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Meet Our Newest Team Members

Don Lyons | DWH Director

Don has over 15 years of experience in project management, executive coaching, organizational development, strategic planning, business development, research and evaluation, and facilitation. He has worked both domestically and internationally with governmental departments, private entities, and tribal nations. As an enrolled citizen of Leech Lake Band of Ojibway and a descendent of Six Nations Mohawk, he is passionate about working on projects that support strong and healthy Indigenous Nation Building. In a consulting role, Don is helping DWH grow its engagement strategy as it relates to economic development for tribal nations. In addition to obtaining his BA and MSW from Michigan State University, Don is also a master of ceremonies for pow wows across the country, an active pow wow dancer, and a student of learning Anishinaabemowin, the indigenous language of the Ojibway. He is also actively working with American Indian Health & Family Services as a Board Member. Find out more about Don by visiting his LinkedIn profile and the DWH website.

 

Ryan Lapoe | DWH Financial Analyst

Ryan has spent much of his professional career in different aspects of Finance. This includes practices in wealth management, performing revenue cycle operations, and now working as a Financial Analyst at DWH. His background in financial modeling and data analysis helps him create understandable, actionable recommendations for business owners. He focuses on cash flow modeling and financial forecasts to guide these discussions. Ryan holds a B.A. in Finance from Michigan State University. During his time there, he acquired knowledge of GAAP, as well as financial acumen and best practices. While initially residing in Michigan, Ryan and his wife, Shannon, lived in Atlanta, Georgia for about 2 years where they enjoyed the warm weather and the extended golf seasons. They are now proud to call West Michigan their home once again. Find out more about Ryan by visiting his LinkedIn profile and the DWH website.

 

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Build Your “A” Team for a Successful Transition

Two business colleagues having a discussion in office

The transition of company ownership, whether internal or external, is a complex process. At DWH, we often work closely with business owners who are contemplating an ownership transition. Today, we’re providing an outline for building an “A” team that can make all the difference in ensuring a smooth, successful transition (as opposed to one that is chaotic and unsettling). 

Suggested members of a strong advisory team include: 

  1. Succession/Transition Advisor – This advisor supports the business owner by developing a transition plan, which includes the identification of opportunities to maximize the business’ value, and then helps facilitate the execution of the plan. 
  2. Mergers & Acquisitions (M&A) Attorney – Transactions can have a significant amount of legal complexity, so engage with an attorney that specializes in M&A activity in your industry and can support your team throughout the process. 
  3. Certified Public Accountant (CPA) – Many owners do not consider the impact of taxes on the proceeds from a transaction until it is too late. Have a CPA with M&A experience get involved early in the process. 
  4. Wealth Advisor – The wealth advisor works with the owner to develop a plan for managing the proceeds of the sale to achieve ownership goals.   
  5. Estate Attorney – In conjunction with the wealth advisor and CPA, an estate attorney can help an owner and their family establish a structure that minimizes taxes and protects wealth for the current and future generations. (We will cover estate planning in-depth in a future article.) 
  6. Investment Banker – The investment banker will help prepare offering documents, bring the company to market, vet potential buyers, and guide the company through the sale process. 
  7. Valuation Advisor – Many transactions fall apart due to misalignment in the purchase price. The valuation advisor provides owners with a comprehensive valuation of their company based on the company’s performance, asset valuation, and/or market comparisons. (We cover business valuation methods in this article.)

Key Takeaways

By assembling an experienced team of advisors to provide support through the transition and transaction, you’ll gain the satisfaction of knowing your company is in good hands. Owners should have an experienced team of advisors in the transition of ownership to assist with:  

  • Determining the desired outcome of a transition; 
  • Cultivating a mindset of transition thinking from an owner’s point of view while focusing on maximizing the value of the business; and 
  • Understanding the value of the business and the ways to maximize it; increase cash flow and minimize risks. 

Additional Reading

 

To learn more about our strategies for Growth & Transition, click here.

 


This post was written by Heather Gardner
hgardner@dwhcorp.com | LinkedIn

All companies experience change.
Plan for it with us.

 

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The Importance of Due Diligence for Tribal EDC’s

As more Tribal Nations use Economic Development Corporations (“EDC’s”) to take on larger and more robust investments, it is essential to develop an equally robust due diligence process.  Before entering into any business agreement, it is always wise to “look under the hood” in order to see whether a proposed deal is truly a good one. Just as one might hire a mechanic to perform a multi-point inspection on a used vehicle before purchasing, tribal EDC’s looking to make a business deal stand to benefit from assembling a team of advisors and legal experts to inspect all aspects of an acquisition. 

