cash flow

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3 Key Findings of a Major Investment Strategy Firm

I recently received an invitation to review the forecasts of an investment firm and research company as they saw things developing in 2012. It shared three key findings.

It would be weird to say that I was overjoyed at reading these findings as they’re not particularly positive, but I was justified in my own assertions that this bear market isn’t going anywhere and that we better prepare to navigate it successfully or fall by the wayside.

I want to share each of these 3 key findings with you in my own words.

1. You’re going to have to do a lot to get a little. That’s been the case for a while now, and it’s not going away any time soon. Count on four years, and don’t be surprised by six. Because it’s just not going to get better out there, that means you have to make things better for yourself by ending waste, embracing austerity and adjusting to this New Norm. As I list those three objectives, I smile to myself because they’re each different yet at the same time they’re all faces of the same die. Evaluate your situation in business and at home and take actionable steps to make your money and efforts last longer.

2. Stocks have been lousy for a while and bonds are following suit. If you thought things were going to get easy, think again. Do you know the saying, “when life closes a door, it opens a window?” Well, in this case, when life closes a door, it also nails the window shut. That’s not a reason to panic, but it does cause me to conclude the following, which, incidentally, is similar to finding 3: “You’re going to have to make your own doors.”

3. It’s trite but true: Cash is King (read parts One, Two and Three of Vic Taglia’s series on the subject). Cash is also the number one asset of a turnaround professional. If there’s no cash, there’s no payroll, there’s no business and there are a lot of angry creditors chomping at the bit to get a piece of what’s theirs. As a business owner, it’s your job to do what you need to do to generate cash flow. There’s little in this world that I’m better at doing, and I’ve even shared one of my best tricks with you before. If you want investors to stick with you and your company, you’re going to need to learn to seek non-traditional ways of staying profitable and maintaining cash flow.

I wasn’t shocked to review these findings. Heed the cautious tone, and start thinking about what you can do differently to keep your business ahead and growing. If you’re already experiencing challenges, face your harsh reality, and start thinking creatively. It’s going to be a long and bumpy ride – but I’m here for you.

What do you think about these ideas?

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5 New Years Resolutions for Your Business in 2012, Part 2

When was the last time you looked at your business plan? You remember, that thing you made so many years ago to ensure that you knew what you were doing and that everything was thought through? Wait, you did make one didn’t you?

If so, great – pull it out. If not, I’m not going to ask you to spend your time on that now, but I am going to ask you to think about a contingency plan in case of an emergency.

That’s right, the New Year is a great time to review your contingency plan.

We’re in the middle of a horrible economy. If things are going well for you and your business, I commend you and say, Keep up the good work. But even if things couldn’t be better, you should always have a contingency plan in place that you update at least every two years. At the cusp of 2012, this is a great time to review and update yours since I’d be willing to bet that you haven’t since before 2009 (pardon my assumptions if you review yours bi-annually).

So what should one think about with a contingency plan?

The first and most obvious thing is money. Capital is, after all, the life-blood of any business. Without proper cash flow you won’t be able to buy inventory, make payroll or pay your bills. So, do you have a line of credit? If so, is it currently in use? Could you stand to ask for it to be expanded?

Do you have good relationships with multiple banks? There are hundreds of banks across the country that are failing but can’t even be taken over by the FDIC because they lack the resources to do so. That should make you nervous if you’re banking at any of them, and it should also make you ask whether or not you can find multiple banks with whom to do business.

What assets could you liquidate in case of an emergency? Is there anything non-essential that would fetch a fair value? I’m not suggesting you sell it. I’m only suggesting that you know what you would liquidate and how if you had to.

Do you own your business? Are you it’s president? Is there a board? All of this is to say, think about a succession plan. If something terrible happened to you (God forbid, but you never know), can your business survive without you for one month, three months, a year? Is there someone who will take the reins? These questions are especially important to answer if you are going to ask banks for money any time soon.

What about your other key positions? Who is indispensable to your operations? What would you do if something happened to him or her? How would you replace that person?

