Business Health Series – Optimizing Working Capital: Have the Cash for Growth

Welcome everyone. Thank you all for joining us today. I am Gershon Morgulis. I am the founder of Imperial Advisory. We are a fractional CFO firm. And I’m gonna start by saying thank you to Toni for, and Madhura for putting all this together. Then I’m going to welcome anyone from our team.

who is here today. and obviously Rik who will be speaking. So welcome to anyone from our team as well as to our clients and friends. Thank you all for joining us today. So let’s talk. I’m Gershon Morgulis. I’m the founder of Imperial advisory. We are a interim and fractional CFO firm and we provide CFO

level financial leadership to growing businesses again either as a fractional CFO, which is part-time long-term or on a project or interim basis, which comes up when senior finance leader leaves. So we typically will work with again. I’ll give a little more detail one of two kinds of clients either CFOs of

successful growing companies who need strategic financial leadership but just aren’t ready for a full-time CFO yet. And we work with them on a variety of things, including leadership, growth planning, helping them figure out how to grow the business and then helping them execute on that. And so it’s a lot of planning, well as dealing with cashflow profitability.

preparing for transactions and eventual exits. Another major client category is a CFO, a larger company or a CFO of a figure of a hundred plus, hundred million dollar plus division of a much larger company. And we end up working with those people when they have some kind of gap.

in skills or bandwidth on their team. And that work often is around FP &A, financial planning and analysis, audit readiness, &A diligence, large important things that sometimes come up daily. Often they don’t come up every day, but either way, those CFOs need some kind of help and that’s when they call us in. What sets us apart from other companies is the depth of our team.

Our CFOs bring 30 plus years of experience in finance, sometimes a mix of accounting and finance. And typically our CFOs have 10 or more years sitting in, of experience sitting in the CFO seat. Because of the team that we have, we’ve got broad experience across different industries and company sizes. And again, our people have sat in the seat, lived there, understand what’s going on.

Anyway, that’s a drop about us and onto today’s topic. Today’s topic is working capital management. I’m really excited to have Rick, one of our amazing CFOs presenting on this topic. Rick has decades of experience working a lot in manufacturing distribution, but I’m sure he’ll tell us a little bit more and throw in stories from his different

different experiences in different industries. But Rik has a lot of experience dealing with dealing with these things. When you are in an inventory heavy business, your cash is sitting on a shelf in the warehouse unless you do a good job managing it. And I’m looking forward to hearing a lot more about this from Rick today. So without further ado, Rik, take it away.

Thank you Gershon and good morning everybody. Thank you for joining us today. The topic, rooting capital management is very dear to my heart. I know that there are many reasons to say that your business depends on revenue or it depends on having a product to sell or service to provide, but without good

working capital and cash management generally, you will not succeed. It is like the blood that goes through the whole company and every aspect of it to make it living and to make it grow and develop. So networking capital, which is the difference between your assets and your liabilities in the current account, that is to say,

inventory and accounts receivable and accounts payable and some other basic expenses that appear every month. The networking capital kind of sets you up for how much cash you need to run your business today. And this is very important, obviously, because if there are changes to your business, they can immediately affect working capital.

and change your cash requirements. Management should have a clear working capital strategy. It ranges from a single number, but should rather be a range of numbers.

We will discuss the inventory management, we’ll discuss the accounts receivable management, and we’ll discuss the accounts payable management to understand the importance of having a working capital manage running smoothly and optimizing your cash at all times. You don’t want to leave yourself short, but want to have cash tied up.

which can be used elsewhere for investment in your business. It really permeates every aspect of the business. And at the end of the day, you need a collaboration between all senior managers and departments to do a good job of managing your working capital. Counts receivable is

A subject I’ve handled separately, but I think we need to look at some headlines here which make a difference. It has to be a disciplined policy accounts receivable. You need to have set management instructions, set credit lines, set invoicing procedures.

to make sure that invoice has always tie up to orders and you need to monitor day sales outstanding. We could segment customer risk and resolve disputes promptly. There’s also a way of having credit insurance for your receivables. And we had a guest from the COFAS, Ryan Morse, who

explain that in more detail. But it is very important that you have a system that collects your money on time. If we are doing a cash flow, it’s common practice to do a forward cash flow 13 weeks. The timing of that in and out is vital. And if accounts receivable, start pushing out.

and the days start increasing, you may have times when you don’t have the cash in the bank to meet basic wages and salaries, for example, or payments of the taxes to the government. It is important that these cash flows and the collection of receivables tie in and are referred to and updated regularly.