What makes for a strong Due Diligence process?

Due diligence means “required carefulness” or “reasonable care” in general usage. In the world of business, a strong due diligence process will provide a thorough understanding of all potential costs, risks, and opportunities involved in an acquisition or transaction. Additionally, a strong process will provide a roadmap for how to effectively think through integrations, taking into consideration the people, systems, and processes. The major components of the due diligence process typically include:

  • Examining the target company’s operations and infrastructure.  
  • Identifying strategic initiatives and impact 
  • Analyzing financial performance and forecasting performance post close
  • Planning for successful transitions among ownership and key leadership figures 
  • Identifying post-merger integrations (strategy development, project management, etc.) 
  • Gaining insights from a competitor analysis 
  • Proposing a detailed plan to help mitigate risks and maximize opportunities throughout the acquisition process

Why is Due Diligence so important for Indigenous Nation–Building?

A sound due diligence process is vital for economic development initiatives as it will ensure alignment with tribal investment philosophies, help tribal nations understand the impact of cash flow, stability, and growth opportunities, and reveal the true value of an acquisition. Most importantly, it will strengthen and protect tribal sovereignty by ensuring sound investments, which in turn, can lead to a more sustainable future for both the EDC and its stakeholders — especially tribal citizens. 

A strong due diligence process can also reveal opportunities to learn from the frameworks of other tribal EDC’s or even reveal possibilities for tribal partnerships and shared economic development objectives. As a native-owned consulting firm, we’ve had the unique opportunity to facilitate some incredible collaborative growth efforts among our tribal partners. 

 

Understanding the Due Diligence process further

To review, due diligence is a process of conducting a thorough investigation to better understand the investment and identify potential risks and opportunities while validating that the purchase price will allow the new entity to meet the required returns.  For the most part, due diligence seeks to accomplish three things:

1. Validate
First and foremost, due diligence is there to verify that the information provided by the seller is truthful and correct.  This includes the financial statements (or any adjustments thereto), contracts, legal documents, operations of the company, or the legal standing of the company.  This part of the due diligence process verifies the basis for the purchase price. 

2. Understand the Risks
Second, due diligence should be used to understand, assess, and qualify the risks associated with the investment opportunity.  Some examples of potential risks to examine are: 

  • Will an ownership change have an impact on the ability of the Company to perform as it has in the past? 
  • Who are the key personnel who understand and can manage the operations on a day-to-day basis? 
  • What is the risk of losing key staff with a change in ownership? 
  • Does the remaining management and/or ownership share the EDC’s vision for the Company moving forward? 
  • How vital is the company to its customer base?  How strong is the supply base? 
  • What will be the capitalization requirements for the Company at closing and into the foreseeable future? 

3. Prepare for Transition
Third, due diligence helps develop a plan for the transition, or post-merger integration, of the company into the Tribal EDC’s portfolio.  Some key things to consider include: 

  • Is it possible to mitigate or eliminate any of the risks identified during due diligence with the transaction closing and transition? 
  • What will the leadership structure look like for the new entity once it is under the management of the EDC’s holding company?
  • What legal considerations should be taken into account? What are the tax implications of these decisions? 
  • What changes will need to be made to the new entity’s operating agreement, HR policies, and financial systems in order to keep it in compliance with the EDC’s requirements?  This is especially important for Federal 8(a) contracting companies. 
  • How will the acquisition be contributed to stakeholders (customers, employees, vendors, tribe, etc)?  
  • Are there any commercial advantages available to the company once it is tribally owned?

In Conclusion

Any investment, especially a direct investment in an operating company, is an exciting but complicated process.  Due diligence, transition planning, and strategic planning are all foundational steps to ensuring an investment has the best chance of succeeding with positive returns.  Additionally, having qualified advisors in place will help ensure an EDC obtains all necessary information to make a well-informed decision.  

 

 

As a native-owned consulting firm, DWH has extensive experience supporting tribes with their portfolio management and economic development objectives.

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Achieving Workplace Stability with Interim Leadership

Turnover happens – even at the executive level. Whether the company will be significantly impacted depends on how it reacts and adapts.

