Pinnacle Business Solutions
Financial Review Issue #33
Financial Management in a Challenging Market

In these very challenging and uncertain times many companies struggle to maintain focus, and control of their businesses.  All too often, these companies become paralyzed by the uncertainty in their markets. In many cases, their lack of decision making, results in the market making the decisions for them.  The need for sound financial management is even more important during these times.  There are several things companies can do to manage and thrive in challenging markets.   Here are a few items you may want to consider to help your company maintain its bearing.
Preserve Cash
Preserving cash is critical in these challenging markets.  Deferring expenses and delaying non-critical capital purchases can help to preserve cash.  Renegotiating payment terms with vendors to extend loan terms and lower monthly payments can also help preserve cash. Companies should also focus on making their expenses more variable so that they pay more when their sales or usage is higher and pay less when their sales or usage is lower.  Some examples of this are putting more employees on commission or an hourly rate vs. salary, renegotiating pricing with your vendors to buy on a usage/per unit basis versus a fixed price contract.  Another example is paying for such things as insurance and maintenance on a monthly basis instead of an annual or quarterly basis. 
Reduce Costs
Cost reduction is key in these markets, companies should perform a Pareto Analysis to evaluate the key drivers of their spending. They should then work to eliminate all non-critical expenses and reduce critical expenses.  Many companies don't' realize what they can do in this area, until they really scrutinize their spending and challenge existing norms. Only spend money on those items that lead to immediate sales profitability and cash flow for the company. Companies should also evaluate their overall operating/manufacturing efficiency during these times.  This starts with having clear objectives and good performance tracking capabilities.  Companies should identify the underperforming equipment or people and improve their performance or eliminate them.
Update Financial Plans 
Updating financial plans can really make a difference in challenging markets.  These plans help you to maintain focus and priorities, when the environment around you is changing rapidly.  Financial plans that include sensitivity analysis help you determine what your course of action will be under best case, worst case, and most likely case scenarios.  These plans help you proactively manage your business instead of being forced to react quickly to changes in your market.  These plans help you understand your cash flow today and in the future.  They also help you obtain the cash you need before you need it.  These plans also help you understand what your financial ratios look like under each of the scenarios and whether or not you are getting close to violating any loan covenants with your bank.
It is important to keep the lines of communication open with your vendors and lending institutions.  Let them know what is going on with your business and how you plan to proactively maintain control of the situation. If your vendors and bankers do not hear from you, they can often assume the worst and may take aggressive action to collect any outstanding debt.   The more these partners understand your business and believe you will be successful, the more likely they are to work with you in these tough times.  Furthermore, in challenging times you may want to consider restructuring your debt with your bank to extend loan terms and lower your monthly principle and interest payments.  Depending on your financial condition, some banks may be willing to allow your business to make interest only payments for a period of time to allow you to weather a downturn in your market.  Other banks may consider lowering interest rates on outstanding debt for a period of time to allow a business to bridge a downturn.   Still other financial institutions may allow a business to refinance assets to free up cash that can be used to support a business in a difficult market.
Continue to Market/Sell 
Continuing to market and sell in a challenging market is critical.  Many businesses allow challenging markets to distract them from this important part of the business, especially if the business is downsizing its staff during these times.  It is important to continue to support existing customers while looking for new opportunities to sell your products and services.  Take a proactive role in driving new business; do not wait for the business to come to you.  It is the businesses that are able to identify new markets for their products and services that survive these challenging markets.  

By implementing these ideas, you have the cash you need to sustain your business in these markets; you have a much better focus on your priorities for the coming months.  You also have a lean organization able to adapt to its dynamic market, you have business partners that understand your business and believe in your success and you have a team that is motivated and driven to bring in new business even when the road gets rough. Implementing the ideas listed above can have a very positive impact on your business!  You may even find that you pick up a few customers from your competitors that are less savvy in financial management! 


Paul J. Beckert MBA, CPA
Pinnacle Business Solutions
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Financial plans that include sensitivity analysis help you determine what your course of action will be under best case, worst case, and most likely case scenarios. 
Keeping the
 lines of communication open with bankers and business partners will reduce costs and improve financial position.

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