Finding Hidden Cash
In the case study I mentioned in my last posting, the executives needed to quickly find cash to prevent the bank from revoking the company’s line of credit. One of the first places all the groups reviewed was the inventory line of the balance sheet. In this company, inventory had increased dramatically in the years since the father left and presented a real opportunity for the company to raise cash. The big challenge was how to convert the material in the warehouse into cash for the bank. There are basically two ways to do this, either sell more or produce less but there are pitfalls with both.
Selling more product requires increased advertising, new distribution channels or additional sales people, all of which require cash up front and may not work as well as planned. Another way to sell more is to cut prices but this comes with a big risk to margins (just ask the retailers and auto companies about what happens when you train your customers to wait for special discounts) as well as the reputation of the business. On the other hand, producing less can be just as painful. Producing less requires the company to idle plants, cut shifts or reduce hours having a direct and potentially long term impact on the workforce. While all of these are unpleasant, if the future of the business is on the line most owners will do some combination of these to save their business.
The Third Way
I mentioned the two basic ways to manage excess inventory but there is a third way. The third way is to prevent it from getting out of hand in the first place. Businesses that rely on inventory need inventory measures and targets. Additionally, the management team should know within 5-7 days after the end of the month how they are doing against those targets and some retailers and manufacturers may need this information weekly or even daily. Finally, reviewing the reports is great but managers need to follow through with actions to bring inventories back in line; trust me, this is far easier to deal with in the short term rather than delaying it.
I’ve never heard anyone say “Inventory Is King”; managing inventory will put cash in your pocket.
What’s in your business?
Recently I had the pleasure of partnering with David Coit, a Phoenix based banker from Bank of Arizona, to lead three Vistage groups through a case study in finance. With David functioning as the banker, Karie Montague, the Vistage Chair, serving as an advisor and me in the role of Chief Financial Officer (not a big stretch) we evaluated the recommendations of the groups. In the case study, a father had successfully owned and operated a company and then turned day to day operations over to his son and daughter. In two years, pretax earnings were down 90% and EBITDA margins had dropped from 13% to about 3%. The company had broken multiple lending covenants and was now preparing for a meeting to hopefully, avoid having the bank pull their line of credit. All the groups did a great job of identifying operating changes to raise cash and preserve their line but one big question was still there; what does the father really have in his business? Using some back of the envelope multiples the company appeared to be worth roughly $3 Million. With $2 Million in debt, if the father cashes out now, he is looking at about $1 Million. If he can get profitability back to where it was, he has the potential to pay off the debt and, using the same multiples, have a business worth $12 Million. This situation is a prime example of how critical exit planning or, as we call it, “Finding the Exit®” really is. The father in this case is now facing some big questions:
- Can we get the business back to where it was?
- Can the kids get things turned around?
- What role in the business should they take?
- Is it time to bring in outside management? If so how?
- How long will all this take?
Finding the right way to exit the business is a critical issue that all owners will face at some point. Doing it right can mean millions of dollars to an owner but it won’t happen quickly or without planning. My partners and I regularly help businesses through this process. We play a hands-on role guiding the company’s finances to maximize the value of the company. We also function as a partner by offering insight and options on succession planning, proper timing and deal structure as well as providing continuity for new owners whether they are family members, employees or outside parties. Finally a B2B CFO® serves as the owner’s “quarterback” by coordinating and aligning the attorneys, CPAs, investment bankers, insurance agents, investment counselors and other specialists that will be involved in a successful exit. So, the next time you’re thinking “What do I have in my business?”, give me a call and we’ll figure out what you have now and, more importantly, what it will take to get you to where you want to be.
Next week I’ll dive into another of the issues this business faces and talk about how to avoid costly mistakes along the way.
B2B CFO NAMED IN PRESTIGIOUS INC. 5000 LIST
B2B CFO NAMED IN PRESTIGIOUS INC. 5000 LIST
184% Growth Earns B2B CFO Spot in the 2010 List of Fastest
Growing Companies in America
Phoenix, Ariz. August 24, 2010 – B2B CFO, nation’s largest
provider of CFO services to small businesses, has been named to the
prestigious Inc. 5000 list of fastest growing companies in America.
Now in its 29th year, Inc. Magazine’s annual ranking judges US-based
and privately held companies by their revenue growth. This year’s
list was ranked on the percentage in revenue increase from
2006-2009. B2B CFO’s growth earned 84th place in its industry.
“There are approximately 27 million small businesses in the U.S.
today,” said Jerry L. Mills, founder and chief executive officer of
B2B CFO, “It is a huge honor to be among the fastest growing and the
most successful businesses in the country. Our firm has experienced
tremendous growth over the past few years and we are on track to
continue expanding. I am especially grateful to all of the firm’s
dedicated Partners who continue to advocate our services around the
nation.”
In a personalized letter congratulating B2B CFO on this
accomplishment, Jane Berenston, editor-in-chief of Inc. Magazine’s
wrote “Congratulations: your company, B2B CFO, has made the 2010
list of the fastest growing private companies in America. This
achievement puts you in rarefied company, especially if you consider
that over 27 million businesses are registered in the USA. The elite
group you’ve now joined has, over the years, included companies such
as Microsoft, Timberland, Visa, Intuit, Jamba Juice, Oracle, and
Zappos.com. I look forward to congratulating you in person in
Washington, D.C.”
B2B CFO’s growth is reflected in numerous awards this year. The
company was also recently named in ACE Corporate Growth Awards,
which recognized the most successful and fastest growing companies
in Arizona.
In August 2010, B2B CFO has grown to 170 Partners across 39 states,
representing 5,000 years of cumulative experience. Each Partner is a
seasoned financial executive who serves as CFO to growing businesses
on as-needed basis. Approximately 80% of the Partners have a
background that includes senior executive positions at the Big Four,
and all of the Partners have held high level executive finance
positions in various industries in corporate America. Together, B2B
CFO Partners work with more than 500 businesses in the nation with
combined annual sales of more than $3 Billion.
Jerry L. Mills and many of the B2B CFO Partners regularly dedicate
time to educate business owners on financial matters. Mills is a
frequent speaker and contributor and has been featured on many
national media networks including FOX Business, Fortune Small
Business, Smart Money and many others. Mills is also the author of
The Danger Zone – Lost in the Growth Transition, and Avoiding The
Danger Zone – Business Illusions, both business non-fiction books
that help entrepreneurs understand and build a strong financial
strategy.
“We look forward to participating in the Inc. 500|5000 conference in
Washington, DC this fall,” added Mills. “Along with my colleagues, I
look forward to the October 2nd awards ceremony and to meeting the
entrepreneurs that created the other 5000 fastest growing companies
in America.”
About Inc. Magazine
Founded in 1979 and acquired in 2005 by Mansueto Ventures LLC, Inc.
is the only major business magazine dedicated exclusively to owners
and managers of growing private companies that delivers real
solutions for todays innovative company builders. Inc. provides
hands-on tools and market-tested strategies for managing people,
finances, sales, marketing, and technology.
Inc. Magazine’s 29th annual Inc. 5000 ranking of the fastest-growing
private companies in the country is available online at
www.inc.com/inc5000/list
About B2B CFO
Headquartered in Phoenix, Ariz., the firm was founded in 1987 by
Jerry L. Mills. B2B CFO is the nation’s largest CFO firm serving
entrepreneurial, growth and mid-market companies with revenue under
$75 million. The firm’s partners have an average of 25 years of
experience and each individual partner is a senior level executive
with a broad range of expertise. Please visit online at
http://www.b2bcfo.com/
The Wall Street Journal featured B2B CFO® as experts in cash flow management. 
