Cash is still king. In 2008 and 2009, many companies failed because of a lack of liquidity, and as the economy declined and sales trended south, many saw their accounts receivable days lengthen out. Combined with overleveraged balance sheets, it resulted in the tragic end of many companies.

“Cash flow is the lifeblood of any company, and managing it is the key to a company’s longevity,” says Edward L. Wood, CTP, regional vice president of commercial lending for National Bank and Trust.

Smart Business spoke with Wood about cash flow management strategies that can prevent companies from becoming overleveraged.

What are the areas of cash flow that a company can control?

The key component to managing cash flow is managing the inflow and outflow of money. A company needs to focus on three areas: accounts receivable, inventory levels and accounts payable. You want to shrink your turnaround days as much as you can for your accounts receivable and inventory levels. The shorter the turnaround on your receivables, the quicker you are collecting cash and putting it back into the company.

For payables, an outbound form of money, the strategy is the opposite. If you are paying your vendors in 10 days, you want to lengthen those payment periods to 30 days. This creates cash in the company because you are slowing down the outbound flow of money from the company.

Every industry varies somewhat on its payables strategy. Have a discussion with your lending officer because he or she can give you a benchmark of your payment strategies compared to your peers to give you an indication of where you should be. But generally, getting your payables out in 30 to 35 days is not unreasonable.

On the inbound side, you need to keep your receivables at the same levels. Less time is better on the inbound side and more time is better on the outbound side.

How should cash flow be tracked?

The main issue is that it needs to be a process that is focused on consistently, not just at the end of each quarter. You need to manage your accounts receivables turn, inventory turn and payables on a consistent, daily basis to know where they are. That is information you can get by using accounting software, or your community bank can take your financials and give you benchmarks.

What are some common cash flow management mistakes?

Particularly on the inventory side, and especially for manufacturing companies, you have to be careful of the inventory you are purchasing and how quickly you turn it around. Buying an expensive piece of inventory and not selling it quickly can tie up cash flow. It is important to buy inventory that you know will have a quick turnaround, not something you have to sit on while you look for a buyer.

On the accounts receivable side, the mistake is not monitoring your how quickly your receivables are turning over. When you make a sale, the faster you collect on your receivables, the faster you put cash on your balance sheet. Making a sale doesn’t do anything for your company until you are paid.

Customers need to focus in on methods that make receiving payments faster. To encourage faster payment, you can increase the cost for transaction types that are slower or offer discounts for faster methods.

On the outbound side with accounts payable, you can have a conversation with your customers about when they should expect to be paid. Vendors will often work with you, which will help to better manage your cash flow.

How can a company improve its cash flow?

Depending on your lender, it is always a good idea to make sure you are using cash flow effectively.  If you have a commercial line of credit, consider a loan sweep that allows you to automatically apply your excess cash against your loan. If you need money, it automatically pulls liquidity from your line of credit so you are not manually moving money back and forth between your loan and deposit account. A lot of financial institutions will charge significant fees for those, but if your bank is doing so, you need to find a bank that is not.

You can also look at your billing cycle in terms of when you are sending out invoices. If you are not offering discounts on accounts receivable, doing so can be an incentive to get paid quicker.

How do you determine what impact capital assets will have on cash flow?

With purchase of any capital asset, the company needs to look at the value it brings to the bottom line. When you buy a piece of equipment, it produces some benefit over time, which is where financing becomes attractive.  If you pay for the equipment in total today, you are putting all of that cash into a physical asset that offers a return over several years. Financing defers the payment of the asset over time to match the revenue coming in from the asset to its debt payments, so you are leveling off the payment structure to match revenue generation.

What products can a bank offer to help improve a company’s cash flow?

Utilizing electronic deposit for deposit transactions is a big plus rather than taking deposits to your bank. You can do this from your office through a check scanner, allowing you to accelerate the collection process, and this lets you know more quickly if you have a problem with a payer.

A lock box is another option. It eliminates the option of having something mailed to company and the need for someone to physically make the deposit. It also accelerates collections.

Edward L. Wood, CTP, is regional vice president of commercial lending and the HCDC (Hamilton County Development Corp.) 2011 lender of the year. Reach him at (800) 837-3011 or ewood@nbtdirect.com.

Insights Banking & Finance is brought to you by National Bank and Trust

Published in Cincinnati

All businesses manage their cash flow, but most don’t have a professional treasurer to help them with the task. And without that professional input, you may be paying for services that you are not  fully utilizing or overlooking services that could benefit your business, says Tom Hoffman, senior vice president of Treasury Management at Bridge Bank.

“By forming a strong relationship with your banker, you can reach out to your bank to fully understand things such as account analysis,” says Hoffman. “Most companies just  implement whatever they’re told and  do not realize there are services they are paying for that they  do not take full advantage of.”

Smart Business spoke with Hoffman about how to avoid missteps in setting up your cash management system and how technology has changed the way businesses handle their financial relationships.

What are some common missteps that businesses make when setting up their cash management systems?

Their biggest mistake is not reaching out to a banking professional to better understand their choices and make the best ones for the business.  It is similar to people who go to the same restaurant for years, buying the same thing over and over. What they  have not realized is that the menu changes and there are choices they would like better or are better for their health. That’s what happens in banking products; they change dramatically over time, and there may be better choices for your business.

