Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
As business owners and managers we want to maximize opportunities and accomplish our goals.
One of the most powerful positioning tools is strong business credit. It can allow us move quickly to take advantage of fleeting opportunities and help us maneuver through the stress of a pullback.
Here are five quick tips:
Weak accounting procedures and practices are more commonplace than often understood. Justifiably, we go into business not to be accountants or bookkeepers but to sell our products or services. It’s a trade off that many entrepreneurs make to focus on what will drive revenue growth.
I am a strong believer in monthly financial reporting, no matter how small the business. If it’s not a strength or time is scarce, consider hiring a bookkeeper or accountant.
Good financial records provide the ability to react quickly to trends in gross margin, expenses, operating income, working capital and other key performance indicators. You can then focus on areas that will drive the most profit by making faster strategic and informed pricing changes, improving sales tactics and utilizing expense management tactics.
After you look at them each month alongside your sales pipeline activities, you will build a stronger intuitive feel for the direction of the business and the challenges ahead. The other great benefit as you look to maximize your borrowing capacity is that it helps provide for a smoother and more transparent loan application.
We know risk. We live it each day as we grow our business but reality is that we are not always great at balancing the risk and the reward. Funneling energy to prudent planning will result in stronger credentials and ultimately larger credit capacities. Always plan for the worst, and work for the best.
Functional planning considers matching the repayment of the debt with the life of the investment opportunity.
A common issue that creates stress and distraction is using revolving lines of credit to fund fixed asset purchases or long-term investments.
This adds risk and potentially strains cash flow and working capital. We have seen many cases of improper use of lines of credit resulting in working capital shortfalls that could have been resolved with proper planning. Everyone should want the structure to match the opportunity. It adds more flexibility; and ultimately, you’ll sleep better and your banker will too.
Funding our businesses doesn’t need to be focused on one debt tool. Many options are available in today’s marketplace. Using a business credit card for short-term purchases that are paid off each month is a good way to drive potential cash rewards, build the business’s credit profile, and reduce cash needs on an immediate basis.
As debt requirements grow, it’s important to consider the structure and complementary nature that real estate, equipment term loans and revolving lines of credit can have with each other.
A properly structured real estate loan partnered with a line of credit can improve cash flow. The interest rate on real estate-secured debt is traditionally lower than receivable and inventory-based financing, loan advance rates are higher, and the repayment terms are longer.
This provides more flexibility to support the business’s cash flow needs by reducing expenses, providing more access to cash, and improving the monthly cash flow. More importantly, doing this successfully demonstrates your ability to prudently manage debt and ultimately improves your creditworthiness.
Driving a strong cash conversion cycle, that is how fast you can convert invested cash from the start to ultimate returns, will allow your business more flexibility and enhance your ability to do more with less. It also demonstrates strong management and operational controls that lead to a stronger loan application. The primary ways to improve the cash conversion cycle are to collect receivables more quickly, reduce cash tied up in inventory and manage supplier payments.
Practical steps for improving receivable collections include understanding the underlying invoicing, collection and dispute process after a sale has taken place. A faster and more frequent billing system will naturally drive more frequent collections.
If collections become an issue, organize your collection process by risk profile and dollar amounts.
Defining the roles and responsibilities on sales and collections allow for a more informed process and ultimately a better customer experience.
We can often find ourselves overbuilding inventory to support our customer needs and close sales. To the extent we can have more foresight into our customer’s pipeline is one advantage but another is optimizing our inventory based on contribution to sales, profit and the customer payment performance. This leads the business to optimizing inventory settings for customers that provide the best profit margin and payment performance over building inventory for slower and less profitable product lines.
Delaying supplier payments is often times the common solution to improving cash cycles.
Frequently, we have strong supplier partners we depend on for our business activities. Consider reviewing your payment process to reduce the frequency of payments to the same suppliers by consolidating bills and paying not earlier than agreed to. Simple actions and discussions with our suppliers can provide less work and more flexibility in the cash cycle.
We know how much our project will cost and that we will need to borrow capital to execute on our plan. To finance it, we will need to demonstrate that we have not only the cash flow but the collateral to support the financing request.
A clear and concise request that demonstrates the before and after cash flow and collateral coverage ratios are crucial to a good loan application.
It could be the case when there are unlevered assets that could be pledged as collateral to provide additional support in the loan request.
This is where preparation, organization and understanding of the collateral available to the lender provides the business with the best opportunity for the most creative and competitive rate and terms for their transaction.