There’s no magical number for days outstanding, but if you have a straight policy of net 30 days, you know, they can push out to 32, 33, depending on weekends, depending on public holidays, depending on the mail, if they mailing a check. ACH is much better, of course, because it goes through the virtually 24 hours of the time it’s set up. But these movements

do affect your ability to manage your business in total and the cash required. So averaging, I think in the 40s is probably normal from my experience because you are giving some companies more than the 30 day net or you’re having the odd invoice that can be under query for some reason.

and it’s important that you maintain a number. Set a target. Set a target based on history, if you like, and monitor it, and don’t let it stretch. And if it does, follow up. I’m a great believer in managing your receivables on a weekly basis. I’m a great believer in the relationship between your accounts receivable, internal staff, and…

your big customer staff. And those relationships are important when they’re at stake. If your customer happens to have a problem and needs some time, you will be the first to receive preference if you have that relationship. And I really encourage a strict policy of credit management.

and of getting invoices out on time accurate in terms of the order. Don’t leave your customer room to query it, to delay payment and to stretch it out. It is a common practice, especially when times get tough. And I can tell you the squeaky wheel gets the grease. So if you’ve got that relationship and you use a telephone, not an email or a text, you are ahead of the average.

when it comes to getting those AR funds in and sticking to your cash flow projections. Inventory. Yes, sorry. Yeah. So it really goes back to making sure you’re set up with the proper process and the proper plan and having owners for each of those things so that you know that the bills will be accurate and you know that the bills will have the right time. And then

when that all works like a well-oiled machine, you’re more likely to have everything the customers are not going to be delaying it and not causing problems on that end. Exactly, yes, Gershon. In fact, I should say I am a real proponent on processors. I want to develop processors that become protected against human error. And everybody makes mistakes. I mean, we know that.

So I do spend time personally in a situation where we find the process breaks down and we need to get to the root cause and fix it. We don’t point fingers, we find solutions that it does not reoccur again. And certainly in the AR whole chain of events, it’s important that you have the processes, that they are managed strictly.

and that it needs a very senior level authorization to do something outside of what you’ve said. I really do emphasize that.

The other big one of course is the inventory level. And that has a myriad of different influences which affect you in terms of your inventory level. When I joined the company some while it was 2006, 20 years ago, they were having a problem. They had moved into a new factory. They were trying to run 24 seven and they had an extruder set up and off it went 24 seven.

Well, very shortly, they had more inventory of seconds than saleable as first inventory. And as this occurred and developed, so they had a overdraft developed, which was not authorized with the bank. And before they knew it, they were in difficulty with the bank. They had a cash problem. They had an inventory problem because it wasn’t saleable at normal price. And they let it run too long, of course.

So, first thing I did was change 24-7 to 24-5 and then work on getting rid of that inventory. And I have a philosophy, having worked in a number of businesses, audited a number of businesses when I was younger, and I believe your first loss is your best loss. Don’t have inventory lying around that in the next six months, you know for sure you will not be able to sell.

Sell it, get rid of it. Don’t get married to it and think one day it’s going to blossom out into a beautiful bride. It is not worth keeping and the cash is far more valuable. It takes up space, it ages, deteriorates, it has to be insured, it has to be handled, it is not worth holding. And that applies to all inventory, whether it’s raw material, finished goods.

bought goods for resale or manufactured. Of course, the inventory is biased towards manufacturing and distribution. It’s not a service type of asset. So that wouldn’t apply to a service organization. You’d primarily be involved with inventory and not be involved with inventory, rather AR and expenses. And another selling point, if you’re in the…

service industry, you’re actually selling time. So it’s important to manage time of everybody who you’re paying to do the job. There are situations like fractional CFO and others where the bench strength is not paid a salary. They are paid when they are working. But when you’re in the service industry like HVAC or plumbing or electrical,