How should business owners begin looking for a new banking relationship, and what should they be asking?

If you think it’s time to change your banking relationship, first go to your existing bank and take a close look at what services you have there, what you are paying for and what you are missing. Then, when seeking a new bank, before you ask anything, you should  explain to a potential banking partner  what your business does. Sit down with someone at that bank and have that person evaluate, in a consultative way, what your treasury platform is, and that includes not only how cash and information flow in and out of your business, but also the capabilities of your personnel.

Then once you choose a banking partner,  your new bank should review your account analysis statements with you on a periodic basis to understand what products you are using and if you are using them in the best possible way. Your accounts should also be reviewed if something changes at the company, for example, turnover in the accounting staff. A treasury management services review will lay out what your services are, who is entitled to what services in online banking, what payment limits you have in place and then determine if any changes need to be made.

Because most businesses do not have a professional treasury staff, companies should look to their bank for advice and take advantage of their expertise to use them as an outsourced treasurer.  That is what your expectation should be of your banking relationship.

How is technology changing the way businesses handle their financial relationships?

There has been an evolution in treasury management as systems have moved from paper-based processing such as writing checks. Over the past few years, online banking — e-banking platforms — have become the primary vehicle for obtaining information about accounts and tracking activity on a daily basis. Businesses can download transaction data, initiate payments, process wire payments and foreign exchange trades, do ACH transactions and do payroll all online. The online capabilities are cheaper and faster than the old paper-based way.

How will treasury management services be different in five to 10 years?

Over time, there will be fewer and fewer checks being written and more electronic payments being processed in an e-banking platform. The paper payment system in the U.S. is very inefficient. To bill a client, an accounting department creates a paper invoice, puts it in an envelope, puts a stamp on it and someone takes it to the post office, which puts it in a truck and delivers it to the client. The client then writes a check and it goes through the whole manual process again to get payment back to the provider.

In the next five to 10 years, instead of writing paper invoices, the entire process will be electronic. Companies will initiate an electronic invoice to the client, the client will get that in their inbox and reply, authorizing the vendor to process a payment against its account, and the payment will be made electronically. The efficiencies gained are tremendous; it speeds up cash flow, and it’s also good from an environmental standpoint.

But the challenge today is the information  that is related to that invoice. For me to process a payment against you, that means I’m pulling money out of your account, and you want to know what that payment is for. If you have 100 vendors with invoices coming in, you need a way to match those. So the trick will be tying  the invoicing process to the payment process.

The international area is also  inefficient and there are going to be a lot of changes there, not only in transferring information between countries but in payment information, as well. Right now, there are many different silos, and each payment type is in a separate silo, and may be in a different currency, so they don’t connect. Today, you see bridges between silos with companies such as PayPal making that connection between entities. But in the future, those  intermediaries will go away.

The first step for a handful of countries is an international ACH payment system, allowing companies to deliver and collect funds overseas much more efficiently, and that system will only continue to grow.

Tom Hoffman is senior vice president of Treasury Management at Bridge Bank. Reach him at Tom.Hoffman@bridgebank.com or (408) 556-8353.

Published in Northern California

In the world of business, cash is king. You can have the best product on the market, but if you run out of cash, it doesn’t matter. Poor cash flow is one of the primary reasons businesses fail.

Companies sometimes aren’t realistic when it comes to predicting their income and expenses. Businesses will overestimate their income, underestimate their expenses and won’t see a cash shortage coming and end up running out of money.

Smart Business spoke to Glenn Lauter and Paul Orsborn of Comerica Bank about how to make sure your business cash flow management stays on track.

What is cash flow?

Lauter: Cash flow is the movement of money within a business, both expenditures and income. The lag between the two is what can cause problems. Cash flow management, delaying outlays of cash as long as possible, while encouraging anyone who owes you money to pay it as quickly as possible, is the solution. Successfully managing cash flow means being able to answer ‘yes’ to the question, ‘do I have enough cash in my bank account to cover my expenses?’

How will I know if a cash flow problem is looming?

Orsborn: Watch for warning signals. It’s easy to get wrapped up in day-to-day operations and overlook indications of upcoming cash flow shortfalls. To avoid cash flow problems, watch out for and heed early warning signals like account balances that continue to be lower than anticipated for long periods of time, sales slowing down, payments to suppliers being continually delayed and plans for growth that keep being put off. All of these problems should be considered warning signs and should be addressed immediately.

Should I establish a cash flow budget?

Lauter: Yes, a cash flow budget will enable you to predict your company’s ability to take in more cash than it pays out. It can also predict cash flow gaps so that you can take steps to close, or at least narrow, these gaps.

There are items to consider when thinking of a cash flow budget. One is your sales forecast. Any forecast will face some uncertainty due to a difficult economy, inflation and competitive influences. However, a sales forecast is still an important step in attempting to predict major cash flow problems. You should also take into consideration projections of cash inflows and outflows. Does your business accept cash sales only or does it extend credit? Think of the cost of goods, expenses, major purchases and any debt payment to help predict your outflow as well. All of these will end up affecting your cash flow in the long run.

