Our friends at Revitalization Partners share insightful messages to help you make the right business decisions. Below are excerpts from two of their recent newsletters, describing solid business analysis and decisions. At Juniper Capital, we are committed to sharing valuable business advice and helping you achieve investment success through trustworthy private money loans. Share your thoughts on this blog and our social channels, so we can continue to provide you with quality financial information:
Looking For Cash In All The Wrong Places
When a company needs working capital, it can either turn to outside sources or find the necessary capital within the company. An analysis of financial statements is the place to start when looking within. There are many things you can learn about your company from a financial statement. Things that will help you make long and short-term improvements to improve profitability and working capital position, without being forced to borrow money or sell equity.
In the 11 years that Revitalization Partners has been doing re-structurings, we have never seen a company that couldn’t produce additional working capital and profits within its operations.
Look at your Profit & Loss statement, for instance. Let’s assume you are doing everything you know to increase sales. Even if sales are static, can your market tolerate a small price increase? Can you lower direct costs through changing suppliers, negotiate better pricing, get bigger discounts? We see it done, by companies large and small, in every industry.
Can you reduce expenses? Not cut people, necessarily, but make changes. Are you really getting the performance you need from every job in the company? Could you reduce costs in one area or another?
What about inventory? Generally, you can only borrow about 50% of the cost of your current inventory. Current inventory is that which is not obsolete or degraded in some way. The remaining 50% of the value is capital that comes out of your cash, not from a bank loan. In the case of old or obsolete inventory, 100% of it is unavailable cash for the company. If inventory comes in, gets turned into product and sold quickly, creating a receivable, that’s an inventory turn and an efficient business.
We had an assignment to improve the performance of the largest solar distributor in North America. They had lost over $22 million in the preceding year. Although inventory turns were satisfactory, the prices of solar panels were dropping so fast that even having them in inventory for 30 days meant taking a write down on the value of the inventory on the balance sheet. And that write down was reflected directly in the P&L statement on a monthly basis. We were able to reduce over half of the previous losses by eliminating inventory write downs.
Get the funding to stabilize, improve, and grow your company. So much is under your control. Having an understanding of your financial statements and being willing to make and communicate changes that lead to improvement, insures both a good relationship with your financial partners and the need for less outside capital.
Certainty in Our Lives
Despite a business owner’s certainty that they are right, not taking proper business action can be potential corporate suicide. Sometimes, the more “certain” we are, the more likely we are to make bad decisions, both business and personal. In their book, Decisive, Chip and Dan Heath identify short-term emotion as one of the primary causes of bad decisions.
As Duke professor and author of Predictably Irrational, Dan Ariely points out:
“If I had to give advice across many aspects of life, I would ask people to take what’s called “the outside perspective” – What would you do if you made the recommendation for another person? I find that often, when we’re recommending something to another person, we don’t think about our current state and we don’t think about our current emotions.”
As a business owner, especially when a business is under pressure, Ariely’s advice is worth keeping in mind. Think about your employees, stakeholders, and, especially in a potential transaction, what you would advise the opposite side if you were an unbiased third party. It will help you make the right decisions with a minimum of destructive certainty.