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BUSINESS STRATEGIES

Marcia Heroux Pounds

Big news often bites unprepared small firms
Published May 24, 2004

Too often small firms are not prepared for either the good or bad
events: a financial crisis, such as coming up short on paying vendors, or a big win like a multimillion-dollar
order.

"I'm a big believer for setting aside
a little time every year to take a look ahead of what's going to happen and how you're going to make it happen," says Bruce Rector, a consultant who works with small businesses on cash flow. Five years ago, the Wharton MBA decided he could help small businesses and founded The Rector Group
Management Consulting in Coral Springs.

As a small business owner, "you often get so wrapped up working in your company that you don't step back and work on it," Rector says. To do so, Rector suggests forming a "kitchen cabinet" advisory board, made up of people you trust rather than investors or lenders. Such advisers can give business owners additional perspectives.

"Be prepared for success as well as for failure," Rector advises. "If you're a million-dollar company and then get a $10 million order from Wal- Mart, you could have a problem. You need to think about the infrastructure, what if I really do hit a homer?"

Small businesses should review quarterly sales targets they want to hit and determine whether they have the resources necessary. "I better have the ability to finance [extra] inventory. I better have warehouse space. I better have inventory tracking in place," Rector says.

To be ready for anything, maintain communications with bankers in good times and in bad. "I take my banker out to lunch at least once a quarter to keep him apprised of everything," Rector says.

If you find your business in financial problems, don't wait until you've defaulted on a loan to call for help. "If you foresee running into difficulty servicing vendors or debt, honesty and forthrightness are always the best policy. [Lenders] often try and roll with you a little bit," he says.

Small business owners need to ask themselves questions such as, "Do I need to renegotiate my bank line?" and "Am I going to have a problem in four months because I'm investing heavily in inventory?" One client that was going through tough times made a list of its vendors, ranked them, and called them up one by one, saying, "You're going to get paid 100 percent, but not this month."

"It all boils down to open lines of communications," Rector says.

Another common problem is many small companies never examine the economic drivers of their business, Rector says. Instead of selling motorcycles, for example, a business could find selling light bulbs for the headlights is the "real economic force." Rector had one client that didn't understand it really had four distinct lines of business. He identified the most lucrative one on which to focus.

Small firms that fail to review their options sometimes take costly steps. A health care client was looking to raise capital and planned to sell a portion of the company to do so. Rector took a look at the company and showed the owners they didn't need to raise capital; there was just a lag in payment because of the nature of the business. "We put together a detailed cash forecast. ... They certainly weren't going to run out of money," he says. The group retained ownership of the company it had planned to sell.

"They were happy," he says.

Marcia Heroux Pounds can be reached at mpounds@sunsentinel.com or 561-243-6650.

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