How do I avoid cash flow problems?

Orsborn: Most cash flow problems can be avoided by following a few simple steps. First, keep better track of accounts receivable, especially late-paying customers. Second, manage your inventory closely. Try to have enough inventory to satisfy your product line and delivery needs, but no more. Lastly, increase prices marginally if necessary. Implementing a 1 or 2 percent price increase is reasonable if you have a strong sense of your customer base and know the point at which you would start losing sales.

Also review your staff needs. Do you have more staff than your business requires? Are you using them efficiently? Consider hiring part-time or temporary employees to help during peak periods. In a service business, employees’ wages are your inventory and understanding the trade-offs between employees and contract workers is a key component in maximizing cash. Other helpful steps include managing accounts payable, analyzing benefits, considering leasing versus buying an asset and borrowing judiciously to position your company before creditors as being well-managed.

Should I get a line of credit?

Lauter: The impact of poor cash flow can be significant even when it’s temporary. Disbursements may be delayed, penalties and late fees incurred and shipments withheld. If necessary, get a business line of credit to avoid this. Comerica offers a business line of credit that can provide you with the funds you need to help grow your business.

Glenn Lauter and Paul Orsborn are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas
Monday, 02 May 2011 13:03

How to improve your cash flow

When it comes to building a strong business, one of the biggest keys is to make sure you have a strong cash flow, and your accountant is one person who can help you with that.

“When you’re looking for cash flow management, you’re trying to control the things that take up your money, which would be accounts receivable, accounts payable and inventory,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

It may seem like a basic business concept, but Donny Woods, president of the National Society of Accountants, says you’d be surprised how many people don’t take business basics seriously.

“A lot of folks spend money, but they don’t pay attention to their financial statements, or they don’t pay any attention to their cash flow analysis they should be getting on a daily basis,” he says. “They just spend money. Unfortunately, then when they get to the accounting, we find that they’re in real trouble.”

To avoid getting your business into a situation like that, start by creating a financial plan.

“Good planning is the best thing you can do for any cash management policy — knowing what your bills are, having a budget, having a forecast and planning things out to know where you are at any point in time is very important,” Scott says.

With your accounts receivable, it’s important to process invoices daily — the sooner you get the invoice in the mail, the quicker it’s in your clients’ hands and the faster you receive your money. Aggressively pursue past-due accounts, and if you don’t have a credit policy or collection policy in place, work with your accountant to create these.

“[The] squeaky wheel gets paid, so having a very aggressive pursuit at past-due accounts is important,” Scott says.

When it comes to your accounts payable, you want to hold on to your money as long as you can. Scott suggests negotiating favorable terms with your vendors.

“If you can negotiate terms like ‘30 days after receipt of goods,’ it’s more advantageous than ‘30 days from shipment day,’” she says. “Looking at what you can negotiate with your vendors is good.”

Another key to good cash flow management is monitoring your inventory levels. She says it’s important to find a balance so you’re in a just-in-time mode.

“You don’t want much of it, because it sits on your shelf and doesn’t earn you money, but you don’t want to have too little of it because you don’t want to lose sales,” Scott says.

When it comes to cash flow, you also have to keep great records.

“A lot of people write checks and give you nothing but the name of the payer or payee and the amount, and they don’t give you any information about that check,” Woods says. He says you can never give your accountant too much information.

“They should be keeping not only a good check register, but they should be keeping receipts, and a lot of clients don’t do that,” Woods says. “Particularly, smaller clients view the check as the ultimate record. That is not the ultimate record. The ultimate record is the receipt. That is the proof. That is the information about what took place in the transaction.”

Beyond just keeping track of your receipts, Woods says you have to makes notes about what those receipts are part of in the bigger picture.

“Those receipts are not self-explanatory,” he says. “If I get a utility receipt, I know what that is, but how about if I get a receipt from someone for supplies? Maybe all it says is supplies or it’s a service of some kind, and it’s not readily identifiable on the receipt what kind of service is.”

He says this is particularly problematic when it comes to companies using consultants, contractors or freelancers. Companies may submit receipts for these services, but he needs far more information, such as is that person incorporated or not? That determines whether or not he issues a 1099 form to them at the end of the year.

“Those are the kinds of things I have to educate the client about so that we can make sure that they comply with all the federal regulations and state regulations,” Woods says.

While creating a better cash flow comes down to a lot of internal practices, Scott says it’s also important to watch external factors and plan for how it could affect you internally.

“You have to do alternative scenario planning,” she says. “What happens if this happens? What happens if that happens? Staying on top of what’s going on in the economy in general is very important because there are unforeseen things that could happen.”

For example, right now energy is very expensive, and that will ultimately affect your cost of goods because your vendors will have higher shipping charges, so staying on top of the economic outlook is crucial. The AICPA provides a quarterly economic outlook survey that can help you with that.

As you look at all these different factors, it’s important to not try to figure it all out on your own. Instead, use your accountant as a resource to help you navigate these waters.

“They should be asking what are the best practices in various companies that their accountants see as far as days in receivable, collectability, inventory management, those types of things — what are best practices that they can follow?” says Don Misheff, Northeast Ohio managing partner for Ernst & Young LLP.