It should be no surprise that a lack of leadership can lead to a misalignment of vision, leading to a lack of direction, leading to mediocre performance, and potentially amounting to additional turnover with employees feeling stressed or burnt-out from the disruption. While losing employees comes at a great cost, losing senior-level leaders can cost even more in finances, time, productivity, morale, and more.

The decision to bring on an interim leader can be the key adaptability factor in times of change. The interim’s responsibility is to ensure organizational stability and clarity, that existing employees are valued and understood amid the turbulence, and that company culture continues to thrive.

Circumstances that Call for an Interim Leader

There are many reasons why an interim leader may be the best solution, but it usually boils down to one or more of these major challenges in a company:

  1. Lack of Management Capacity or Expertise
    Unexpected high-level projects or initiatives arise that current management cannot handle, such as M&A work, rebranding, increasing revenues or profits, new product development, and international expansion. Filling the position temporarily with someone capable, energized, and knowledgeable might be the answer to keeping the focus on the core aspects of the business and filling the needs without any heavy training costs;
  2. Management Vacancy
    Losing an executive unexpectedly due to sudden death, illness, or employee resignation/termination without a succession plan in place can be particularly agonizing. In such a situation, an interim leader provides a company’s board or ownership the time it needs to consider the company’s longer-term needs and work to find a permanent solution;
  3. The Company is in Transition
    A need arises with very short notice, so being able to fill an executive-level role with highly skilled, experienced staff is crucial to maintaining the integrity of the business. The interim would then be able to maintain day to day ops, develop a vision for the future (as needed) and/or prepare the company or department for the permanent placement to move in; or
  4. Reorganizing/Unpopular Role
    Filling a position on a trial basis to determine if a newly created position is needed can be a popular reason for considering an interim leader. Additionally, if the company is going through a turnaround or a wind-down, hiring someone to perform this intense and specialized activity may be the best choice.

Added Benefits of an Interim Leader

Wouldn’t it be a huge relief to bring in someone who has both the experience and expertise without having to be trained and without having to go through a lengthy hiring process? There are numerous benefits a company can enjoy as a result of interim leadership such as:

  1. Independent Perspective
    Independent interim leaders don’t have a stake in the organization and can assess it objectively, reassuring stakeholders that results won’t be subject to internal or external political influences. Your interim leader has a fresh set of ideas and a new way of looking at things. Perhaps their work in a related but different industry could be relevant to your organization. They may have a broader knowledge base because they have been working in other places. A strong interim leader will come into your organization with no preconceived ideas, no excuses, and no “that’s not the way we do it” mentality.
  2. Calming Emotions
    Regardless of circumstances, an executive’s departure causes anxiety among staff members, who suddenly find themselves forced to make sense of new ways of working, their new status, and what the future might hold for them. During the transition, there can be a loss of morale, discord, and organizational chaos, and staff members may feel abandoned, disappointed, relieved, or even angry. An interim leader can provide much-needed stability during the transition and quell organizational turbulence.
  3. Trying on a New Style
    Every leader has a particular style that becomes woven into the fabric of an organization’s culture, especially if the executive has had a long tenure. Over time, the staff becomes accustomed to the way the executive works. They create workarounds and may even offer excuses for an executive who is tardy, overly gregarious, conflict-averse, disorganized, or prone to micromanagement. An interim executive can allow the staff to try on a new executive style before the “wedding”.

Our Experience at DWH

DWH can assist your company in determining what your actual challenge or need is and what the outcome of the engagement could include. In addition, we have a pool of seasoned C-level interim executives who know how to create and manage growth strategies, deliver merger and acquisition support, protect against business disruptions, and provide financial leadership and direction.

Virtually all of our interim executives have owned and managed their own businesses, gaining the insight and expertise that comes only from first-hand experience. They can quickly integrate themselves into any organization because they’ve managed the challenges – and the opportunities – many times before. It’s a high-value solution that gives client companies immediate management leadership when they need it most – without a permanent increase in cost or headcount. This provides owners and investors with high-level management while longer-term decisions and solutions can be made.

To learn more about our strategies for Interim Leadership, click here.

 


This post was written by Heather Gardner
hgardner@dwhcorp.com | LinkedIn

All companies experience change.
Plan for it with us.

 

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A Case Study In Bankruptcy

Thank you to the Detroit Chapter of the Turnaround Management Association for honoring DWH with the 2021 Small Company Turnaround Award for our work on Miller Tool & Die. Congratulations and a huge thank you to the other firms who also worked on this project, Strobl Sharp and Miller Canfield.