You’ve got to develop people permanently to be there. And if they’re not working, you’re not earning money, but you’re paying money. So that is the big factor in the service industry. But getting back to inventory levels, it involves all sides of the business. The way we purchase, the way you schedule and run your plant, the way you handle your…

suppliers, vendors, and the way you deal with issues that arise. So it is a really a collaborative management requirement to deal with inventory levels. The first thing is demand forecasting. It is very important to have a forecasting system and to follow it.

as best you can when building inventory, when ordering your raw materials. There are relationships with your raw material providers that you need to work on in terms of not only the price, but also the shipping and also the lead times. I’ve always said, try and make, you know, we all want to make our customers happy and solve their problems.

We also need to help our suppliers get us the best deals and the best service. Make it easy for them. If they want a three-month forecast, give them the three-month forecast. If they want a certain number ordered, negotiate with it. If you don’t want to ship it all in, let them hold it in stock for you. Not unusual.

And that provides you with a JIT and that it’s not on your balance sheet, but it helps them in terms of their production scheduling and their runtimes and economic volumes. So they’ll hold it for you. They know you’re going to buy it. Those are some of the things you should do in working through how you order and how your inventory comes in. There’s enough. Yes.

Can I jump in for a second? Please do. I wanna…

I want to share another perspective on what you were just saying that and this really calls to light why why people should be calling us sooner rather than later. We have a client that was you know newer client that’s experiencing some cash flow issues and they did what you are what you just recommended but they did it with products where they’re making it easier for their buyers for their customers to buy.

And they’re sitting on all this stuff, but they’ve By doing they sell something with Relative low enough margins and where the whole setup is such they don’t have room in their warehouse they end up Spending so much money on that stuff that they’re storing for their customers That That they’re getting themselves in trouble there and so it’s important to to understand

All the how all the different dynamics work together in theory, you know It’s great that they’re sitting on that stuff and it makes it good for everyone. But In their case, they’re ending up spending a lot of money, which then is squeezing their margins further squeezing their cash and they’re getting themselves in trouble so Anyway, I just wanted to point out that there’s different sides to every one of these, you know what benefits

A buyer doesn’t always benefit the seller. Obviously, everyone needs to work well together, but also call your CFO so you don’t get in trouble.

Yes, absolutely. But don’t just don’t misunderstand me. I’m not suggesting you hold extra inventory. I was suggesting your vendor held it for you. Well, that’s what’s going on here. They are client in this case is the vendor. So the customer told them, why don’t you hold it? And that made the sale. Okay. And everyone was happy.

Until now they’re sitting and they’re paying for like you were saying they’re paying insurance, whatever it is. They’re sitting on all the sexier stuff. And now they got them. But you know, we didn’t invite them to do that. And we’re trying to help them figure all this stuff out and right. Improve things. Okay. So, but, when I’m the vendor, I would not be holding it. That is not what I recommend. I’m recommending. We’re with the buyer. Yes. Okay.

I mean, if he’s not prepared to do it, which may be sensible in his, then you won’t get it. But if they are prepared to do it because of the overall situation, and it depends on the industry, it depends on the way the goods move, there are a lot of factors. It’s not a simple case of, well, I’ll run you an extra two months’ worth. Okay, fine. It is a case of examining the situation. And the case that I’m talking about was a…

automotive parts that were going to OEMs and the OEMs issue a matrix, they don’t issue firm orders, but you know they’re going to be running it. And then you could go back to your supplier and say, you know, here’s the situation and we’ll hold a little bit. Or in fact, I found that running a month’s worth at a time was so much cheaper than running by call out that you ran a month at a time.

because your scheduling helped you, because your runtime versus setup time changed dramatically. So there are a lot of factors that you’ve got to look at. And I agree, don’t put into inventory stuff that may not sell. mean, that is a problem. There’s a system called SNOP, Sales and Operating Procedure.

where you put together every month you have a meeting with your sales team, your operations team, and your purchase team, and you go through the next month’s expected sales. Now, if you’re in a business where you have no idea, of course, you’ve got a lot of issues to deal with. But most cases you have something to deal with. You’ve either got your own history, or you’ve got projections from your customers, or you’ve got economic announcements and what have you.

but it is a place where you put together.

manpower, materials, and sales. And you produce a schedule for the next month based on what inventory is in hand when you start and based what you want in hand when you finish. And then you work through the detail of what you’re going to produce, how much time it will take, the personnel, and it is a very good operating system to use when you can.