He says it’s not necessarily a daily discussion you should be having, but the experts agree that it’s not a once-a-year conversation either. Depending on the size of your organization, it could range from monthly to quarterly to even semiannually. By having these conversations and seeking out expert help, you can improve your cash flow and, ultimately, your business’s overall strength.

“Cash flow is the lifeblood of any company,” Misheff says. … “Cash flow and cash management — the companies that do it great survive tough times. During a recession, you see the good ones strengthening their balance sheet with cash reserves and managing debt levels.”

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; Ernst & Young LLP, www.ey.com; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Cincinnati
Monday, 02 May 2011 11:23

How to improve your cash flow

When it comes to building a strong business, one of the biggest keys is to make sure you have a strong cash flow, and your accountant is one person who can help you with that.

“When you’re looking for cash flow management, you’re trying to control the things that take up your money, which would be accounts receivable, accounts payable and inventory,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

It may seem like a basic business concept, but Donny Woods, president of the National Society of Accountants, says you’d be surprised how many people don’t take business basics seriously.

“A lot of folks spend money, but they don’t pay attention to their financial statements, or they don’t pay any attention to their cash flow analysis they should be getting on a daily basis,” he says. “They just spend money. Unfortunately, then when they get to the accounting, we find that they’re in real trouble.”

To avoid getting your business into a situation like that, start by creating a financial plan.

“Good planning is the best thing you can do for any cash management policy — knowing what your bills are, having a budget, having a forecast and planning things out to know where you are at any point in time is very important,” Scott says.

With your accounts receivable, it’s important to process invoices daily — the sooner you get the invoice in the mail, the quicker it’s in your clients’ hands and the faster you receive your money. Aggressively pursue past-due accounts, and if you don’t have a credit policy or collection policy in place, work with your accountant to create these.

“[The] squeaky wheel gets paid, so having a very aggressive pursuit at past-due accounts is important,” Scott says.

When it comes to your accounts payable, you want to hold on to your money as long as you can. Scott suggests negotiating favorable terms with your vendors.

“If you can negotiate terms like ‘30 days after receipt of goods,’ it’s more advantageous than ‘30 days from shipment day,’” she says. “Looking at what you can negotiate with your vendors is good.”

Another key to good cash flow management is monitoring your inventory levels. She says it’s important to find a balance so you’re in a just-in-time mode.

“You don’t want much of it, because it sits on your shelf and doesn’t earn you money, but you don’t want to have too little of it because you don’t want to lose sales,” Scott says.

When it comes to cash flow, you also have to keep great records.

“A lot of people write checks and give you nothing but the name of the payer or payee and the amount, and they don’t give you any information about that check,” Woods says. He says you can never give your accountant too much information.

“They should be keeping not only a good check register, but they should be keeping receipts, and a lot of clients don’t do that,” Woods says. “Particularly, smaller clients view the check as the ultimate record. That is not the ultimate record. The ultimate record is the receipt. That is the proof. That is the information about what took place in the transaction.”

Beyond just keeping track of your receipts, Woods says you have to makes notes about what those receipts are part of in the bigger picture.

“Those receipts are not self-explanatory,” he says. “If I get a utility receipt, I know what that is, but how about if I get a receipt from someone for supplies? Maybe all it says is supplies or it’s a service of some kind, and it’s not readily identifiable on the receipt what kind of service is.”

He says this is particularly problematic when it comes to companies using consultants, contractors or freelancers. Companies may submit receipts for these services, but he needs far more information, such as is that person incorporated or not? That determines whether or not he issues a 1099 form to them at the end of the year.

“Those are the kinds of things I have to educate the client about so that we can make sure that they comply with all the federal regulations and state regulations,” Woods says.

While creating a better cash flow comes down to a lot of internal practices, Scott says it’s also important to watch external factors and plan for how it could affect you internally.

“You have to do alternative scenario planning,” she says. “What happens if this happens? What happens if that happens? Staying on top of what’s going on in the economy in general is very important because there are unforeseen things that could happen.”

For example, right now energy is very expensive, and that will ultimately affect your cost of goods because your vendors will have higher shipping charges, so staying on top of the economic outlook is crucial. The AICPA provides a quarterly economic outlook survey that can help you with that.

As you look at all these different factors, it’s important to not try to figure it all out on your own. Instead, use your accountant as a resource to help you navigate these waters.

Ask your accountant about what best practices they see in various companies that they work with as far as days in receivable, collectability, inventory management, and those types of things.

It’s not necessarily a daily discussion you should be having, but the experts agree that it’s not a once-a-year conversation either. Depending on the size of your organization, it could range from monthly to quarterly to even semiannually. By having these conversations and seeking out expert help, you can improve your cash flow and, ultimately, your business’s overall strength.

Cash flow is the lifeblood of any company. The companies that do it great survive tough times. During a recession, good companies strengthen their balance sheet with cash reserves and managing debt levels.

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Akron/Canton

If your company has earnings and cash flow, the Capitalized Net Cash Flow Method may be an appropriate method to determine the value of your business.

