Need Cash? Look Inside 온라인카지노 불법 유니벳r Company
Thanks to the credit crisis, companies are scrambling for cash. Time to take a cold, hard look at the way 온라인카지노 불법 유니벳 manage working capital.
The boom years made businesses careless with working capital. So much 온라인카지노 불법 유니벳 was sloshing around the system that managers saw little point in worrying about how to wring more of it out, especially if doing so might dent reported profits and sales growth. But today capital and credit have dried up, customers are tightening belts, and suppliers aren’t tolerating late payments. 온라인카지노 불법 유니벳 is king again.
It’s time, therefore, to take a cold, hard look at the way 온라인카지노 불법 유니벳’re managing 온라인카지노 불법 유니벳r working capital. It’s very likely that 온라인카지노 불법 유니벳 have a lot of capital tied up in receivables and inventory that 온라인카지노 불법 유니벳 could turn into cash by challenging 온라인카지노 불법 유니벳r working-capital practices and policies. In the following pages, we’ll explore six common mistakes that companies make in managing working capital. The simple act of correcting them could free up enough cash to make the difference between failure and survival in the current recession.
Mistake 1: Managing to the Income Statement
The first favor 온라인카지노 불법 유니벳 can do 온라인카지노 불법 유니벳r company in a downturn is throw any profitability performance measures 온라인카지노 불법 유니벳 may be using out the window.
Suppose 온라인카지노 불법 유니벳 are a purchasing manager and 온라인카지노 불법 유니벳r performance is judged largely by 온라인카지노 불법 유니벳r contribution to reported profits. Chances are, a supplier will at some point propose that 온라인카지노 불법 유니벳 buy more supplies than 온라인카지노 불법 유니벳 need in return for a discount. If 온라인카지노 불법 유니벳 accept the offer, 온라인카지노 불법 유니벳 will have to lock up cash in holding the extra inventory. But since inventory costs do not appear on the income statement, 온라인카지노 불법 유니벳 will have no incentive to turn 온라인카지노 불법 유니벳r supplier’s offer down, even if 온라인카지노 불법 유니벳 take the trouble to calculate those costs and find that they are greater than the gains from the lower prices. In fact, if 온라인카지노 불법 유니벳 do turn the discount down, 온라인카지노 불법 유니벳r compensation, which is linked to the income statement, is likely to suffer, even though 온라인카지노 불법 유니벳r decision may be good for the company.
Whether they’re in manufacturing or in services, companies that hold managers accountable for balance sheets and not just profits are less likely to fall into that trap. Managers will have every incentive to explicitly measure and compare all costs and gains in order to determine the best course of action.
The same argument applies to all the components of working capital. Take receivables. Let’s assume that 온라인카지노 불법 유니벳 are contemplating reducing 온라인카지노 불법 유니벳r terms of payment from 30 days to 20 days. 온라인카지노 불법 유니벳 assess the likely impact on customers and estimate that 온라인카지노 불법 유니벳 will have to reduce prices by 1% to compensate for the tighter terms and 온라인카지노 불법 유니벳 will sell 2% fewer units, which will lead to a drop in after-tax operating profit of million this year. On the other hand, if the company generates million in sales per day, shortening receivables by 10 days would free up million in capital. Assuming an opportunity cost of capital of 10% (that is, 온라인카지노 불법 유니벳 could make alternative investments that would generate a 10% return), 온라인카지노 불법 유니벳 should be willing to sacrifice up to million in profit per year to get 온라인카지노 불법 유니벳r hands on this capital. The decision, then, is quite clear: If 온라인카지노 불법 유니벳 estimate that profits will fall in future years in excess of that million, 온라인카지노 불법 유니벳 probably should not reduce 온라인카지노 불법 유니벳r payment terms. But if 온라인카지노 불법 유니벳 estimate that the profit loss will be less than the return on 온라인카지노 불법 유니벳r million, 온라인카지노 불법 유니벳 definitely should.
A metals refining firm that had extraordinarily high levels of receivables in its Japanese business illustrates precisely this calculus. Following the company’s acquisition by a private equity firm, managers started requiring salespeople to call customers a week before their payments were due to remind them. The salespeople were predictably horrified. “This is going to drive customers to the competition for sure,” they protested.
The incoming senior vice president countered their objections by asking a simple question: “How would 온라인카지노 불법 유니벳r customers feel if we deliberately delayed shipping their products until after the agreed-upon date? Would they hesitate to call us?” “Of course not!” the salespeople responded. “So then why should customers that consistently pay late be surprised when we call to remind them that their payments are coming due?” With this perspective, the sales force enthusiastically started calling customers to encourage on-time payment. As a result, receivables fell from 185 days to 45 days, putting the equivalent of 5 million in recovered capital back into the bank account and reducing capital costs by million a year. Sales did decline, but the resulting loss in margin was only about million. The reduction in receivables clearly outweighed the loss in sales from demanding faster payment. This is the sort of trade-off that we urge all companies to consider.
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