RV PRO

December '19

Issue link: https://nbm.uberflip.com/i/1184550

Contents of this Issue

Navigation

Page 77 of 87

72 • RV PRO • December 2019 rv-pro.com B U S I N E S S ipating a downturn is the smart manage- ment of cash flow," says Daniel Feiman, managing director of Built It Backwards, a consulting firm in Redondo Beach, Calif. "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, Feiman advises. "Use your aging reports proactively – not reactively," he says. "When receiv- ables start to become stale, communicate early with customers. If there's an issue, resolve it." When good customers start slowing their payments, business owners will want to respond in a way that avoids alienating them, according to experts. Keeping on top of the problem will require good communication skills, says Ennico, the attorney and business consultant. "Call and ask the customer if there is any problem," he suggests. "You might say something like: 'I know times are tough. Are you hurting?'" If the customer is experiencing a tem- porary problem, a business owner's loyalty to them can pay off down the line, Ennico says, adding, "If you help customers now, they will stick with you forever." Business owners should recognize that cash is a two-way street, so they should monitor how quickly the cash is flowing out as well as coming in, experts say, noting that 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." Business owners shouldn't just rely on financial statements that look backward, but should instead, "Design and access cash budgets that look forward," he adds. Bonus tip: Remember Feiman's basic rule: "Collect an old receivable before making a new one." Trim Fixed Costs While business owners are mon- itoring those cash currents, they also should consider variable and fixed costs, business experts advise. The former tend to be related directly to production, and there is often little fat to be trimmed. It's the second that often holds the most promise, experts say, so identify discre- tionary expenses that can be cut. "You really have to watch fixed costs, such as lease payments, depreciation and building-related expenses," says McQuaig, with McQuaig and Welk. Many compa- nies over the past decade have succumbed to the temptation to increase fixed costs in anticipation of higher revenues, he says, adding, "The problem is that those costs will not change very fast as your income starts to go down." In a declining market, experts say fixed costs tend to eat into the bottom line. Cutting fixed costs can spark dramatic increases in profit, according to Asbury, with Elevate Coaching and Consulting. "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 pro- cess early can pay off down the road, McQuaig says. "You might not be able to shrink your physical space this month," he notes, giving one example. "But now might be a good time to plan a possible reduction two years down the road." Bonus tip: Experts suggest that busi- ness owners look at cutting their variable costs by retooling their procedures to more closely meet customer needs. Secure Working Capital If cash is king, working capital is the heir apparent. Business owners need enough reserve financial capability to tide themselves over during a cash-flow squeeze, according to business experts. One way to do that is to trim a company's outstanding debt. "The best thing you can do now is pay off your credit lines," says Ennico, the attorney and consultant. "Have them ready as cash reserves in case you need them down the road." Again, an early start can pay rich dividends. He advises business owners to arrange for any additional credit lines while the economy (and their businesses) are still in good shape. "The time to negotiate with banks is when you don't need them," he adds. If having sufficient reserve capital is a requisite for success, so is an appropriate debt structure. "If you have expensive short-term borrowings against long-term assets, you might want to negotiate longer-term debt," says McQuaig. "The lower pay- ments will help you work your way through softening revenues if operations shrink. You can always accelerate pay- ments down the road, but you cannot decelerate them." He says business owners might be able to take other steps to clean their balance sheets. Two examples include: • Can a significant portion of short- term debt be restructured through a 10-year Small Business Admin- istration-backed loan, resulting in smaller monthly payments? • Can a straight line of credit be made less expensive by turning it into one secured by accounts receivable? Bonus tip: Postpone major initia- tives unless they promise to generate timely significant revenue, business experts suggest. "If you have cash, you have options. If you run out of cash, you are out of business." – Daniel Feiman, managing director, Built It Backwards

Articles in this issue

Links on this page

view archives of RV PRO - December '19