now is the time to start planning for an acquisition. Earnings are down and many company’s selling prices are reduced. That makes it a great time for opportunity-seeking buyers. Pent-up demand on both the buy and sell side sets the stage for deal-making. By some estimates, 800,000 of the 1.2 million middle-market businesses are owned by boomers, and many are looking to transfer their businesses to family members or to sell to others.
If you do consider an acquisition, be sure to conduct due diligence. This entails a detailed financial analysis, including reviews of income and loss statements, balance sheets, key assets, liabilities, cash flow statements and review of tax returns and financial statements for the past five years. Also, find out why the business is on the market and determine the reputation of the company.
These factors and more help establish whether the acquisition will be a successful move for the business.
Success doesn’t just happen, and it rarely comes from doing the same things you’ve always done. By considering some new moves for the New Year, you can reenergize your business and yourself.
James A. Hoffman is president of KeyBank in Northwest Ohio and Michigan. He can be reached at 419-259-8587 or at James_A_Hoffman@keybank.com.