Posts Tagged ‘economy’

Create Cash: Be Your #1 Vendor

June 17, 2010

by Doug Smith, President, The Woodhaven Group

Small and medium sized businesses should borrow a strategy that is being used by some of the largest companies over the last 18 months.

Large companies have been accumulating major amounts of cash.  Some of this has been used to pay down debt and improve their balance sheets for the analysts and shareholders on Wall Street.  An even larger reason may be the concern about the economy in the future.  The smart managers want a cash cushion on hand to offset unexpected surprises in the near term.

While certain parts of the US economy have improved and seem to be trending upward, many believe we are still not out of the woods.  With massive federal and state debt, a very cautious consumer and events like the oil spill it becomes harder to predict the future.

What should you do?

As an owner or CEO of a small or medium sized business I suggest creating a cash reserve like the larger companies.

How do you do that?

When planning who is getting paid each week include your own company in the accounts payable schedule.  Set aside a small amount each week in a stand-alone account to act as a corporate nest egg if and when the time comes that you will need the backup cash.

You will be surprised how a small amount set aside each week will add up over time.  Don’t be tempted to dip into the account to fund a discretionary trip or new vehicle.  It is an emergency cash back up.  Keep it that way.

If the big companies can do it, so can you.


Save Business Cash Flow By Renting Shadow Office Space

June 15, 2010

by Doug Smith, President, The Woodhaven Group

A few years back the sales of your company was showing a large increase.  You were anticipating even more growth beyond the original financial plan.

So you did what a lot of managers did at the time.  You rented more office space to accommodate more employees.  It was an exciting time for everyone.

Then the bottom fell out of the economy and you did what you had to do……..eliminated employees to reduce expenses.

What was left was unused office space.  This now unneeded space is referred to in the commercial real estate industry as  shadow space.  You are still paying rent but it is not being used any longer by your company.

There is a solution to this problem.  Aggressively seek out other business people needing office space.  In many cases this may be one person proprietors that were layed off from their own companies and need office space to start a new venture but cannot afford prevailing rental rates.

Where do you find these prospects?  Try the following sources who will know businesses needing space:

  • Outplacement firms
  • Chambers of Commerce
  • Associations
  • Small Business Adminstration
  • CPAs
  • Insurance Agents
  • Networking Groups

You can negotiate short-term rental rates that will cover a substantial portion of your own rent payment.  In some cases if you originally negotiated well,  the rent charged may be above what you are currently paying.  Then add-on for office furniture (you probably still have some of that on hand too) and utilities.  There might even be an opportunity to offset the cost of your receptionist.  Throw in a charge for the use of conference rooms that can be scheduled around your own meetings and now you have turned a problem into a source of positive cash flow.

Effective use of shadow space can become a win-win situation for both your company and the new start-up entrepreneur.

Use this cash flow strategy the next time you find yourself with unused office space from having downsized your company.

Save Business Cash Flow With Smart Use Of Employee Overtime Hours

June 14, 2010

by Doug Smith, President, The Woodhaven Group

Consider this scenario.  Your company has had to operate through an extremely bad economy.  As owner or CEO, you were proactive  by reducing expenses to bring the breakeven of the company in line with reduced sales.  This reduction in expenses included eliminating employees.  Tough decisions to make but, looking back, it was obviously the right thing to do to maintain positive cash flow.

Does this sound familiar?  You are not alone.  A lot of good managers had to make the same type of decisions over the past 2 years.

Sales are now beginning to rebound and while progress is slow, it appears the worst days are behind the company.  Now the question becomes…… do you hire new employees to replace the ones you eliminated?

Here is what I have done after other economic downturns that required staff reductions.  Before hiring additional hourly workers or non-exempt employees do this instead.  Take the current employee group and give them overtime hours.  There are 6 benefits to doing this:

  1. It puts additional dollars in the paycheck of your key hourly or non-exempt employees.  They will appreciate the extra dollars coming their way.
  2. You will not have to spend valuable cash to recruit and interview replacements.
  3. There will be no new training cost since there will be no new hires at this time.
  4. There will be no added workmens compensation insurance nor employee benefit cost incurred without new employees.
  5. Most new hires make mistakes that costs the company cash during their ramp up period.  This potential expense is eliminated. 
  6. If the increased sales is not for real then you do not have to cut back employees again. 

Once you see the new sales increase is going to continue and overtime dollars grow, then it will be time to hire added staff. 

Until then you have saved cash, your company has survived, and there is a happy group of employees ready to grow the company into the future.

Reduce Surprises With A Rolling 3 Month Cash Flow Projection

May 25, 2010

By Doug Smith, President, The Woodhaven Group

“Cash is more important than your mother.”  A west coast business professor once said that and as a former CEO I agree.  Just for the record my mother would agree with me.

With all the volatility occurring in the economy it is very difficult for any business to plan ahead.  We see turmoil in Europe that may reduce exports, a consumer only beginning to spend again, and private and public debt at uncomfortable levels to say the least.

What is an owner, CEO or senior manager to do in an environment like this?

First, I would remind you that your company runs on cash.  If you run out of cash you either have to replace it or go out of business.  Therefore, it is best to anticipate any peaks or short falls in your near term cash position so you do not find yourself making crisis management decisions when, for instance, it is time to make payroll.

The best tool to use is a rolling 3 month cash flow projection that lists your anticipated inflows and outflows of cash.  In otherwards, where is your cash coming from, where is it going and how much do you have left over?

In my opinion, this should be a monthly cash flow projection that is updated weekly.  If cash is extremely tight and unpredictable then a rolling weekly cash flow forecast is even better.

Meet weekly to update the projections with key management team members.  A side benefit will be a clearer understanding by everyone where the most productive use of cash is occurring.  I found this to be a positive energizing exercise for my management teams.

What to do if you see a shortfall in cash coming?  Here are a few options:

  1. Have a line of credit in place with your bank and use it as needed.  That is what it is there for.  Your banker should receive updates of your cash flow so he can anticipate the request and payback.  He will be impressed how you are managing your cash situation.  He will probably wish his other clients were doing similar calculations.
  2. Speed up payment of accounts receivable.  There always seems to be late payers and being aggressive in collecting may be all the added cash you need.
  3. Get extended terms from your key suppliers.  Rather than just delay paying, I have found it best to ask them for a temporary extension on terms.  If you have been a good customer and paid as agreed this should not be a problem.
  4. If you are a manufacturer one solution may be simply to return old inventory to your supplier and get a credit.  Apply the credit and it may actually offset a portion of the next invoice due.
  5. Cut expenses.  No doubt in the weekly management meetings,  areas will be identified where expenses can be reduced without hurting revenue. As CEO or owner you may have to make the final decision when and where to cut in order to get the action that needs to be taken.   

A rolling cash flow projection is one of the best management tools there is.

Be proactive.  Anticipate your short-term needs and you should not have any cash flow surprises.