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Capital Ideas for Middle Market Businesses

Welcome to this issue of Capital Ideas, our newsletter dedicated to business selling, business buying and financial resources for mid-market companies.


Cutting Expenses – A Powerful Tool for Building Value in a Difficult Market

Ten Ideas

By Jay Carter, Principal
Charlotte Office, Corporate Finance Associates

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Growing top line revenues has been the focus of most business owners and managers over the past decade, while managing expenses has received less attention. Why is this? One explanation is the seductive feeling of satisfaction and well-being that accompanies recurring periods of revenue growth. Unfortunately, there is an unhealthy side effect associated with this euphoria — expense creep. Expense creep is the gradual increase in company expenses due primarily to inadequate attention to them. This may go unnoticed for years because intoxicating sales growth masks the symptoms. In a strong market environment, a state of equilibrium may be reached between expense creep and the healing revenue growth. This can continue indefinitely with no apparent adverse effect on the company. But once revenue growth stops — or even worse — becomes negative, a dangerous imbalance develops.

The current economic recession is the ideal environment for the effects of expense creep to be realized. The euphoria of sales growth has long worn off. Boardroom discussions about company profitability have shifted from how to sustain double-digit growth to whether the bottom line will be positive or... Read more »

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Cash Flow for Manufacturing and Wholesale Companies

Do you know your breakeven cash flow?

By Jeff Johnson, Principal
Northern California Office, Corporate Finance Associates
and
Timothy F. Brophy, Managing Partner
Johnston, Gremaux & Rossi, CPA’s

coverCash flow is one of the most commonly used terms in business – and is also one of the most often misunderstood concepts. Many managers and business owners believe that generating more sales is the way to fix cash flow problems. However, increased sales may not increase cash flow. Other costs associated with sales, such as selling expenses or variable costs may even require more cash. Understanding the cash cycle of your company may assist you in making sound business decisions.

Increasing inventory or accounts receivable may improve your balance sheet, but it does not generate cash to pay bills. The chairman of Citibank stated “The first question I would ask any borrower these days is ‘Do you know your break-even cash flow?’”

When your company is short on cash... Read more »

 

Feature Acquisition

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Situation: Twenty years following the launch of ConArt, a manufacturer and erector of precast architectural and structural components, Mr. Lyle found himself seeking to sell his company during the height of one of the country’s worst economic and construction industry downturns in recent history.

Solution: Faced with an unusually difficult engagement, CFA prepared a detailed geographic and industry sector analysis, which was effective in presenting the fact that ConArt was not suffering from the effects of the construction industry downturn. Bolstered by the in-depth report, KT Capital Partners, a private equity fund, acquired a company that is strategically located and positioned to take advantage of a vast number of growth opportunities in Southeastern United States.

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