 

Overview

Miller Tool & Die (MTD) is a leading manufacturer of specialty machines and assembly lines for a variety of industries including Automotive, Appliance, Energy, and Military. MTD served customers globally. Miller Technical Services (MTS) is an FDA-registered Medical Device Manufacturer specializing in the manufacturing and assembly of medical devices.

The Situation

  • Ownership wanted to sell MTD but were prevented by collective bargaining issues. COVID added significant cash flow challenges to MTD creating an immediate cash flow need in order to complete current programs in production. MTD had not identified additional sources of funding.
  • Complicated debt structure with MTD and MTS jointly and severally co-borrowers and guarantors on a revolver and term loan (“Joint Debt”).
  • MTS leased space from a related party who had a mortgage with MTD’s bank.
  • Union contract covered the majority of employees at MTD.
  • Unrelated third-party debt was in place which was using some assets as collateral.

The Solution

  • Revised structure was in the form of a pre-packaged DIP financing for MTD and a one-year forbearance agreement for MTS.
  • MTD & MTS: Separated revolving lines of credit.
  • MTD: All bank term debt was rolled into DIP financing so bank became the priority lender.
  • MTD: Funding done to a 13-week cash flow budget with weekly reporting against budget to bank and court.
  • MTD: All assets/customer product had to be paid for prior to leaving the facility.
  • MTS: Needed to re-bank within the next year.

The Outcome

  • MTD: Increased forecasted revenue in bankruptcy by $320,000+.
  • MTD: Decreased forecasted disbursements in bankruptcy by $310,000+.
  • MTD: Successful sale of the business to a third party during bankruptcy.
  • MTD: Subchapter 5 was filed Dec 2020 with a plan confirmed by the court in April 2021.
  • MTD: Unsecured creditor payments – 2% of claims.

 

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Create a Turnaround
Plan in 4 Steps

No company is without its challenges. In moments of distress, however, the need for serious change can be vital. This is where a turnaround plan can be pivotal. It’s a process of renewal – one that not only identifies key underlying issues within the company but actively implements change at the deepest levels in order to restore health to an organization.

Making decisions that involve change can vary depending on the types of difficulties a company is facing. The turnaround plan should start with the goal of maximizing the value of a company for all stakeholders while transforming it from an underperforming company to a performing company. There are numerous ways to accomplish this which include doing an out-of-court workout, acting as the chief restructuring officer, being a court-appointed receiver, and/or filing for bankruptcy. No matter what option you choose to accomplish your plan, every plan contains these four core steps:

 

1. Identify the underlying issues affecting the company

  • Assemble a team of advisors/advocates for the company. This may include a financial advisor, a CPA, a debtor rights counsel, an appraiser, and/or customers.
  • Assess the Situation. This includes leadership, finance, operations, sales, and marketing. Talk to key stakeholders. Implement a rolling 13-week cash flow model to provide further insights into the company’s financials.
  • Communicate findings with leadership and stakeholders so they can understand, commit, and support the discoveries.

2. Develop a clear, realistic plan that creditors will support

  • Identify ways to raise cash. Options include A/R collections; new sales; vendor payment plans; expense reductions; reduced inventory – sell and don’t replenish; ownership cash infusion; and sale/leaseback of property.
  • Evaluate the company’s lending situation and options such as a forbearance agreement; over formula on the line of credit; and other financing.
  • Stabilize the company – utilize customer communication and relationships; key employee retention plans; maintain employee relationships; communicate with the bank; leadership changes (if appropriate); operational issues addressed – safety, equipment, process improvements, etc.; and financial issues addressed – current financials, inventory costing, etc.
  • Considerations – take into consideration the long-term stress the company has been under; customer frustration; vendor frustration; that COD/Prepays are most likely in place; and an over recognition of the environment in which the company is operating.

3. Validate the plan by ensuring buy-in from stakeholders

  • Stakeholders – revisit who key stakeholders are; present the plan to stakeholders and explain how they will benefit; articulate what the company needs from stakeholders and determine what stakeholders need from the company.
  • Communication – develop a communication rhythm that may include a weekly call with the bank, a weekly review of cash flow, daily/weekly check-in with the leadership team, daily/weekly call with key customers to discuss quality, delivery, and/or funding needs as applicable or daily/weekly call with key vendors.