“It’s one of the methodologies under the Income Approach, in which an indication of value for an entity is based on its earnings and cash flow,” says Eddie Blaugrund, CPA/ABV/CFF, CFE, an associate director in the business valuation and litigation consulting services group at SS&G.

“When you look at Capitalized Net Cash Flow, you’re looking at the company’s earnings and cash flow and saying that what has happened historically in the company is a good indication of what’s going to happen in the future.”

Smart Business spoke with Blaugrund about the Capitalized Net Cash Flow Method of business appraisal and how an appraiser can use it to determine the value of your business.

In what situations would a company need an appraisal?

An appraisal can be done for a variety of purposes, such as divorce, estate planning or for the sale of a business. For domestic relations purposes, a privately held business may be one of the largest assets owned by one or both of the divorcing parties and may need to be valued to help the trier of fact in the property division process.

It can also be a valuable tool for business owners looking to sell their business. For instance, it can help an owner establish a price to begin negotiations with potential buyers or it can assist the business owner in understanding the value drivers of their company.

How does the Capitalized Net Cash Flow Method work?

Please understand that a complete discussion of this method can’t be done in a single article, so I will hit a few highlights of the method instead. Generally speaking, an appraiser will analyze three to five years of historical financial statements for the subject company to get an understanding of its financial performance history. During this process, the appraiser will look primarily for two things, items that are nonrecurring in nature and items that are not occurring at market rates.

Something that may be nonrecurring in nature might involve a company’s legal expenses. For example, in four of the last five years analyzed, the business’s legal expenses may have averaged $50,000 per year. However, in one year the expenses may have increased to $250,000. Upon discussion with company management, it may come to light that this increase in legal expenses is the result of a one-time lawsuit involving the company, and this type of litigation happens infrequently. As a result, the appraiser may add back the extra $200,000 to historical earnings as a nonrecurring item.

An example of items that may not be occurring at market rates is shareholder/officer compensation. It is not uncommon to see a shareholder who is president of a privately held company, pay himself $500,000 per year for his role in the company. However, if the appraiser performs market compensation research and finds that the fair market wage for a president of a company with similar financial/operational characteristics, within the same industry and geographic location is actually $200,000, then the appraiser may add back the extra $300,000 to historical earnings, as it appears this shareholder is paying himself more than the going market rate.

Once normalized earnings are determined, the appraiser may (or may not) tax effect these earnings, then make certain other adjustments to convert these earnings to net cash flow. These cash flow adjustments may include adjustments for noncash items, working capital, debt service and capital expenditures. Once the net cash flow benefit stream is determined, a capitalization rate (valuation multiple) is applied to said benefit stream to arrive at an unadjusted initial indication of value for the company.

Does the economy have an impact on the appraisal?

In many cases, yes. However, it depends on the facts and circumstances surrounding the subject company. Is the company’s industry one whose success is tied to the strength of the national or local economy, or is it one that thrives during a down economy? How long has the company been in business and how have they handled the ups and downs of past economic cycles? Do they have a plan for dealing with current economic issues? These are all questions and issues that an appraiser needs to consider on a case-by-case basis.

Can a company do an appraisal on its own, or does it need outside help?

Once again, it really depends on a company’s particular set of facts and circumstances. If the appraisal is to be done for domestic relations or other litigation-related purposes, it may be recommended or even required that an accredited business appraiser be engaged to make sure that certain valuation and professional standards and requirements are met in both the appraisal process and report.

Eddie Blaugrund, CPA/ABV/CFF, CFE, is an associate director in business valuation and litigation consulting services at SS&G. Reach him at (440) 248-8787 or EBlaugrund@SSandG.com.

Published in Akron/Canton

Executives who fail to maximize their banking relationships may miss out on opportunities to improve cash flow, garner attractive financing rates or off-load the processing of rudimentary accounting transactions.

On the surface, this seems like an avoidable problem. After all, executives need banking services to drive revenues and profits, and bankers have a bevy of programs at their disposal. But executives are often paired with novice bankers who lack the business acumen to embrace their vision, suggest appropriate solutions or advocate on their behalf.

“Executives shouldn’t settle for an order-taker or a lackadaisical banking partner, because they have a lot to lose,” says Simon Oh, first vice president and manager of the Irvine Branch for Wilshire State Bank. “Insist on regular account reviews, a customized service plan and advantageous rates, or go find another banker.”

Smart Business spoke with Oh about the techniques and strategies that maximize banking relationships.

What should executives look for in a banking partner?

Banking relationships are unusual, because bankers actually play a dual role. They not only represent the bank to the client, they represent the client to the bank and negotiate on their behalf. To execute this delicate yet strategic mission, your banker should ask questions, understand your business objectives and obstacles and offer a customized suite of services and rates that will help you meet your goals. Unfortunately, new bankers often take a transactional approach to client relationships and tout the product of the day instead of recommending services you really need. It’s better to surround yourself with expert advisers like a knowledgeable banker, lawyer and CPA, because each member of the team offers wisdom and solutions that can help you grow your business.

What’s the key to the selection process?

