This article originally appeared in the Loftis Consulting Blog
October 10, 2011
By David Johnson, ACM Partners
With an increasing number of experts forecasting a double dip recession, small business owners need to reassess their approach to maximizing financial performance. Persistent low levels of overall economic growth will tend to constrain organic revenue growth opportunities, but revenue growth is merely the easiest, not the only, means to increase enterprise value. Absent robust revenue opportunities, owners should focus on maximizing cash flow.
Cash flow can be maximizes in a number of ways, but focusing on working capital accounts will serve to illustrate the immense opportunity that cash management presents:
- Accounts Receivable: careful attention to the collections function can serve to not only minimize DSO, but also identify customers who may present a credit risk.
- Inventory: clear-eyed attention to inventory levels can help identify areas of weakness or opportunity in a product line, and prevent over-investment in slow-moving product lines.
- Accounts Payable: price should not be the only factor when choosing suppliers. Favorable terms can more than outweigh the benefits of low price.
Increasing the value of a company in the face of a possible double dip recession will necessitate a focus on maximizing cash flow. While there are numerous opportunities available to a company to maximize cash, the “quick hits” involve careful management of working capital.