4. Execute the plan with a sense of urgency

  • Assign responsibility and accountability with due dates
  • Conduct daily/weekly meetings with leadership on plan status
  • Weekly review of rolling 13-week cash flow to drive decisions and actions
  • Measure progress and make adjustments as needed

 

All companies experience performance challenges at some point. If your business finds itself facing some immense challenges, just know that you’re not alone. We work with clients who have questions about what this all means for them, what options and conditions for support or exemptions apply, what implications are for team members, how to mitigate business value erosion, how to manage communications with banks/creditors/vendors/customers, etc. All that to say, we’ve seen businesses make successful turnarounds when they choose to implement a plan.

At DWH, we’re here for you. Feel free to reach out for a conversation on how we can be of assistance as you focus on thriving and not just surviving.

 


This post was written by Heather Gardner
hgardner@dwhcorp.com | LinkedIn

All companies experience change.
Plan for it with us.

 

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Understanding Your Cash Conversion Cycle

Group of financial analysts

CCC: What Is It?

The Cash Conversion Cycle (“CCC”) is an important metric used to determine the number of days it takes a company to convert cash outflows (purchase of inventory, manufacturing expenses, etc.) into cash inflows (collections of receivables).  The longer a company’s CCC, the more working capital it will need to fund operations.  This metric is especially important when a company is evaluating the working capital needed to fund expansions, new projects, or growth.

How Is It Measured?

There are three components of the CCC. They include Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO), and Days Payable Outstanding (DPO). The formulas for determining these are below:

  • DIO = (Average Inventory on Hand / Cost of Goods Sold) X Days in the Period
  • DSO = (Average Accounts Receivable / Revenue) X Days in the Period
  • DPO = (Average Accounts Payable / Cost of Goods Sold) X Days in the Period

Days in the Period are determined by what information you are using to do your calculation. For example, if you were measuring your CCC using numbers that reflected an entire year, the period would be 365 days. If you were measuring just a month, the period would be 30 days. Once you have determined your DIO, DSO, and DPO, the formula for your CCC is:

CCC = DIO + DSO – DPO

How Can I Improve My CCC?

It all starts with understanding your current state. What is the first thing you do when you are about to embark on a new journey? You look at a map and figure out where you are relative to where you want to be. You will never be able to measure progress if you do not know your starting point. Calculate the CCC for your company using the most recent financial data and the formulas provided earlier. This is your, “You Are Here,” marker.

Can you recall a time in your company’s history when cash was NOT tight?  What was the CCC leading up to and during that period? How does that compare to your current CCC? How does your CCC compare to the standards within your industry? Use the answers to these questions to guide the goal-setting process. Taking steps to improve your CCC leads to improved efficiencies for the company by converting inputs into cash. The goal is to free up working capital, and with the CCC method, you’ll be able to ensure your business has enough cash for when you need it most.

Identify & Quantify Cash Levers

As you begin to establish cash conversion goals, you will discover a variety of “levers” that can influence cash flow. Some common levers are listed below. After reviewing this list, decide which levers are most relevant to your business. Quantify the impact of each lever to determine the potential impact on cash conversion.

Sales & Marketing Levers:

  • Early Payments – Will any of your customers offer accelerated payment terms? Offer early payment discounts, as necessary.
  • Demand Planning – Can you engage with your customers planning and purchasing departments to ensure you have access to the most reliable product demand information? Structure your agreements in ways that allow you to level load your operations.
  • Discounts & Promotions – Do you have opportunities to offer discounts or promotions on slow-moving or obsolete inventory? Are there brokers available to provide immediate cash for this inventory?  Can any of this inventory be re-purposed for other sales channels or product lines?
  • Selling Excess Capacity – What areas of the business have excess capacity? Use this information to offer discounted pricing as needed to fill this capacity.

Supply Chain Levers:

  • Extended Payment Terms – Request extended payment terms from your key vendors. Remove any early-pay discount programs as applicable.
  • Material Lead Times – Evaluate long-lead material items, seeking alternate sources with shorter lead times, or assist your vendors in reducing these lead times.
  • Optimize Order Sizes – Review your planning and ordering process to ensure you are ordering in the most economical batch sizes.
  • Optimize Order Triggers – Establish parameters around raw material on-hand quantities to prevent excessive buildup of inventory. Set up replenishment systems, or vendor-managed inventory systems that allow you to reduce your liabilities.

