Manufacturing Blog

Strengthen Your Cash Position: 3 Challenges, 1 Simple Solution

Strengthen Your Cash Position: 3 Challenges, 1 Simple Solution

9/20/2017

Whether you want to run, grow, or merge your business – cash on hand matters.
 
A strong cash position helps your organization maintain its debt ratings, avoid bank covenant violations, and improve liquidity ratios. For these reasons, a supply of cash clearly makes sense. But you have a business to run, grow, and/or merge, and amassing reserves can be a challenge.
 

Challenge #1 - Run Your Business

To run your business, you must analyze data to predict seasonality, demand, market changes, and economic swings. This forecasting can indeed help predict the future.
 
But even in the Digital Age, data is not infallible. Anyone who works with data is all too familiar with this unfortunate truth. For that reason, cash reserves for emergencies can help meet short-term financial needs – both foreseen and unforeseen.
                                                                                                             

Challenge #2 - Grow Your Business

When you are ready to grow, acquiring equipment, building out office space, and hiring staff can help your organization flourish. But expansion requires investment, which – again – can drain your cash reserves. And drained cash reserves can mean missed opportunities.
 

Challenge #3 – M&A

Growth through acquisition is trending right now. “Since the 2008 recession, companies have been hoarding cash, but many now want to spend the money,” said Gerry O’Meara, head of M&A at SunTrust Robinson Humphrey, in Forbes. If an organization is pursuing an M&A strategy, they do require cash on hand to do so. But acquiring is not the only reason to keep a healthy supply of cash on hand. Whether your company is looking to be acquired, seeking to remain independent, or hunting for prospective organizations to purchase, a strong cash position is ideal in this market.
 

Solution: Sale-and-Leaseback

A clutch strategy to improve cash position is a sale-and-leaseback transaction. In a sale-and-leaseback, your company increases your liquid capital through the sale of assets, while still retaining the uninterrupted use of those assets.
 
Sale-and-leaseback is a simple transaction.
 
  1. Sell your capital equipment to a lessor

  2. Then the lessor reimburses your company 100% of the original purchase price of your equipment (without any interruption to its use)

 
Networking equipment, computers, telephone systems, printers, software, and even office furniture generally qualifies for a sale-and-leaseback. Related software, services, and build-out expenses from the previous 6-12 months are also eligible for reimbursement.
 
Financial disclosure for a sale-and-leaseback transaction is generally the same as a traditional lease: three years of annual financial statements, interim financial statements, and bank reference information. The lessor will also require copies of the vendor invoices and cleared check copies as proof of payment.
 
This bit of effort that can go a long way.  By strengthening your cash position, you can improve liquidity rates, maintain debt ratings, and spread the cost of the equipment over the life of the asset.
 
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