November '19

Issue link:

Contents of this Issue


Page 14 of 136

10 THE SHOP NOVEMBER 2019 "My first concern for any business antici- pating a downturn is the smart manage- ment of cash flow," says Feiman. "Start to monitor more closely what is coming in and going out. Are turns slowing? Is your cash being locked up for longer periods?" Make accounts receivable top of mind. "Use your aging reports proactively, not reactively," says Feiman. "When receivables start to become stale, communicate early with customers. If there's an issue, resolve it." When good customers start slowing their payments, you'll want to respond in a way that avoids alienating them. Keeping on top of the problem will require good com- munication skills. "Call and ask the customer if there is any problem," suggests Ennico. "You might say something like, 'I know times are tough. Are you hurting?'" If the customer is experiencing a tem- porary problem, your loyalty to them can pay off down the line. "If you help customers now, they will stick with you forever." Cash is a two-way street. Monitor how quickly funds flow out as well as come in. The goal is to stay liquid. "If you have cash, you have options," says Feiman. "If you run out of cash, you are out of business." Don't just rely on financial statements that look backward, he adds. "Use cash budgets that look forward." Bonus tip: Remember Feiman's basic rule: "Collect an old receivable before making a new one." TRIM FIXED COSTS While you're monitoring those cash cur- rents, consider your variable and fixed costs. The former tend to be related directly to business activity and there is often little fat to be trimmed. It's the second that often holds the most promise. Identify discretionary expenses that can be cut. "You really have to watch fixed costs such as lease payments, depreciation and building- related expenses," suggests McQuaig. Many companies over the past decade have succumbed to the temptation of increasing fixed costs in anticipation of higher revenues. "The problem is that those costs will not change very fast as your income starts to go down." In a declining market, fixed costs tend to eat into the bottom line. Cutting fixed costs can spark dramatic increases in profit, adds Asbury. "If you can increase your sales while holding fixed expenses constant, a good portion of the increased revenues will flow straight to the bottom line." Even if certain fixed costs can't be cut overnight, starting the thinking process early can pay off later. "You might not be able to shrink your physical space this month," notes McQuaig, giving one example. "But now might be a good time to plan a possible reduction two years down the road." Bonus tip: Cut variable costs by retooling your procedures to more closely meet customer needs. SECURE WORKING CAPITAL If cash is king, working capital is the heir apparent. You need enough reserve finan- cial capability to tide you over during a cash flow squeeze. One way to do that is to trim your out- standing debt. "The best thing you can do now is pay off your credit lines," Ennico believes. "Have them ready as cash reserves in case you need them down the road." Again, an early start pays rich dividends. Arrange for any additional credit lines while the economy and your business are still in good shape. "The time to negotiate with banks is when you don't need them," says Ennico. If having sufficient reserve capital is a requisite for success, so is an appropriate debt structure. "If you have expensive short-term bor- rowings against long-term assets, you might want to negotiate longer-term debt," says McQuaig. "The lower payments will help you work your way through softening rev- How to Recession-Proof Your Business If cash is king, working capital is the heir apparent. You need enough reserve financial capability to tide you over during a cash flow squeeze.

Articles in this issue

view archives of THE SHOP - November '19