Focus Your Firm on Cash Flow, Discipline, Advises Consultant

by WOHe

Focus Your Firm on Cash Flow, Discipline, Advises

Focusing on cash flow and ignoring misleading accounting
“profits” are important financial strategies to follow in keeping a
business viable during economic or market downturns, a leading
distribution consultant advises.

Bruce Merrifield, president of the Chapel Hill, NC-based
Merrifield Consulting Group, recently advised members of the
North American Building Material Distribution Association (NBMDA)
that it’s essential during these times to pay closer attention than
normal to receivables. That means writing off receivables that are
past 90 days, as well as inventory that hasn’t moved in the past 12

“These measures may generate huge accounting losses, but they
all either generate cash in hand or allow a firm to get a check
from the government on a tax-loss, carry-back basis,” Merrifield
advised members of the Chicago-based NBMDA, which includes cabinet
distributors and other people with ties to the kitchen and bath

“Don’t report fictitious profits and pay taxes [on that], which
is money flowing out of the com-pany,” Merrifield remarked.

The age of receivables generally lengthens during a downturn,
and how distributors handle those delays should depend on the track
record of the customer in question, Merrifield pointed

“Well-managed firms are good for the cash,” he said, adding that
an “ongoing, disciplined collection system will nudge them back”
into paying on time. By contrast, overextended companies, or firms
with no track record, need to be dealt with before the situation
escalates out of control, Merrifield said.

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