Think about your industry and the kinds of emergencies that usually face it. Is it a highly regulated industry? Is it a litigious industry? Are your products safety related? What could go horribly wrong in your industry and business? Think about these things and use your core team to brainstorm potential solutions in case any emergency hits.

You never want to be left wondering what you’re going to do in the event of an emergency. As a turnaround manager, I assure you that having a contingency plan in place is essential and a great way to proceed into 2012.

Resolve to create or update your contingency plan this month.

Consider answering any of the questions I asked above in the comments below and share some of your creative solutions to help others.

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My Greatest Magic Trick: Creating a Million Dollars in Cash Flow Overnight

So I’ve decided to share my coolest business magic trick with you. I can create a million dollars in cash flow out of thin air – and valuable as a million dollars is, there’s nothing like magically creating extra time.

Now, now, I know that a magician isn’t supposed to go revealing the way his tricks are done. It’s bad for business, and where’s the money in that!?

But what’s good for you is good for business, so I’ve decided to share.

Now You Owe 4 Million . . . 

First, let’s suppose that you have 30 day terms with your vendors and a million dollars in payables every month. Imagine that we’re just looking at the first four months of the year, January through April.

Over the course of those four months, then, the total payments are 4 million dollars.

Check out this picture:

So how do I create a million dollars?

And Now You Owe 3

All I have to do is extend normal trade terms from 30 to 60 days and suddenly you owe nothing in January!

That means that the million dollars walking out the door in January is still in your pocket. A million dollars has just been added to the positive side of your cash flow.

That’s right: in the four month period of January through April you’re now paying only 3 million dollars! You still owe that million, but by changing the timing of your payments, it’s been pushed back every month going forward.

Don’t Try This at Home

So why have I told you one of my greatest magic tricks and one of the best strategies of my turnaround success? Because the secret’s in the sauce!

My real talent is playing, “Let’s Make a Deal.” They don’t call me Monty Hall for nothing. The key – and hard part – to this magic trick is doing the right financial assessment and then successfully renegotiating with vendors to obtain extended terms and create that improved cash flow.

When businesses try to get vendors to give them an extra 30 days to pay a million dollars, vendors get agitated and concerned. My job is knowing what vendors need to hear, what makes them comfortable, providing them with the proper assurances and then making sure that those 30 days are used in the best possible way to ensure things get back on track by the second month.

Remember, you have to keep to your negotiated deals. You don’t want this to blow up on you, and it takes a professional to see this process through because generally this trick is one piece of a larger successful turnaround and restructuring strategy.

Conclusion

In business there’s hardly anything so valuable as creating time, and if you can make money come out of that time to boot, you’re in great shape. My skills lie in putting people into great shape.

My golden formula is time + energy = value. I create the time and bring the energy, and with those two pieces in place I can provide value.

Have you ever tried to renegotiate your terms? If so, what happened? Have you ever tried this trick yourself?

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Cash is King (III), Fine Tuning your Cash Control, a guest post by Vic Taglia

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our newest Partner, Vic Taglia.

After the crisis, here’s how to improve your cash control (if you’re like, what is this guy talking about, catch up with Part I and Part II).

Identify excess assets. What can you sell for cash? And remember: the quicker, the better. Do you have any extra cars, boats, planes, construction equipment, drill presses, injection molding presses, etc.? Go down the balance sheet, look at the equipment list, and examine the insurance policies. What don’t you need to survive? What can you rent instead of own?

There are markets beyond Craig’s List and eBay. Construction equipment goes to auction all the time. List that extra piece of real estate on MLS. Offer the broker a bonus for a quick sale. Tell him you’ll auction it (without him) if he doesn’t bring an offer soon. Find the most active internet sites that cater to what you’re selling.

What old inventory can you convert to cash? Can you sell it to a foreign customer? Is there an alternative market channel? Don’t be embarrassed to accept the accounting loss.  Everyone but you has already recognized the lower value. Your goal is to get cash and survive.

Remember that the first mark down is the best mark down. This is true for inventory, land, equipment and most other excess stuff.  Get rid of the old stuff, get the cash and move on.

