Bulletin Board Magazine 2022 Volume 2

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ABNORMALTIMES Call for Normal Habits by Bill McNamara

Bill McNamara

H ere we are in the middle of 2022 and our businesses have fended off some serious disruptions in the past 24 months. Business owners have battled through COVID-19, supply chain interruptions, inflation, fuel increases and rising interest rates. Many of these disruptions will linger a little bit longer unfortunately. But if we want to survive, we must keep going back to the core focus of our business operations. These check ups are what made your company strong enough to fight off this onslaught, so take a deep breath and repeat these best practices. A healthy company starts with liquidity, we should have sufficient cash flow to meet the demands of our business cycle. The oldest axiom in business is “Cash is King”. The first step in building cash flow is the collection of our trade receivables. Let’s make sure our receivables are current and our turnover is healthy. Review collection policies and make sure we are adhering to those principles. Any open receivable that is identified as lagging, slow or frightfully old should be immediately identified for action. Those actions would include the re-evaluation of credit terms, based on the fact and circumstances known. Communication of aging receivables is important, so don’t be afraid to make calls or mail out some gentle reminders to spur collection efforts.

Bulletin Board | 27 | www.shorebuilders.org trade payables or maybe long-term notes used to acquire an asset like equipment. But there they sit, and we cannot ignore them, no matter how hard we try. We must attack with an aggressive plan to meet their terms as quickly as we can without interrupting our own cash flow model. Sometimes that model is supported by working lines of credit (LOC), which brings an even greater significance as to how they are handled. We should work with our trade partners and identify opportunities Job close outs are extremely important as well for collections. Sometimes small open items are allowing our customers to leverage against the timely payment of a significantly large invoice. In my own practice it drives me nuts. We work schedule every two weeks (which is sometimes too big of a gap), and I harp on closing out engagements relentlessly. I know the longer the project is open the less profitable the firm will be. Gathering the list of open items and addressing them sooner rather than later is a must. I often push back the start of new projects, so my team is focused on closing out the older ones. I don’t want to become a juggler with too many balls in the air. One is going to hit the floor and it will take even more time to fix the issue, time is something we can never recover. Across the aisle from our cash and receivables sits our debt. Sometimes its in the form of

to discount the amount due or extend the time for payment to better align with the collection of our own job’s completeness. LOCs are a significant tool available to assist in cash flow needs. Reviewing the criteria and conditions of the LOC agreement are a significant responsibility. Your primary accountant/controller should mark this as a high priority item and plan for discussions with your lending institution well before we reach the renewal date. Mid year, a test of any required debt covenants should be calculated to be sure that we are on course to meet them, and the line is being utilized as intended. An LOC that shows several significant borrowings and repayments is viewed much more favorably than a single draw request not matched by any re-payment schedule. Once both sides of our books have been evaluated, we can start to measure the results. Has the company’s working capital structure improved since year end? Have we made measurable progress on company wide financial goals? Are we holding performers to the standards we have previously outlined? Can we identify cost savings to improve our performance against future budgeted results? What adjustments for the second half of the year need to be considered?