Ask the banker about his experience, whether he’s familiar with your industry and how he’s helped other companies facing similar challenges. You want to assess his listening skills and his ability to analyze your financials and develop solutions before making a commitment. Finally, evaluate his aggressiveness and his willingness to offer competitive terms. Some banks are more business-friendly than others and your ability to strike a good deal may hinge on your banker’s negotiation skills and tenacity.

What’s the best way to manage a banking relationship?

First, meet with your banker at least once a year, or more often if you’re contemplating a major change like buying a building or using a line of credit to finance an acquisition. Think of a visit with your banker like a visit to the dentist, because it’s better to diagnose and fix problems before you suffer a financial toothache. Share your concerns and expectations, your five-year business plan and your current financials and tax returns, so your banker can suggest services to help you meet your goals and proactively assess your borrowing ability. You’ll be poised to pounce on an emerging opportunity if you know your borrowing capacity and interest rates beforehand. Additionally, your banker should analyze your company’s turn on receivables and debt ratios and then suggest ways to meet or exceed the industry norm; his job is to make sure your financials support your vision. Finally, be ready to negotiate. While banking services are not free, you can garner better rates by consolidating all of your accounts and services with a single bank.

Which banking services incite growth in a stagnant economy?

In times like these improving cash flow is invaluable, and banks offer services that speed up the collections cycle and allow businesses to hold on to their cash for as long as possible.

  • Remote deposit services. This service allows businesses to deposit checks immediately without leaving the office.
  • Automated Clearing House (ACH) origination. Provides businesses with the ability to collect fees for products and services on a timely basis by directly debiting client accounts.
  • Online bill payment. Businesses can schedule exact payment dates, instead of relying on the postal service and issuing checks days or even weeks in advance.
  • Online domestic and international wire transfers. Negotiate exchange rates up front and capitalize on advantageous rates by paying invoices in foreign currencies.
  • Outsourced receivables and payables. Outsourcing rudimentary accounting transactions to your bank often improves cash flow and security while allowing your staff to focus their time and energy on revenue-generating activities.
  • Seasoned banker. You’ll miss out on important benefits unless you partner with a seasoned banker who can spot a need and recommend a solution.

How can executives leverage their banking relationship to strike a better deal?

Although most services have fixed pricing, many banks consider the entire customer relationship when negotiating fees. Research the market, so you know the going rate for services and products before you meet with your banker, then unleash your secret advocate and let him lobby on your behalf.

Simon Oh is the first vice president and manager of the Irvine Branch for Wilshire State Bank. Reach him at (714) 665-6801 or simonoh@wilshirebank.com.

Published in Los Angeles

It was early 2009 when Gregory Jackson realized he might have a ticking time bomb on his hands.

Jackson is the founder, president and CEO of Jackson Automotive Management. Two years ago, the company owned Ford, Toyota, Mercedes Benz, Scion and Saturn dealerships in Michigan and Florida. The dealerships generated $1 billion in sales in 2008 and employed about 550 people.

But over the span of about six months from late 2008 to early 2009, the dominoes started to fall. A series of violent shockwaves hit the American automotive industry as the economy sank into its worst recession since the 1930s. ? General Motors and Chrysler both filed for Chapter 11 bankruptcy protection and, subsequently, underwent reorganization and streamlining. GM committed to moving forward with the Cadillac, GMC, Buick and Chevrolet brands, leaving the corporation to either find new owners for the Saturn, Pontiac, Hummer and Saab brands or discontinue them.

Jackson owned five Saturn dealerships, comprising half of his work force, which spent half a year on edge waiting for a definite word on Saturn’s future. In the summer of 2009, after a deal between GM and Penske Automotive Group fell through, months of waiting and wondering culminated with the worst fears of Jackson and his staff realized: Saturn was done. All new production was halted in October 2009, and all retail franchises would be closed by the end of October 2010.

“I can’t sugarcoat it. It was stressful, and it was very disheartening,” Jackson says. “There is nothing worse than to know someone’s family, walk in and tell them that they don’t have a job anymore — particularly when these were successful, profitable businesses just yesterday. There was a lot of crying among people. It was very emotional, due to the loss of jobs and the financial hardship you knew people were going to be under, both employees and managers.”

The death of Saturn tested Jackson as a leader and a communicator. He had to pilot his business through a devastating blow to morale and five dealerships’ worth of lost revenue, which dropped his company’s 2009 sales to $600 million.

What the circumstances reinforced to him was the principles of good business leadership: Keep your employees informed and make wise financial decisions.

Keep information flowing

The hardest pill to swallow for the employees at Jackson’s Saturn dealer was the fact that Saturn was a moneymaker for Jackson’s company. The cars were selling and the brand was still popular. When viewed from the store level, there was no reason to believe the dealers should ever be in danger of closing.

But car dealers are caught in the middle, between the purchasing habits of consumers and the top-level decisions of the automakers that supply the product. If one or the other stops supporting the dealer, the business is in jeopardy.

In any business situation, you have to realize what you can and can’t control. You can’t control market fluctuations, but you can control how your business prepares for and reacts to the fluctuations.

At Jackson Automotive Management, Jackson and his leadership team couldn’t control what was happening at GM headquarters, but they could control the flow of information.

