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Alternative Realities is NOT a New TV Show
Los Angeles, CA
Monday, September 21, 2009
Gene Siciliano, Your Part Time CFO
Everyone in business in today's economy is recognizing that things are different now than they were just a few short years ago. Predictions and forecasts made last year have become irrelevant and uncertainty is the new label for whatever we think might happen tomorrow. The problem with that is that we still have to make decisions today in order to prepare for tomorrow. Or we'll not be prepared for anything, good or bad.
How do we prepare? Gene Siciliano, a Los Angeles based financial management consultant discussed this topic. "Managers need to accept the possibility of alternative realities and forecast for each of them. If we don't, one of those realities is going to show up and catch us off guard. Sales will grow, sales will be flat, or sales will fall off a cliff. All are possibilities in many industries, especially for small businesses operating on narrow margins in the best of times and selling to customers in the same boat." He goes on to say "If the reality that actually shows up is good and wonderful we call that a high class problem. If the reality turns out to be our worst case possibility and we've not prepared for it, it could mean closing the doors forever."
It is a requirement of doing business in this economy that managers have a better handle on the best case and worst case scenarios that can be anticipated over the next 12 to 18 months, in addition to the most likely case that we expect to happen. Siciliano says "We cannot escape the possibility that what we expect may be dramatically off the mark in either direction, and we cannot simply wait and see. Planning thus becomes even more important, more critical even, than in a booming economy. Siciliano emphasizes "When times are good, managing growth requires a constant flow of working capital to support growing receivable balances and inventory restocking requirements. But when times are bad, our receivables could suddenly freeze up on us, with customers who traditionally pay in 50 days stretching us to 90, 120 or more. Inventories that move briskly off the floor in good times might sit there long after our suppliers require payment for them, further stretching our cash flow cycle even more severely than growth."
Have you ever tried to negotiate a bank loan when you were short of cash and needed it NOW? Almost impossible in good times, flat out impossible today. You've got to plan ahead and make sure your financing is in place, your backup plan is clearly understood, and your mechanisms for collection and inventory management are sound.
The alternative reality if you ignore these things? Historically over the last three recessions, the number of bankruptcies filed after a recession has bottomed out has significantly exceeded those filed during the depth of the recession. Siciliano notes "The worst is yet to come if history is any indicator. Each small business owner must take steps to ensure their business won't be one of those statistics over the next two years."
Gene Siciliano, CMC, CPA, is an author, speaker and financial consultant who works with CEOs and managers to achieve greater financial success in a dramatically changing economy. As "Your CFO For Rent" and president of Western Management Associates, Siciliano has spent more than 20 years helping his clients build financial strength and shareholder value through applied knowledge and process improvement. His book, "Finance for Non-Financial Managers," (McGraw-Hill, 2003) is available in bookstores and online. More information and free articles are available at www.GeneSiciliano.com.
How do we prepare? Gene Siciliano, a Los Angeles based financial management consultant discussed this topic. "Managers need to accept the possibility of alternative realities and forecast for each of them. If we don't, one of those realities is going to show up and catch us off guard. Sales will grow, sales will be flat, or sales will fall off a cliff. All are possibilities in many industries, especially for small businesses operating on narrow margins in the best of times and selling to customers in the same boat." He goes on to say "If the reality that actually shows up is good and wonderful we call that a high class problem. If the reality turns out to be our worst case possibility and we've not prepared for it, it could mean closing the doors forever."
It is a requirement of doing business in this economy that managers have a better handle on the best case and worst case scenarios that can be anticipated over the next 12 to 18 months, in addition to the most likely case that we expect to happen. Siciliano says "We cannot escape the possibility that what we expect may be dramatically off the mark in either direction, and we cannot simply wait and see. Planning thus becomes even more important, more critical even, than in a booming economy. Siciliano emphasizes "When times are good, managing growth requires a constant flow of working capital to support growing receivable balances and inventory restocking requirements. But when times are bad, our receivables could suddenly freeze up on us, with customers who traditionally pay in 50 days stretching us to 90, 120 or more. Inventories that move briskly off the floor in good times might sit there long after our suppliers require payment for them, further stretching our cash flow cycle even more severely than growth."
Have you ever tried to negotiate a bank loan when you were short of cash and needed it NOW? Almost impossible in good times, flat out impossible today. You've got to plan ahead and make sure your financing is in place, your backup plan is clearly understood, and your mechanisms for collection and inventory management are sound.
The alternative reality if you ignore these things? Historically over the last three recessions, the number of bankruptcies filed after a recession has bottomed out has significantly exceeded those filed during the depth of the recession. Siciliano notes "The worst is yet to come if history is any indicator. Each small business owner must take steps to ensure their business won't be one of those statistics over the next two years."
Gene Siciliano, CMC, CPA, is an author, speaker and financial consultant who works with CEOs and managers to achieve greater financial success in a dramatically changing economy. As "Your CFO For Rent" and president of Western Management Associates, Siciliano has spent more than 20 years helping his clients build financial strength and shareholder value through applied knowledge and process improvement. His book, "Finance for Non-Financial Managers," (McGraw-Hill, 2003) is available in bookstores and online. More information and free articles are available at www.GeneSiciliano.com.
Mary Baldwin DeHaven
Public Relations Manager
Western Management Associates
Los Angeles, CA
310-645-1091
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