And it does take, of course, the collaboration of all the people involved. I would track days inventory outstanding, of course, and this can vary, but my own experience tells me 30 days of raw material on average and 30 days of finished goods on average. And those can go up and down. It can go down to two weeks of something or.

up to 45 days in exceptional circumstances. But smoothing out your production is a far greater advantage than only making what you know you’re to sell next month. And when you know there’s going to be a month when you have to make more than you can usually make. And the S &OP handles that smoothing effect, which eliminates overtime, it eliminates quick changeovers where they are costly.

set up times and breakdown times. And if you’re not running your equipment 80 % of the time, you are not running it the most efficient and economic way. So the inventory has to work in within your operations as part of the way you manage and build efficiency and profitability in the operation. Again, reduce any slow moving and obsolete inventory.

Get rid of it. A monthly meeting, again, with sales and production involved, to see if it’s of raw material, if there’s any way we can use it. If it’s finished goods, only sales can deal with it. But sell it. Turn it into cash.

So the involvement of procurement and operations together is vital. It’s in terms of the volume, the timing and the scheduling of production. And a good ERP system or ERM system is necessary to do that. You know, now with AI, a lot of these situations could be made easier.

in terms of being able to calculate quickly. But I’ve always found that in terms of scheduling, there’s always some human input needed because of variables that change all the time and algorithms will not be able to cover all of them. Just a point I make because AI is becoming popular, the advantages, but the human touch is necessary in the case of managing inventory properly.

Other than that, I would suggest that you do cycle counts throughout the year. It is important that inventory is accurate. It is important that you don’t lose inventory and make more and find there was old stuff lying there. It’s important that you ship on time and that inventory that said was there was not there. And if this becomes part of your culture and part of your…

daily, weekly, monthly management style, we had 99 % accuracy every time we took inventory. And you build it that way so that in fact, your service and your lack of goods or oversupply of goods is minimized.

Moving along, we now come to the other side of the balance sheet, managing accounts payable strategically. And again, you know, I’m not a believer in giving cash discounts. They are expensive. And you save maybe 10 days of cash flow or 15 days at best. And it’s not worth the cost. If you start multiplying that out, what it’s costing you per year.

on giving away cash discounts. But adversely, I love to receive cash discounts. They’re worth far more on a continuing basis. And therefore you need to categorize how you pay your accounts payable and your vendors based on what terms you can get from them. Negotiating cash discounts is valuable.

Stretching it out 30 days is also valuable. And it all depends on your relationship again with your supplier. Work with your supplier, collaborate with your supplier. How can he bring down his prices? Is there a better way to package the goods? Is there a better way to ship the goods? Is the volume different? Don’t order 50,000 pounds if 42 only may fit into a full truck.

Makes no sense. Things like that. These little differences help your supplier and give you the edge. And a loyal, regular supplier-customer relationship is very helpful in difficult times. All companies go through difficult times, economic times, difficulty with obtaining raw materials, difficulty in a factory where you have a problem that affects

know, machine goes down and you want to be the preferred supplier in every case where you are at least doing any volume. Small volumes aren’t that important, but every big volume customer and supplier needs that attention.

Payment terms can be stretched with suppliers. If they know the reason and if they know you’re a good customer and if long-term they want you, they will help you. The same way you help a customer in that situation. Don’t be shy about it, but don’t be frivolous. Don’t come every second week with a new excuse. That’s not a collaborative, loyal customer.

Pay on time, but not early. Don’t give away days of cash if you don’t have to, but don’t be late. You can possibly get into a habit on a continuing basis that you arrange payments on the day due and it arrives there a day after or two days after. If it happens every time, they’re not going to complain. If it goes to 10 days, they are going to complain.