I suspect you already sold any marketable securities and cashed in your life insurance policies, but did you sell your interests in other businesses? What about your time share? Your hunting camp lease? The second home? The boat? The sports car? The wife’s company car? The girlfriend’s company car? (Yes, we’ve seen these and more.)

Cancel the company credit cards. This will improve your control over spending since you are now signing for all spending (you already sign all the checks and have the bank statements sent to your home, right?) Canceling the credit cards might also improve your standing at the bank since their credit card exposure is now limited. It also sends a message that you’re serious about the business problem. Bankers love serious debtors taking serious steps to fix their money problems. And it won’t hurt your employees to note you are now a serious crisis manager.

Finally, look at the payroll register. Since you sold the boat, you don’t need the captain. Since your purchases are dependent on who will ship to you, maybe you don’t need as many people in the vendor qualification department. Maybe your brother-in-law really should begin his long-sought career change.

Letting people go stinks, but your business is struggling for survival, and you may not be able to save everyone. But if you don’t save the business, you won’t save anyone.

That concludes our three part series on how Cash is King. Check out Part I and Part II to learn more about the importance of cash and how to manage it in a crisis.

Do you have any questions? What have you had to sell off in the past that you didn’t want to? What ways do you free up cash in your business?

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Cash is King (II), A Fact in Three Parts and guest post by Vic Taglia

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our newest Partner, Vic Taglia.


After last week’s post emphasizing the importance of cash and making sure your business is still breathing, let’s use this post to add some detail to your cash picture.

Start by listing all your bank accounts and their balances. If you’re starting with book balances, add back all those checks you’ve been holding until you get the money to send them. It’s best to void the checks in your accounting system and have corrected cash and payable balances to work with.

Next, examine your list of customer receivables. An aging may help, but you will need to list who will pay you and when. Call the past due customers. Threaten them with shipment halts if they don’t pay. Offer discounts for prompt or early payment. A 1% per month early pay discount is worth 12% on an annual basis, a great rate in today’s interest market.  Offer more if you must, but get the cash in the door.

Add the first week’s receipts to the beginning cash balance to get your “Cash Available.”

Now identify what you have to pay this first week. I recommend you start with those items whose payment will keep you out of jail.  That is, payroll taxes, sales taxes and other government trust funds. In most places, failure to pay these trust fund taxes is a felony. I suspect defending yourself from felony prosecution will distract you from your business.

After the payroll taxes and other government trust fund obligations, list your gross payroll.  You probably need your employees to sell, make and ship your product, so keep them paid.  They know that the business is in trouble, so paying them on time helps preserve morale.

Next up are the vendors and suppliers who require payment in order to make or ship your product. Be bold and call them. Ask for help. See how little they will take to keep shipping. Reduce your orders to the minimum needed to ship product. Shop around for other sources before you’re cut off.

Add a line for payments to your lender, but DO NOT enter a specific number – at least not yet. We need to see how much we have to operate the business before we can pay the Bank.

Subtract the subtotal of these “have to pay now” obligations from the Cash Available to get “Cash Over or (Short).”

If Cash is Over (a positive number), use this as the first line of week 2 and repeat the above process for the next 13 weeks. This should be long enough to cover all your existing receivables and give you an opportunity to use the cash receipts for the next six weeks’ sales.

After the end of the first week, compare your actual cash receipts and disbursements to your estimates. Change the next weeks’ estimates to reflect what you learned.

Maintain this process until your Cash Over number grows every week for six weeks and your calls to customers, vendors and the Bank are more pleasant and less frequent.

On the other hand, if Cash is (Short), which is to say that number is negative, revisit your collections and payment amounts. Your business depends on driving cash to positive levels. If Cash remains (Short), after several attempts, call GGG immediately and add a line for “Crisis Manager Retainer.”

Next week we’ll continue this conversation by fine tuning our cash control. For now, check out last week’s post to learn why Cash is King.

Have you ever gone through a process like this? What were the results and how did it go? Do you have any questions about what to look for?

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Cash is King (I), A Fact in Three Parts and guest post by Vic Taglia

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our newest Partner, Vic Taglia.