Production Levers:

  • Production Lead Times – What are your internal production lead times for your highest-cost items? Look for bottlenecks in the process and find ways to eliminate this buildup of inventory.
  • Minimize Finished Goods Inventory – Establish parameters around finished goods inventory, highlighting areas where completed product is sitting on your shelf for more than a few days.
  • Increase Throughout – Are there bottlenecks in your production process? Use this to determine where you might need to add more capacity (human or capital resources).  Find equipment that is under-utilized, working with the sales team to bring in work that can fill this capacity.

Financing Levers:

  • Asset Management – What assets are available that can be used as collateral?
  • Negotiate Advance Rates – Negotiate with your bank to find the best inventory and receivable advance rates.
  • Micromanage Collection Process – Maintain proper oversight over your AR collection process to limit past due invoices that might become ineligible.

Make a Plan

Decide on a goal and create a path that moves you toward that goal. As with any good plan, make sure you have identified key milestones and assigned appropriate ownership to key elements of the plan. Each element should relate to the identified levers. Work through all the levers you previously identified, adjusting your plan as more information is gathered and as progress is made. Maintain clear and consistent communication within your team ensuring all opportunities are fully explored and executed.  Document and measure your progress along the way. As movement is made, priorities will change and new levers will come into play. Re-establish your current state, set new goals, and repeat the process.

Conclusion

Monitoring your cash flow can often be a daunting and nebulous task. You can use the Cash Conversion Cycle measurement as a tool to objectively monitor your company’s effectiveness in managing cash. Using the tools and steps above can help to significantly improve the liquidity of your business and reduce future risk.

 


Originally posted on June 1, 2021, by Jeremy Cosby
jcosby@dwhcorp.com | LinkedIn

All companies experience change.
Plan for it with us.

 

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Stories from a Financial Advisor

Image of a couch at home

For many people, the idea of hiring an advisor can feel intrusive, threatening, costly, or even downright unnecessary at times. As long-time advisors at DWH, we’ve heard things like…

“I’ve been in this business for 40 years. No one can tell me anything I don’t already know.”
“I don’t want someone I just met telling me how to run MY business.”
“My business is unique, and no one else does things the way we do, so your ‘standard solutions’ won’t work here.”

Although these are common sentiments, we’ve discovered that sometimes the best way to articulate the value of a good advisor is not with clever arguments, but with a story.

First Story: The Couch Maneuver 

I recently went over to a friend’s house to help him move his couch. The house was a bi-level with a small flight of stairs leading to the front door. We transported the couch down the stairs and were trying to maneuver it through the doorway; it wouldn’t budge.  We then stopped for a minute, evaluated the situation, and tried harder.  Still stuck.  After 2-3 minutes, we noticed his neighbor standing just outside the house, entertained by our efforts.  Without hesitation, he said, “move it back up one step, rotate it about 30 degrees and come back down.”  With no better options but to swallow a little bit of pride and take his suggestion, we did as he instructed.  Sure enough, within seconds, we were out of the house, and the couch was in the truck.

This wasn’t his couch, nor was this his house; in fact, I don’t think he’s ever even been inside the house.  He had a perspective we didn’t have that he could use to identify problems we couldn’t see and suggest a quick, simple solution.

Second Story: The Golf Swing

I’ve always been terrible at golf, but for some reason, I’ve noticed this year that I’m getting worse the more I play instead of better.  I was reading articles on how to improve my swing, spending more time at the range, even shopping for new clubs.  None of it mattered.  Still no improvement, in fact, the opposite.  Finally, I decided it was time for me to seek some professional help, so I signed up for an evaluation with a local professional golf coach.

After some brief discussion about the challenges I was experiencing and what I hoped to accomplish, I was directed to a special room with several cameras, four tv screens, and a giant net to hit into.  I was instructed to swing “like I normally do” and hit a few balls into the net.  Cameras from multiple angles recorded my swing so the instructor could then replay the video, dissecting my swing frame by frame.  Every element of my swing, from the setup to the backswing, contact, and follow-through, was compared to a database of “baseline” measurements generated by compiling the average swing of the top 100 professional golfers in the world.  As painful as it was to watch, it allowed me to see how my swing compares to a professional.

I’ve never actually seen my golf swing before, which makes sense as there aren’t exactly a lot of mirrors on golf courses.  Within those 90 minutes, I was able to SEE what was causing that awful slice and begin to make a plan to correct some unhealthy habits.  There was not one magical fix (unfortunately), but a couple of fundamentals that I need to practice, which will start pushing me towards a path of improvement.