Also, make sure that you are running a system and a process for authorizing payments and getting them sent. In a system where perhaps you need to match received with the goods that you’ve received into the system, that it’s what you ordered, there are issues that can arise.

times you, for whatever reason, the receiving notice is left outstanding, it is not entered. And all of a sudden, Accounts Payable gets a call, what happened to my check? Half of it’s not here. And you have to look back and find, it was a receiver that was miscounted or something happened and nothing was done. It landed on some…

his desk in receiving or in the warehouse and nothing further happened. Have a system that checks these things. If they are missing receivers, if an invoice is there and yet it’s not up for payment, have a system that covers that. The more you have a system, a process that protects both sides, the better off you’re going to be. Also unauthorized payments. If you’re

If you really go by your processing system, don’t short circuit it. Don’t work around it. You do it once, somebody will do it again and again. It’s with anything where there are rules. Stick to the rules or have a senior authorization only.

I can give you a crazy example of scam or fraud activity that happened to our company a while ago. We had a supplier that we were paying round about 30,000 twice a month about all on ACH. And within an email chain and every two weeks there’d be an email back and forth

confirming that they agree with what we’re sending and just to keep it smooth. And within that email chain was a request to change the bank for the ACH.

Now, the process should be follow up with a phone call. Don’t accept it just because somebody typed it in. You’re not getting that request from the president or the CFO. You’re getting it from an accounts receivable clerk. Check it. We didn’t check it. What happened was two payments of around 30,000 went to another bank. One of them, our bank caught in time. The other was on its way to China.

gone, we never recovered it, 29,000 odd dollars. And that was of course our fault. But of course, the hacking, the fraud happened in their system, not in ours. But they won’t take responsibility for that. It was our responsibility to double check. Just a point, double check things of importance like that.

Included in generally payables, you know, are also your monthly service expenses, things like telecommunication, freight. There are a number there that are quite large. And instead of worrying about the time you pay, worry about the price you pay. There are organizations like ERA who do a grand job in understanding the market, understanding where the bottom is.

There’s one in particular gentleman that I’ve had a number of discussions with and I have found it to be a very good system when you use it for the first time. They share in the gains they make. That’s their only income. They don’t get anything unless they make the gains big and visible. Small gains they will not.

insist that you do, but they will expect it if it’s a larger game and you’re paying, you you’re working with a pal or a, maybe even a family member and you don’t mind overpaying, don’t let them look at that one because they’re going to be very upset. But Blake Vaughan at ERA is a very good, a very good guy in this area, he’s written a book on it even. It’s very important when you’re looking at cash.

not to overpay unnecessarily on monthly expenses, utilities and what have you.

The next stage is I discussed building a cash flow forecast. That is very important. And it is something that involves everybody in the business.

I would say the timing is more important than you would think. And having 13 weeks where at of 13 weeks it was came out as you expected is not good enough. It’s got to be good enough in terms of being able to pay your wages, your receivables, your payables on time. So it is a living dynamic report. It is not a one-self report.

And it is important to update it if there are changes. It is vital to update it if there are changes. The other big factor is if you are growing. If you are growing, you need a reliable cash flow forecast taking into account all affected cash involved numbers in growth. Higher revenue.

means more production, which means more inventory, which means more cash tied up in inventory. Higher revenue means increased receivables. That is more cash tied up in receivables. And you do not want to add revenue and see your days outstanding go up. You don’t want to take on business

that is extended terms as a way of growing. It’s going to hurt your cash position.

Cash is valuable and if you have to borrow it, it’s not cheap. If you can get 8 % today, you’ve got to make 10, 12 % net to make it worthwhile for that growth. If you’re on a longer term growth calculator, there are companies that are building normally from founder stage VC, et cetera, they burning more cash at the beginning.

before they get profitable. But once you have a running business and it’s just not just, but it’s growth over and above the beginning build, you don’t want to take on cheaper business, which stretches your cash and makes life difficult for everybody with no net gain. That’s an important issue. And I have followed it.

with all the companies I’ve worked with and the owners. If you want to stay the owner, if you don’t want to give away capital, equity, you need to be a little cautious about very fast growth. It takes more cash than you think and it’s got to be laid out fully in your cash flow forecasting. You hit a bump, it will be costly.

rather be conservative. If you’re in a business that because of the economic situation has just gone crazy, you’ve got to sit down and think about it. Do I want a high growth big business faster, but have partners that I have to work with? Or do I want to stick to the slower growth and build it within my cash resource available, whatever that may be.