Cash is King, and every other business consideration is merely a poor pretender to the throne of a troubled company.

When a company is in trouble, its management needs to focus like a laser on cash, asking these questions:

1. How much do we have?

2. How do we get more?

3. To whom must we give it?

These three questions should form the basis of every decision the management of a troubled company makes.

Stop worrying about market share, profit margins, sales trends, capital expenditures, etc. – except as they are directly related to cash. You have to survive before you can worry about these more traditional business issues.

We Need Cash, STAT!

Think of your troubled company as a patient in the emergency room. The ER doctors start with the ABC of survival: airway, breathing and circulation. They don’t look for broken bones; they make sure the patient has a clear airway, is breathing and isn’t bleeding out.

Now think of cash as your troubled business’s oxygen and blood.

1. Your first step is to clear obstructions to your cash picture. How much is in the bank? How much are your held checks? Are there any customer checks not in the bank?

2. Check your company’s breathing. Is there cash coming in? Are there leaks in the windpipe? Are your customer checks getting to the bank quickly? Are you getting immediate credit for your deposits?

3. Finally, is your cash leaking out?  Are your expenses/cash disbursements going on the floor? Can you apply a tourniquet to the wound and staunch the leaks?

And consider hiring a specialist to help you.  When you go to the Emergency Room, you see ER specialists, not the family doctor.

Once management identifies these first critical answers, it needs to expand its analysis by applying some time measurements and adding some details to its cash picture, both current and projected.

That, we’ll talk about in next week’s post – so stay tuned!

What are your experiences with your business and cash flow? Any questions?

Want to learn ways to avoid being bitten by the alligators and keeping cash at the top. Check out this classic post.

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“If the Alligators are Biting, It’s Too Late to Drain the Swamp”

You may have heard this saying before:

“If the alligators are biting it’s too late to drain the swamp.”

Keep this in mind while running your business. Doing so can affect not only profitability but also your very survival.

Here are a few examples of when the alligators start biting:

1. Consider the sales manager who is not producing what you’ve come to expect from him; you notice a decline in sales and even a disruption to the team. He should either be refocused or fired. Now your revenue and profits are down. If he handled your largest accounts and the competition has now stolen them from your company, you’ve been bit by alligators.

2. Your CFO is constantly late with financial statements, and the bank is growing concerned. You then discover after months of frustration that he has personal problems that have affected his performance.  Now the bank is concerned about your ability to run your business. You’ve been bit by alligators.

3. The classic survival story involves fraud. Almost half – thats 50% – of our clients have encountered some kind of fraudulent situation. When the CFO/controller has been systematically stealing, the bank’s knee-jerk reaction can leave you scrambling to find another bank. That’s not so easy in this economic climate. You’ve been bit by alligators, and your company may be devoured.

The key here is to put safe guards in place with the assistance of your auditors. Don’t let the CFO set the testing limits above the limit he’s stealing. Let your auditors run the process. Also, as the CEO or key manager, you should periodically sign every check for a month that would normally be a “one signature” check handled by the CFO/Controller. This control is one great way to start draining the swamp.

How to Avoid Being Bitten by Alligators?

Be proactive instead of reactive. Drain the swamp before the alligators take up residence and start chomping.

As your company grows and you start delegating work, make sure that you keep yourself embedded in enough of the processes to have proper control. Don’t delegate and forget.

If you have auditing processes, don’t stick to limitations (e.g. we’ll look at all transactions over $5000). Mix things up and be unpredictable, so that no one can take advantage of your complacency or your routines.

Ask a lot of questions of your key people. Learn about your cash flow, your payables, and your company’s projections. Don’t believe what you’re told. Follow up on the details and have an auditor check out those projections. That’s prudent business practice.

I’m not suggesting that you don’t trust your CFO or that you don’t believe anyone. I’m just saying you need to question what’s happening and check up on things for yourself.

This may not be draining the swamp, but it is keeping the water level down. This is being proactive – not reactive – and it will always cost you less time and money.

Until next time, don’t get bit by the alligators.