Archive for the ‘Working Capital’ Category

Q3 and your FY Forecast…

July 22nd, 2008 Comments off

     Okay, we’re only 3 weeks into Q3 and moving into the busy summer season, atleast depending on the industry that you’re in.  Hopefully, your close for the first half is also completed and you’ve had a chance to review your YTD results against the original Budget and made the appropriate updates to your Forecast.  For most of my colleagues there is a single Forecast that they play off of for the remainder of the year, and typically only the consolidated income statement, or one for each business segment.  However, have these same efforts been taken to the Cash Flow and Balance Sheets as well?

     My bigger concern at this point would be making sure that there are a number of Forecast scenarios that have been developed. While the Forecast usually incorporates the elements not known at the time of budgeting, it’s usually still an optimistic view of the current business climate. I don’t think any of my colleagues were honestly anticipating such a challenging environment, but it’s here…especially in the consumer and retail sector.  It’s also being felt by companies delivering infrastructure products that are reliant on corporate capital expenditures, which are also being scaled back.

      Does you current forecasting process include a realistic “worst case” scenario that you’ve also taken to the Balance Sheet and Cash Flow levels? Are you comfortable that you have the resources to weather such a downturn without resorting to extreme measures such as headcount reductions, capital investment reductions, and working capital management that may anger your vendors?  These may have a short-term boost but the long-term effects are harder to bounce back from.  If your “worst case” truly becomes a reality do you have good relationships with your banking contacts and have you kept in touch with them during through the year? 

       For most that I have talked to, results are modest, resources are being managed, and they are closely watching headcount, but most believe the current environment will not deteriorate further.  What if it does?  I’m still trying to dial in my crystal ball, and until I do, I’ll make sure I have Plan B…and Plan C, and Plan D.

Thanks for reading . . . .

High growth start-ups & Working Capital

July 17th, 2008 Comments off

     Just finished meeting with a friend who has what would still be considered a start-up business that specializes in the nutrition & supplement sector.  Keep in mind that he’s not a rookie entrepreneur and that he has a background in investment banking, specifically mergers & acquisitions. However, he struggles with all of the same issues that any start-up entrepreneur does, which is the management of insufficient working capital and the need to support high-growth.  Although it might be relatively easy for him to let a piece of the business go for an infusion of cash, he’s well aware of the cost for the additional capital.

     Like the company I worked with in Florida, which was subsequently sold for 50% more than the target price we set, we’re going to start looking at the details of his forecasts, current capital levels, and begin connecting him with some of the folks in my network.  We’re going to schedule a number of meetings with some of my contacts that will help him better manage vendor relationships, will hopefully introduce some new banking contacts, as well as evaluate the analytics of how he is measuring his business.

     Fortunately, in this case, he is not a turnaround and is not bleeding capital, but at the same time he finds himself in a challenging situation.  Putting the proper management and reporting techniques into play, this early in the game, will help him through a tough economic environment and position him very well for the continued growth once we emerge into greener revenue pastures.

Thanks for reading . . .

More thoughts on Working Capital….

July 9th, 2008 Comments off

     Back in March I wrote a paper on my views about the management of working capital and the fact that it is not just a Finance-owned metric.  While Finance may be a driver behind the efforts, it really takes the participation of a wider group throughout the company…..hence the title of my commentary; Working Capital Collaborations .

     As I continue my discussions with other senior finance professionals, I’m still a bit surprised, especially in this environment, that working capital management isn’t a much higher priority.  I’ve had some discussions lately with a few participants in the EMBA program at USC concerning this topic and they say that while it is important, they are intently focused right now on managing the growth of the company, headcount, and staying within their operating budgets in the current environment. Most acknowledged that their working capital situations are not a concern and that they have sufficient credit lines in place and have no risk of not meeting covenants on any of their debt agreements.  That’s great news.

     However, while all were able to easily cite their current growth rates, gross margin levels, OpEx expense, net margins, and host of other metrics, none could specifically recall the metrics related to working capital. None could recall what their year-over-year change was in working capital levels.  This is one of the most important areas for to manage within the organization and needs to be a constant discipline. What it can’t be is an excercise in window dressing at the end of the quarter or year. Without looking, can you tell me your working capital results?

Thanks for reading…..

Jeffrey Ishmael

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Working Capital collaborations

March 25th, 2008 Comments off

Why Working Capital is not just a Finance-managed calculation…..
     There are many companies that have their hot buttons and what they focus on with respect to the ongoing financial operations and forecasting.  For most, unfortunately, this is only a simple focus placed on the income statement and whether or not the company is profitable. For those that are either focused on burn-rates as a new entity or are encountering extreme growth, there needs to be an absolute focus placed on the Working Capital levels and subsequent cash flows.

Read more of my commentary Working Capital collaboration ……