But if you go into more expensive borrowings, you can be sure it’s going to be very difficult in the short term to cover the interest unless the growth and profitability of the growth is that extreme. But it’s a calculation. I’m not saying you can’t do it. I’m saying do a proper job in doing the calculations necessary to make sure those cash availability will cover you.

The same applies to capital expenditures. If you put in a new machine, depending what business you’re in, it can cost you a million easily, half a million. Not only do you have to pay for it or pay monthly for it on some kind of a scheduled arrangement, which then involves interest.

That interest has to be included in your calculations. Smaller owners forget to include the interest when they do borrowings in their cash flow. And in the first month you’re into it, you get this bill for interest. my God, where did that come from? I never thought about it. Not uncommon. There’s also a very good reason where you need outside expertise. And I want to emphasize this.

Gershon started off talking about our industry or our area in the business world, fractional CFO. There are situations that owner-founder run businesses will not automatically cover. Generally speaking, a founder owner, his expertise is in the product or in sales, not in finance.

And if he doesn’t have a financial partner, he’s going to be short of some of the important decisions they take. And cash is the number one killer. So I highly recommend that it is worth having a value builder, fractional CFO that you keep once a week, twice a week, once in two weeks.

Keep them abreast, let them look at the numbers, let them spot the things that you don’t know about. And we all have blind spots, things that you just didn’t think of at the time. And generally a new set of eyes, an experienced set of eyes will find those blind spots. So I just raise that as an important issue when you are doing this.

Rick, can I jump in with a quick story? Please do. It’s related, not exactly the same point, but I was speaking with someone related to your before that what you were saying about CFOs, but we’re people don’t properly understand what’s going on with capital. So this was the CEO who called me and told me he was thinking of shutting down his business. He’s like, I have no money. I have no cash. I can’t make payroll. And we went through the business and everything seemed fine. Like he was making money.

You know, had revenue and he had I knew what his direct expenses were I knew what his overhead was it turned out he had made a massive capital expenditure and ignoring the fact that he You know dealer didn’t account for the interest that’s like Minor compared to what he did here. He put his entire entire line of credit behind the capex and so what happened was

He couldn’t now he had a hiccup with revenue, which normally is not a big deal. OK, someone paid him a little bit late. Suddenly he can’t make payroll. He doesn’t know what’s going on. The answer is you took something which is an expense in your business to build up the business. you have to like redo an office or whatever it was and buy a truck, whatever the whole story was. He had this massive amount of money he spent and now he had no line of credit. And so it’s because he didn’t understand that.

capex needed to be treated differently and you have to look at it with the interest like you said and really it was fundamentally an expense that should have been spread and It’s not an indication that he’s not making money. It just he took all his short-term cash and tied it up in a five-year You know an investment with a five-year use So again had he called somebody before he did that that would have been like this is a reasonable thing to do But you got to line up the right financing if you don’t have the cash instead

He burned through his line of credit and then goodbye. Now he’s ready to close what is otherwise a fundamentally profitable business. So it’s important to understand. Very good point. even, you know, even if you can arrange the finance, bear in mind that asset may eventually produce X revenue. It can take weeks, months to get there. You’re sitting with it on your becomes a liability for the first three months, probably.

And the truth is it could be it wouldn’t have produced what he would have thought eventually. So I understand that too. And he might have had to pay for it for five years, even though he wasn’t able to do what he thought. But either way, paying for it all with short term money was what was killing him without even realizing. Well, you know, the equivalent of that is what happened to those banks where they were borrowing short and lending long. Yes. A number of them went big ones went bankrupt.

There some funny stuff going on, think, in the management team, but that’s what they did. And they would not survive because they had to pay back the short term and they couldn’t get it from their loans out. So balancing that is very important. Don’t spend your short term cash on a long term asset, whatever it may be. Very important.