“When we were going through all of this with Saturn, what we did was share information on an almost daily basis,” Jackson says. “We were getting information almost daily, when Penske was going to buy Saturn and then all of that blew up after we thought it was a done deal. When GM first announced it was going to close Saturn, there was some question as to whether they were really going to do it.”

With many questions bouncing around the shop and showroom floor and with few answers evident, Jackson kept in contact with the general managers of his Saturn dealers, making sure they had the latest and most comprehensive information available to disseminate to employees.

“Almost daily, the general managers were walking around their stores, fielding questions from employees,” Jackson says. “It was not unusual for the general manager to walk through the service department and a couple of technicians would come up and ask about something they had heard floating around. Before you knew it, five or six technicians would be up there talking to the general manager.

“The general manager would say, ‘I have this e-mail. Here is the latest word I’ve heard; you know as much as I know.’ The employees were appreciative of that. They took all the information in, and then they’d go and tell the rest of the people in that department, so everyone was up to date. There was nothing for us to hide.”

It is difficult to be frank and deliver the unvarnished truth when the news could hurt your collective morale and possibly your bottom line. But if you don’t fill the need for information, your people will. The rumor mill will pick up steam as employees take bits and pieces of news and try to form conclusions. The end result is usually destructive.

“The reality is, we’re human beings, your workers are human beings and we’re emotional,” Jackson says. “They are affected by everything from talking to their neighbor over the back fence, to talking with the lady ahead of them in the grocery line, to talking with their buddy at the bar. All of these people are giving them different stories. So you want to stop the effects of that immediately.

“You might try to create a few distractions to keep people’s minds focused on something besides the bad news. We had an event where we took all employees to see a Red Wings hockey game. We had a big ‘Sex and the City’ movie premiere night. It was just trying to have a few fun things to reduce the outside distractions and keep people loyal to the business.”

An outing at a sporting event or a staff movie night can be beneficial for taking employees’ minds off of the problems that the business is facing. But if the time comes to deliver bad news, such as layoffs or cutbacks, Jackson says you should remember that all good communication is rooted in honesty. The bad news you deliver is still miles better than the bad news you don’t deliver or try to sugarcoat.

“I’d say you have to handle it delicately but directly,” he says. “Again, the worst thing you can do is to not be completely honest with people about what is going on. The news media, the rumor mill, it’s always going to be alive and active, and the worst thing you can do is to be less than honest and allow people to carry rumors with them. You lose a lot of faith and people are emotionally distraught. You don’t want them to do something unhealthy for them or for the business in a highly emotional time.”

Take a conservative approach

The loss of Saturn hurt Jackson Automotive Management with regard to morale, manpower and sales. But in spite of all the negative fallout, the business remained on solid financial footing. Jackson attributes the resilience to a conservative financial game plan in which he emphasized rainy-day planning.

To endure bad financial times, you need to lay the groundwork when times are more prosperous. Jackson lays the groundwork for future success by limiting the amount of debt his business shoulders.

“One of the good things about our business is that we’ve never had a lot of debt,” he says. “As a result, we did have some cash and were able to weather the storm. We didn’t come out unscathed, but we were still healthy. We’ve always run very tight with regard to our expense structure, so when a lot of people started dialing back their operations, we didn’t have to do a lot of dialing back. We were already efficient.”

With some cash available, Jackson was able to open a new Mitsubishi franchise in Florida, and transfer some of his Saturn employees there, helping to cushion the blow for at least some of his people.

To acquire financial flexibility when the economy goes sour, you need to refrain from overly aggressive spending when times are good and you have extra cash in the coffers. Just because you have the cash to spend on a new venture doesn’t mean you always have to do it. You have to know when to pounce on an opportunity that makes sense for your business and matches well with your business plan and when to hold back.

“My philosophy is that if you maintain a level of conservatism, then you never have to have a fire drill,” Jackson says. “A lot of businesses went into a fire-drill mentality, because they were overly aggressive and maybe even greedy. They may be full of what Warren Buffett calls irrational exuberance. But I think if you maintain a level of conservatism, while still being able to jump in and out of an aggressive mode when necessary, that’s a good balance. A certain level of conservatism breeds safety.”

If you are going to take a chance on a new business opportunity, make sure it makes sense for your situation and make sure you have performed detailed research on the market potential of the idea.

“Don’t leverage yourself too much from a debt standpoint,” Jackson says. “Be careful about building it and hoping they will come. Don’t go out and build without an absolute certainty that the market is there. That’s not what a lot of dealers did. A lot went in and overbuilt. They built buildings and leveraged themselves out with extreme debt. Then, as cash flow slowed down, they couldn’t make their payments. That happened to businesses as a whole, not just auto dealers. So you want to have more expense structure than you think you might need. I believe in running things more tightly as opposed to loose.”

The way you maintain that level of control is to measure your goals, your finances and your spending habits on an ongoing basis. At Jackson Automotive Management, each dealer communicates its projected needs for the coming year to Jackson and his corporate leadership team. Jackson wants his general managers to think along the lines of a CEO, taking a wide-angle view to the next year’s projected expenditures, so there are as few surprises as possible.

