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Posts Tagged ‘capital expenditures’

Strategizing your facility lease renegotiation….

August 1st, 2008 Comments off

There’s no question that we’re all fully consumed with the current economic climate and focused on making the Q3 and Q4 numbers, with only slight considerations at this point for 2009 and beyond.

Where are you with the lease(s) on your facilities(s) and when will those be coming up for renewal?

If you’re a service-related entity then you might have a smaller planning window for this consideration, but if your a manufacturing entity, your time horizon needs to extend out much farther. Even if you’ve been in your facility for an extended period of time, say a decade or more, you can’t let yourself fall victim to complacency and plan on re-signing in the quarter before the lease expires.

The obvious concern of waiting until a very short time before the expiration is that you’ve lost all leverage in your negotiations and the property owner will know that you have few choices, especially if you’re a manufacturing entity. Start this effort farther out and you can determine what your options are and take those to the negotiating table with you. In my previous company, we worked through 2 different lease renogotiations, which ultimately saved the company in the high six-figures over a short-term lease and avoided significant CapEx investments tied to a relocation due to original condition clauses. By starting early we were able to determine the sensitive points for the property owner and appropriately leverage those, and in a way that the owner did not feel exploited or that he was getting a poor deal.

This is a topic that needs to be addressed in more detail, but other considerations might include:

1. What facility investments are you planning on making and are those decisions aligned with your lease terms?
2. What would the true cost be to move your operations? Would you be able to effect a quick move with little downtime or would you need to run parallel?
3. If you were forced into a relocation what is your exposure to returning your facility to “original condition” (do you have exposure in this area)?
4. Could you secure additional concessions from your current property owner through additional lease term commitments.

Lease negotiations turn into a bit of a sleeper for years at a time but have the potential to sneak up and inflict some hard financial pain if not addressed appropriately. Don’t let this one fall of your radar….

Thanks for reading . . . .

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 . . . .