So, you know, generally speaking, I think it’s very important that cashflow is every senior manager’s concern and responsibility. It’s a joint effort. The CFO can lead it, can advise with it, and can do a lot to help it all come together. But at the end of the day, it’s part of purchasing, it’s part of operations, it’s part of engineering.

It’s part of warehousing. Not all, you know, those may report to the CFO directly. And it’s important that there is that collaboration and understanding led by the CFO. You could develop a checklist that should be followed all the time and make sure that it’s discussed and make sure that, you know, I don’t believe in micromanaging.

But there’s nothing wrong with having a checklist that you follow up with. Did we do this last week? Did you do that? Let me see the AR aging from last week. What does it look like? Anything there we need to worry about? Anything there you need extra help with? It just makes it a more comfortable and easier journey.

when we do those things. So now, the way, yes. Can I just put in a quick pitch? If anyone needs an accounts receivable checklist, have, obviously it’s not going to be customized to your business, but reach out and we can get you a basic AR checklist.

So I think at this point I’m ready to answer any questions.

Alright, anyone? Anyone’s welcome to put questions in the chat or just start talking.

so I got a question then Rick, How do you know you mentioned at the beginning that? You know the cash inflows might not match the cash outflows and even if you’re profitable long-term everything is good How do you know? Now, let me take a step back You might make a monthly cash flow and then you say well, what if the cash all comes in on the 28th of the month, so You want to have a weekly cash flow?

Right. What if your expenses are on the first of the month and the cash comes in on 28? So But what if a weekly cash flow is not enough? What if your money comes in on Friday and you had to spend all the money on Monday and You have a four-day gap there. How do you know when it’s time to move from a monthly to a weekly or from a weekly to a daily?

Because obviously that’s going to take a lot more time and effort to be looking at that granular level. what are the signs? If you’re profitable and you’re managing your two assets and your payables, you are building cash. If you’re not building cash, you better go check your custom because you should be building cash. And they are, you know, being cash rich.

is not a bad thing in the short term. There are owners who want to pull everything out they can, and there are owners who want to keep everything in they can, because of the need of cash for growth. And the more you grow, the better off you are. But you can’t show a profit and loss at the end of the month with 50,000 net profit and then show a shortage of cash of 100,000 suddenly. There’s something else going on.

So cash is also, you know, just by its nature. It is the first indicator to a non-financial person that we’re making money. Our bank balance is going up. But yes, there are situations where the matching of in and out is important. You will know that just through your own experience. The first time it happens, you know, well, we’ve got a problem here because of this and this.

But I don’t know of a non, not being able to do it just because you think it’s going to happen. I think it’s something that you have to deal with when it happens and cover it as you from then forward. That’s why it’s dynamic.

Hey, Rick, another question. You’ve been talking from the perspective of a, let’s say, business owner managing cash. What if you’re in a situation where you have a bank relationship and you have a bank looking over your shoulder? How about managing expectations in addition to managing the cash? Is that a consideration?

My feelings about bank relationships are that they are built and they become part of your partnership in your business. I’m a big believer in building relationships with banks. I’ve had experience of the good of it and the bad of it. You know, I had a great relationship with a bank. They were not in town, they were an out of town bank. And when we hit a bump,

I discovered that all the people I’d been dealing with had suddenly left. And then there was nobody in the bank that knew us well enough to deal with us. We had to change banks eventually. So I believe in keeping a bank up to date, whether they ask or not. I believe discussing the future with the bank, whether they ask or not. I want them to feel comfortable. I want credibility.

I want them to have confidence in what we do and what we say. So yes, it is vital in my terms to have a banking relationship that covers what you’re saying there,

All right, we have somebody with a hand raised, Labie. Want to jump in? Yeah, my question is, it’s all very important things that sometimes small businesses overlook. When a company goes into a credit crunch and they are in a situation where they didn’t have the proper forecasts and they didn’t implement the proper systems, getting

beyond that once they’re in the crunch? What would be the proper strategy in terms of, you know, borrowing and filing responsibly? What would be the correct way to deal with that?

