5 Financial Strategies to Adopt in a Challenging Business Climate
Summer Cline 05.28.2020
As the realities of the coronavirus pandemic began to unfold, everyone I talked with agreed – no one has ever dealt with a situation like this before. From a financial perspective, there are typical protective measures companies take during a crisis, so we put these processes in motion. We also found ways to innovate and take advantage of unique opportunities, which has yielded some promising results. Here are the five financial strategies we’re utilizing at Okuma America as we navigate today’s challenges and plan our successful future.
First and foremost, communication with employees, distributors, partners and suppliers is key, and even a bit of overcommunication is not too much. This means we’re gathering and distributing an abundance of financial information. Jim King, our President and COO, is doing a weekly video for employees, and I always make sure he has some commentary to include about the financial position of the company. This includes updates about areas of focus, how the market is performing, what we’re prioritizing, and which indicators we want to see in order to trigger different responses. Providing this kind of contextual information helps everyone remain steady and focused as they make their contributions to our overall efforts.
Right now you hear a lot of talk about cash being king, and we focus daily on planning our cash flow. We take a look at where we are today, where we anticipate we’ll be tomorrow, next week and a month from now, and then overlay scenarios such as worst case, best case, in case, etc. We monitor activity in our marketplace and also the levels of quoting activity for our own business. Doing these forecasting activities can be quite consuming, given all the scenarios we’re planning for, and also because there are so many unexpected situations we’re encountering. Every day brings a new reality and we adjust to accommodate this, while keeping a keen eye on what’s on the horizon.
We use many methods to manage our cash position, including working with suppliers on payment terms. We of course want to be respectful of our supplier relationships, but we also bear in mind that everyone is doing the “cash dance” these days, and it’s certainly reasonable to look for areas where terms can be extended a bit. It’s worth having a conversation to brainstorm an agreeable arrangement.
Another cash management activity involves our purchasing processes. While historically we’ve given purchasing privileges to senior folks across the organization, today we’ve consolidated our purchasing into a centralized model. With all the purchasing decisions in one place this gives us great visibility into where we stand with expenses, while also placing responsibility for negotiation with one individual.
Since inventory can make up a large percentage of a company’s purchasing it merits an intensive review. We need to manage inventory wisely both in terms of machines and parts. As you can imagine, with something as complex as machine tools, it takes time to build these goods, making it critical to get the ordering process right. Therefore, we spend a lot of time upfront working to make our projections for machine orders as accurate as possible.
We’re doing something very unique when it comes to ordering parts. For larger parts that are made up of several components, we’re currently only stocking the smaller components, with the idea that we can build the larger assembled units as needed. This way, we’re leveraging our internal inventory to replenish stock instead of bringing new parts into our facilities. This is just one example of an area where we’re getting creative with our inventory management.
Another example involves offsite storage facilities. We rent space where we stockpile miscellaneous inventory that we feel still has value, but we don’t have a need for at the moment. I assume many shops do this as well. When business slowed down, we kept some of our employees busy by having them investigate our storage facilities, and lo and behold, they found some treasures! We recovered some extremely valuable components, some we can use and some we will donate. What a great way to make productive use of downtime.
Stay Close to the Market
Today it’s more important than ever to use every available channel to investigate and analyze the marketplace. We stay in close communication with our distributors to get feedback from our expert “feet on the street”, and this is immensely helpful for our forecasting. We also consult with our industry associations such as The Association for Manufacturing Technology (AMT), which provides a lot of useful market information. For broader economic perspectives we follow updates from ITR Economics.
For those of us in finance, now is an important time to provide clarity about where our organizations stand today and where we’re headed. I personally make it a point to never sugar coat any situation, but I also like to share a bit of humor, since we are only human after all. In my last company-wide presentation I used a quote from Dolly Parton that I think is especially appropriate right now, “If you want the rainbow, you gotta put up with the rain!” So to my five strategies outlined above I’d add, proceed with honesty, and maybe just a dash of humor along the way.