“If you’re anticipating needing extra personnel, giving them raises or bonuses, you plan that out, put it into your forecast and approval process,” Jackson says. “That’s as opposed to a random manager promising a raise to an employee and then you end up adding that overhead as you go. Or worse, promising a raise and then realizing you don’t have the financial ability to do it, and then you have a morale issue on your hands.

“You have to have good financial controls in place to pilot a business through a recession like this. You need to have those approval processes for capital expenditures and the adding of personnel. A lot of that involves good yearly planning, which ensures that you can maintain proper control over those types of things.”

How to reach: Jackson Automotive Management and Mercedes-Benz of St. Clair Shores, (586) 773-2369 or www.mercedesbenzofstclairshores.com

The Jackson file

Gregory Jackson

founder, president and CEO

Jackson Automotive Management

Born: Detroit

Education: Bachelor of science degree, accounting, Morris Brown College; MBA, Clark Atlanta University Graduate School of Business

First job: When I was a kid, I used to work in the local stores in my neighborhood taking out garbage. I was the kid out there hauling two-by-fours when the men in the neighborhood were building something. Later on, I had a paper route.

What is the best business lesson you’ve learned?

Cash is king. Without it, you can’t run your business. A lot of businesses are around now because they had cash, and they’re now poised to be major players because the industry has shrunk.

What traits or skills are essential for a business leader?

You need to have a strong understanding of finance. You need to have good people skills and the ability to make hard decisions with the knowledge that people are going to get hurt. You have to understand how your decisions will impact people’s lives, and then work to minimize the hurt.

What is your definition of success?

Success for me is having good, strong children who have grown up to be productive citizens. It starts with family. On the professional side, it is to create jobs and opportunities for people, participate in the world economy and make a difference there.

Published in Detroit
Saturday, 19 February 2011 23:58

Philip Rielly of BioRx medicates growth

Philip Rielly and Eric Hill co-founded a small private company and they run it like a small private company. Every decision they make, they ask themselves, “Is this big-corporate stupid?”

“Large bureaucratic businesses often make decisions that are far removed from where the decision should be made,” says Hill, vice president and co-founder of BioRx LLC, a national provider and distributor of specialty pharmaceuticals. “We internally say that those practices are ‘big-corporate stupid.’ We don’t have to make a big corporate decision; we have to make a small business decision.”

Making those decisions aren’t always easy, but Rielly and Hill work well together.

“You have to be respectful of each other’s leadership,” says Rielly, who serves as president of the $55 million company.

Smart Business spoke with Rielly and Hill about how they have managed growth of a small company.

Manage cash flow

Hill: One of the primary challenges is access to capital and finding the right corporate structure environment and partners to get the business started from a funding standpoint. We have to make sure we manage within our capital structure and don’t allow the growth to exceed our ability to fund it. You have to absolutely know what it’s going to cost to enter a certain market. Is it a new product, a new sales rep or employee, a different product line? There’s no one-size-fits all, but the commonality amongst all those things are: Do I know within some reasonable degree of certainty what that’s going to cost me and what my timeline is to recoup it, and do I have currently, on hand today, the ability to fund it?

Rielly: Just like any business, we have typical growing pains, and just trying to stay ahead of the line of credit has been the biggest challenge. It’s day-to-day collecting your cash on time, it’s managing and watching your inventory and being very precise about when you hire and when you expand. Don’t underestimate the importance of having a good banking relationship and don’t underestimate the importance of managing your cash flow because it’s obviously critical.

Find what customers need

Rielly: Now, more than ever, you need to focus on your customers, and now, more than ever, you need to show them how much you appreciate their business.

Hill: When we viewed this market, I’m not sure that we viewed it as a market where we had to be revolutionary in the way of product services and delivery. Rather, we viewed the market as having a deficiency in terms of high-quality customer service that can be delivered quickly with decisions made at a field level. If you’re just going to enter a market and just do what everybody else has done, it may work — the market may accept you just because of shear effort in the marketplace. But if you can go into the market delivering a service that’s needed but not being provided or even

used to be provided, your acceptance and uptake and revenue growth is going to be a lot higher than if you just go out and try to plow with the same model.

Empower employees

Rielly: When you do find the right people, you have to really empower them to make decisions that impact their job and impact the business. You have to empower people to do their job and let them go. Let them fail from time to time and let them make mistakes and let them learn from their mistakes. As an organization, you will be better five years from now, because they’re actually growing a lot faster because they’ve been kicked down and brought back up.

Hill: It also helps to think about how you can adjust your managing style. Be the manager that you would have always wanted to have. Meaning, when you weren’t a manager but thought, ‘If I was ever a boss, I would do this.’ Well, do those sorts of things because it probably has some merit.

Build strong infrastructure

Hill: Make sure that you have an infrastructure in place to anticipate the growth. Try to hire maybe not way in front of your growth curve but in line with your growth curve. You have to set expectations that you’re going to manage for a year or two out, not just for today. You have to be thinking … in advance in terms of policy setting, staffing, structural procedures that you have to manage on a day-to-day basis and preaching that mantra to the organization that what we do today not only has to work today but has to be productive two years from now.

How to reach: BioRx LLC, (866) 442-4679 or www.biorx.net

Published in Cincinnati