Desperately Seeking Cash

William J. Killory, CPA (Jun, 2009)

Ensuring adequate capitalization is the question du jour as the list of victims of the economic turmoil grows rapidly. So how are businesses getting more cash to boost liquidity and ward off economic problems? There is an opportunity now for those who have cash on hand to capitalize if you are willing to hang on for a while. Areas such as real estate, stocks and more are available at never before seen opportunities.

Here are some thoughts on taking "cash is king" to heart:

  • First, you need to not only control your costs but understand them – where to cut and where not to. Reduce non-operating expenses and improve working capital processes.
  • In these times of no-growth, focus on running lean and efficiently and reduce liabilities by selling off less-productive or short term assets.
  • When the economy heats up again, inflation will become "Carteresque" – in reference to former President Jimmy Carter when there were double digit prime rates and unemployment.
  • Competition whether savvy or not so smart will kill you either way. More and more companies are finding they are being undercut on price just to keep their cash flow.
  • Have access to bank financing but don't necessarily use it. For the foreseeable future, bank credit will be harder to come by and will certainly be more expensive than when the crisis began. Consider drawing down credit lines but don't use the funds immediately.
  • Consider refinancing existing loans to give your company greater financial flexibility.
  • Have a strong focus on controlling receivables, inventory and more. Pay your vendors in a timely manner.
  • Examine your working capital. Review inventory and run lean.

A word of caution however, while having plenty of cash is a powerful remedy during a recession, if the cash is deployed wisely your company can be sitting pretty when the downturn ends. It may be prime time for innovations and investment as well. Call us today to examine your liquidity strategy and plan for the eventual economic upswing.

 

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.

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