Hopefully, by now you can see where I’m going with these stories…

We need trusted advisors in our business (and frankly, in all areas of our life) because a good advisor can provide a perspective only an outsider can give.  They can see things from multiple vantage points (the forest AND the trees) and make comparisons to what the best companies in the world do (a.k.a. “Best Practices”).  A good advisor will leverage the decades of experience you have in your business, or within your industry, to help you see things from a new perspective. And seeing things in a new way is the first step to breaking old habits and creating meaningful change.

When you’re ready, we’re here for you — and for the life of your business.

 

This post was originally written on August 11, 2021, by:
Jeremy Cosby, DWH Partner
jcosby@dwhcorp.com | LinkedIn

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Succession Planning: Preserving Company Legacy

Business colleagues discussing work

Determining when and how to transition leadership or ownership to family or employees is vital to preserving a company’s value, legacy, and continuing success.

Yet, according to a 2021 survey, fewer than 34% of family-owned businesses have a formal succession plan that has been communicated to stakeholders. Failure to have a plan in place not only puts the family business and family relationships at risk but can also have an impact on employees and the community.

When it comes to developing a strong succession plan, it’s best not to go it alone – it is a team sport involving legal, financial, and business advisors.

By being proactive, you can ensure smooth transitions, optimize strategic development options, and maximize value so that the business thrives for generations. For instance, bringing in a third party to conduct an assessment can help to uncover current challenges and blind spots, not unlike how your trusted mechanic performs a multi-point inspection on your car. This drives an iterative discussion on observed challenges, risks, and opportunities, which are then contrasted with best practices.

Additionally, you’ll want to work with key members of your team to align expectations for the company’s future – that could range from transforming the business for the next generation to specifying a transition plan for leadership positions, to the development of individuals or family members. Whatever the scenario, the goal is to create alignment in vision and strategy.

If your business doesn’t have a plan in place, we can help, as our business advisors have helped many clients develop their succession plans. We can facilitate a planning process that is both strategic and integrates succession in such a way that considers the ‘why’, ‘how’, and ‘what’ of your business.

Our planning process includes action points that address near-term gaps and achieve mid-to-long-term objectives – all while reducing risks. We’ll also provide ongoing support with resources and experience to guide process improvements, capability development, and implementation of the plan.

To learn more about our strategic succession planning and transformative processes, click here.

 

If you found this topic interesting, our strategic partner, JACO Advisory Group published content you may find relevant as well: Family Business Planning – Preparing the Next Generation to Lead and Who Should be Next in Line to Lead the Family Business?

 

This post was co-written by:
Marcel van der Elst, DWH Senior Director, and Jordan Gunn, Collaborative Designer

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How to Preserve
and Improve Liquidity

Image of businessman doing financial planning

When it comes to maximizing the value of your business, it’s best to focus resources and energy on improving cash flows and managing risks. The last two years have brought a number of unique challenges to business leaders and liquidity has become a significant topic. Companies are having to make major decisions that will potentially impact cash flows. So how can leaders address this?

Step 1: Develop a Cash Flow Forecasting Tool

When it comes to best practices around preserving and improving liquidity, we like to suggest one approach that has proven to be effective among many of our clients – and that is to develop a robust 13-Week Cash Flow Forecasting Tool. This financial tool helps businesses accomplish three primary objectives:

    1. It predicts cash flow and collateral, week over week, for the next 90 days.
    2. It improves decision-making at the transaction level.
    3. It improves communication with key internal and external stakeholders.

An effective 13-Week Cash Flow Forecasting Model also shows the details of anticipated cash receipts, cash disbursements, and changes in bank collateral through the forecast period. Specifically:

    • Cash Receipts – your company should forecast cash receipts from:
        • When current Accounts Receivable (AR) will be received.
        • When future revenues will convert to cash receipts.
        • Other non-operating cash receipts (e.g., interest income, proceeds from the disposition of assets, draws on a line of credit, etc.).
    • Cash Disbursements – your company should forecast cash disbursements from:
        • Current accounts payable (AP).
        • Future planned expenses*.
        • Other non-operating cash disbursements (e.g., debt service, un-funded capital expenditures, distributions, etc.).*Future projected expenses can be derived from budgets and recent experience, but should also consider anticipated changes to your business (e.g., new program launches, wage increases, new hires, etc.).
    • Bank Collateral – the collateral component is often missed in cash flow forecasting models and can lead to unanticipated liquidity challenges. Cash receipts, cash disbursements, and other business activities can have an impact on the bank’s collateral and, therefore, the company’s liquidity. A good 13-week cash flow forecasting model should take into consideration how changes in AR and inventory impact the bank’s collateral and, therefore, the line of credit (LOC) availability.
    • Cash on Hand – Cash on Hand is calculated using the following formula: Beginning Balance + Cash Received – Cash Disbursed +/- Changes in LOC
    • Miscellaneous – Here are a few other things that you should keep in mind as you build your model:
        • The cash flow should be rolled at least weekly. In times of crisis, you may want to roll it daily.
        • As a result, the model should be easy to create and update.
        • The model should be linked to your accounting system or allow for direct imports of data from the accounting system.
        • Have a weekly clean cut-off, so you are working with the most relevant and timely data.
        • The model should be reviewed at least weekly by the leadership team.

Step 2: Use the Model to Identify Levers

Once you have a functioning model, it is time to use it to find ways to preserve or improve your cash position. We call this process “pulling levers”. Reviewing your income statement will allow you to find opportunities that will improve revenue or reduce expenses. After, you’ll want to look at your balance sheet. The accounts on the balance sheet represent opportunities to accelerate cash receipts or slow cash disbursements. The balance sheet accounts also represent multiple market relationships, every one of which represents an opportunity to renegotiate to improve cash position. Consider what other sources of capital may exist for your business in your network. Examples of levers can include:

  • Cash Receipts
      • Reducing payment terms with customers.
      • Require deposits for new customer orders.
      • The additional cash infusion from owners or investors.
      • Sale of unused or under-utilized assets and equipment.
      • SBA lending or other government assistance.
      • Negotiate increases in collateral advance rates or LOC limits.
  • Cash Disbursements
      • Negotiate new payment terms with vendors or negotiate payment plans.
      • Reduce direct material order quantities or push deliveries.
      • Reduction of labor (headcount or hours).
      • Renegotiation of contracts or agreements.
      • Deferral or reduction of rent and lease payments.
      • Negotiate deferral of principal or interest payments with the bank.

Step 3: Communicate with Stakeholders

Key Stakeholders

Once you’ve built useful forecasts and identified levers, it’s time to communicate the plan to your stakeholders (think customers, vendors, employees, owners, investors, and community members as needed. Remember, your stakeholders are an essential part of your business and share in its success. When communicating your plan to your bank, describe the following:

  • How you developed your cash flow forecast
  • What your forecast shows
  • What steps you’re taking to improve your liquidity and capital position
  • What your current needs are and how might the bank be able to help

It’s better to bring a plan to your bank than to expect them to give you one. This holds for all your stakeholders. Make sure you are clear and considerate in your communication, looking for win-win solutions. You’ll gain confidence from your banking institution by showing exactly how you’ve determined your needs through management tools and decision-making.

This tool is also beneficial for the purpose of discovering the expectations of your customers as well. For instance, if a customer asks to revise payment terms, you can make the modifications in the forecast to determine the impact on your liquidity before agreeing to the change.

Step 4: Start Pulling Levers

Once you have your cash flow model in place and have communicated it to your company’s stakeholders, it is time to start pulling levers. Make sure that you develop an action list for the levers you are going to pull, including a point person for each action and a due date. Review this action list on a weekly basis. It is also essential to ensure you are updating your model as you pull the levers. If you request a customer pay in 15 days and they agree to 25 days, make sure the cash flow forecast reflects that change correctly.

Step 5: Review the Model Weekly and Continue Communication with Stakeholders

Once you have created the forecast, identified levers, communicated the plan to stakeholders, and started pulling levers, it is crucial to maintain this rhythm. Update the forecast weekly and consistently review as a team. Look for changes in the forecast and review the weekly variance report. This will help you improve the accuracy of the model. Additionally, your team should be looking for new levers on a weekly basis. It’s also important to note that in times of distress, the amount of communication with key customers, vendors, employees, financial institutions, and ownership should increase. Continue to update your stakeholders on your plan and your progress.

 

If you found this topic interesting, our strategic partner, JACO Advisory Group published content you may find relevant as well: Navigating Unexpected Business Disruptions by Preserving Liquidity

If you’re wanting to learn more about our cash flow forecasting model or would simply like to talk, please reach out. At DWH, we’re here for you — even remotely.