A steady hand on the controls
Charlotte Business Journal - by Laura Williams-Tracy Contributing writer
Whoever described cash as cold and hard underestimated the warmth and comfort it provides in times like these.
Ongoing chaos in the economy is prompting companies to hold onto every penny. Charlotte companies facing the precipice are shelving nonessential projects, cutting payrolls and hoarding cash.
Short of finding a barter partner, companies are finding the way to survive is to hold on to what is theirs.
“In this day and age, there is no substitute for cash,” says Bob Dunn, president of The Finley Group, a consulting firm that specializes in turning around distressed companies.
The drop in cash flow among companies and their banks makes it even harder for Finley’s consultants to bring back companies from the brink.
“Usually companies get into trouble because management made mistakes. We correct the mistakes and turn the company around,” Dunn says. “This time is much more difficult and dangerous because it’s the marketplace that has changed, not the companies. It will be more difficult for companies like us to work our magic.”
Facing uncertainty, even healthy companies need to take a closer look at how they manage their most important asset.
“Cash is important to everyone right now,” says Norman Manley, tax partner in Charlotte at accounting firm BDO Seidman. The office works with middle-market companies. “Even if companies are doing OK, they are going to be cautious in the new year.”
The first step is to pay closer attention to cash flow. In a tough economy, its variability will likely increase as customers delay payments on products and services.
Manley recommends that instead of looking at cash flow on a monthly basis, companies should create a rolling 13-week cash-flow forecast that will highlight the shortfalls.
Looking out farther might help managers spot trends early and allow better inventory control.
“In this market, if a good customer pays in 45 days instead of 30 days, it could create a shortfall in meeting payroll,” he says. “If the purchasing department is not careful, they may buy like it is last year, and you get an overstock in inventory.”
Companies might want to use the services of a credit bureau to monitor customers. Offering incentives to customers to pay early is always a good business practice, and it speeds cash flow in difficult times.
If companies are unable to make payments under the original terms, it’s better to communicate with the vendor and renegotiate terms instead of remaining silent.
Manley also suggests looking at tax payments. Companies that made money in the first half of last year and were making estimated payments might have overpaid in the second half as revenue dropped. Those funds can be recovered through a tax refund.
Many businesses don’t know if they have a loss this year, they can carry that loss back on taxes paid in prior years and could qualify for a refund, he says.
The recession should prompt businesses to take a fine-tooth comb to the expense side of the ledger. Economic conditions favor companies such as Telecom Optimization Partners, which helps businesses reduce their telephone charges.
Lamar Wilson, business development officer, says a client can expect to save an average of 20% after the firm examines bills and plans. The company recently saved small-business incubator Ben Craig Center 55% on its phone costs.
“We have access to every rate of every carrier in the marketplace,” Wilson says. “We plug it into our software, do an audit and make a recommendation for what you should actually be paying. Often the carrier will cut their prices to keep the customer.”
Paul Wetenhall, president at Ben Craig Center, says examining phone service was part of a broader effort to cut costs that are otherwise passed on to businesses at the incubator.
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