Well, you you need to get in somebody with the expertise and experience, number one. I would say if they’re in a crunch, I would certainly check, number one, that they are profitable and that the cause of it doesn’t come out of actually selling below your cost. And at the same time, obviously, with somebody with the expertise, you go to the bank and you talk to them about it.

If you have a long standing relationship and somebody is credible in what they explain to the bank, they will stick with you. They will cover you. They don’t want you to collapse any more than you want you to collapse. But if you don’t have that relationship with the bank, it’s harder, but it’s not impossible. I would certainly look at your bank as the first one, definitely. And if you’ve banked with them long enough, it shouldn’t be a problem.

if you have solutions, but you must have solutions. And that’s where somebody with more expertise, I think, can be of great help. You know, that’s how I would adopt, that’s how I would work with it. You need somebody who’s financially very, you know, familiar with how to deal with it. You have to have a recovery plan. You have to know why it happened and how you’re going to fix it.

and then get some bridging finance for the time until you’re there. And normally your bank, if everything lines up and if it makes sense, your bank will go with you. It’s very expensive at that point to find other finance, very expensive. then your profitability is very important. You don’t want to pour good money off to bad. If you’re gonna continue making losses, you’re just wasting it.

somewhere along the line, you you’ve signed somewhere and somebody’s gonna be knocking on your door. You don’t want that to happen. You want to have the expertise to help you with your bank. And generally, there may be other banks you could use. Another thing I always did, there was always another bank knocking on the door. Stay in touch with them. Let them come and visit you. Tell them what’s going on in the business.

I did that when I had that problem and there was another bank waiting to come in. He’d been calling on me for four years. Have the backup in terms of banking. Don’t put yourself in a situation where you’re literally scrambling for, you know, the end of the week, paying the wages. That’s a horrible position to be in. Right. Now I’m talking about the bank, you know, knocking on the door. So I’ve experienced in the past where banks were

or capital companies like whatever companies that provide cash coming across. But most of the time, I found them to be more of the high interest banks that are trying to make the business working capital. Regular banks, we bank in a commercial bank like Chase, but

I don’t think, mean, my relationship with the bank is just, you know, with the rep I deal with, not a, you know, not like a close banking relationship. You raised an interesting point. Unless you’re large enough to make a difference, Chase are not going to help you.

You’re more of a, you know, a net or a wasp or something that they just need to get rid of. You need a more like a local bank, somebody who are more interested in your business than just being a bank. It’s okay for retail, just be a bank because you’re never asking for anything else. But if you’re a business, you need a bank that has interest in your

success. And I really encourage you to look at that and find more of a regional or local bank to do that with. As it happens, the one that I had the problem with was a, it was Chase who had bought, you know, the Banking Columbus and the Banking Columbus from the president down, I knew them all, the credit manager, et cetera, and they all left.

And they didn’t call me and I didn’t call them. Everything was cool until it wasn’t cool. And then suddenly I had to deal with Chase Atlanta and they didn’t know me from a bar of soap. It didn’t work well. I had to move. So that’s why those situations, we went with Regions, which was more a regional bank. And I met everybody from the president down and they all wanted our business. And we got it done very well without any problem.

We even drop personal guarantees because of what we provided. But it’s so important that that relationship is there. I can’t emphasize it enough. And choose a bank that is in your community. It doesn’t have to be very small, but it has to be somebody where you make a difference, where they want you to succeed. And there are plenty around today.

All right. Yeah, maybe just follow up if you need intros to business brokers or to some of those other banks, there are there are banks out there that have more focus on smaller businesses than than the big retail banks we all know from our personal banking. Anyway, thank you, Rick, for this excellent talk. Thank you, everyone else.

for joining us today. Thank you, Tom, for participating as well. If anyone wants to be in touch with Rick, let us know. We’ll get you in touch. Or if you want to speak to someone else on the team, can do that too. But Rick is amazing. You should definitely talk to him. And…

And yeah, we hope to see you at our next webinar.

Thank you so much, Gershon. Great seminar. Absolutely. Thank you, Thanks for joining me. All right. Thank you all. Bye-bye. Thank you all.