1.
Enabling Your Business To Compete Effectively By Phil Biggs © One World Partners, LLC 2010, All Rights Reserved May 2010 Making Cash Flow Work

2.
The Need for Cash Is Great… <ul><li>What ways do you generate cash? Sources of cash… </li></ul><ul><ul><li>Traditional external bank financing and credit lines are scarcer… </li></ul></ul><ul><ul><li>Consider private placements </li></ul></ul><ul><ul><li>Discount accounts receivable, accelerate customer terms and payments </li></ul></ul><ul><ul><li>Leverage real estate and fixed assets through sale-leaseback </li></ul></ul><ul><ul><li>Generate new state, local, and federal tax incentives for your plant, property or equipment in an attraction/retention strategy </li></ul></ul><ul><ul><li>Sales of a new product or service with “borrowed” distribution </li></ul></ul><ul><ul><li>Passive income opportunities i.e. brand alliances, joint ventures </li></ul></ul><ul><ul><li>Licensing opportunities that generate royalties </li></ul></ul>© One World Partners, LLC 2010, All Rights Reserved

3.
Cash Is “ King ” So Protect The Kingdom! <ul><li>What ways are you applying cash? Uses of cash… </li></ul><ul><ul><li>Short-term fixed costs </li></ul></ul><ul><ul><li>Short-term variable costs </li></ul></ul><ul><ul><li>New expenses </li></ul></ul><ul><ul><li>Long-term investments </li></ul></ul><ul><ul><li>Hiring </li></ul></ul><ul><ul><li>Dividends or cash to stakeholders </li></ul></ul><ul><ul><li>Pay down existing debt or taxes </li></ul></ul>© One World Partners, LLC 2010, All Rights Reserved

4.
Cash As A Strategic Tool… <ul><li>Having cash-on-hand and a low-debt position on your balance sheet can provide you a competitive advantage with customers, a major leverage point to win new business or to set more favorable terms of sale </li></ul><ul><li>Cash enables you to “take out” a partner or family member shareholder and thus widen your span of control of the business </li></ul><ul><li>Puts you in a position to better control your supply chain </li></ul><ul><li>Provides you greater flexibility and options with lenders and investors </li></ul><ul><li>Gives you the means for incremental investments i.e. new R&D, transactions </li></ul>© One World Partners, LLC 2010, All Rights Reserved

5.
Manipulating Reports to Generate Cash <ul><li>Beware of creative methods for booking revenue simply to obtain cash </li></ul><ul><ul><li>You typically provide product/service, receive payment, then recognize revenue… </li></ul></ul><ul><ul><li>But, for example, how much of the sale should be set aside to meet the terms of the service agreement versus allocate to the cost of the product </li></ul></ul><ul><li>Be reluctant to offer extended payment terms that allow customers to buy goods now but make no payments for 6 to 12 months – you may be stealing from future sales cycles </li></ul><ul><ul><li>This may be only a temporary boost based on a timing need </li></ul></ul><ul><li>Check to see that cash flows and earnings are in sync </li></ul><ul><ul><li>If earnings are going up but cash flows aren’t, what’s propping up your earnings? </li></ul></ul><ul><ul><li>Did the company pay an unusually large tax bill? Make a large contribution to an employee pension plan? </li></ul></ul>© One World Partners, LLC 2010, All Rights Reserved

6.
Unchecked Costs Can Ruin Cash Flow… <ul><li>Direct Functional Costs Are Sometimes Hidden </li></ul><ul><ul><li>What happens to your profit margin if a customer awards you new business, but then the volumes don’t follow behind the contract? </li></ul></ul><ul><ul><li>Unseen functional costs will negatively reduce your cash flow </li></ul></ul><ul><ul><li>These include amortization of packaging, inventory carry costs (such as the costs of work-in-progress and finished goods), underutilization of manpower, underutilization of facilities and equipment, as well as higher facility overhead costs </li></ul></ul><ul><ul><li>Aggregate these four key cost categories – packaging, inventory, facility, and manpower – into a total “sunk” cost to determine net-net of new and existing business </li></ul></ul>© One World Partners, LLC 2010, All Rights Reserved

7.
Key Cash Flow Metrics <ul><li>Discounted Cash Flow </li></ul><ul><ul><li>Adjusts cash to reflect time value of money. </li></ul></ul><ul><ul><li>Present value states that money you have now should be valued more than what you receive in the future because of what you could earn in the form of a return or interest rate on that money. </li></ul></ul><ul><ul><li>That money is therefore discounted to reflect its lesser value because you will not have it until some future time and it cannot be used now. </li></ul></ul><ul><ul><li>Present Value = (Future Value) / (1.0 + Interest Rate) </li></ul></ul><ul><ul><li>Present Value = ($100)/(1.0 +0.10) = $90.91 </li></ul></ul><ul><ul><li>Compare Net Present Value (NPV) to rank projects </li></ul></ul><ul><li>Payback Period </li></ul><ul><ul><li>Payback period is the length of time required to recover the cost of an investment, usually measured in years. </li></ul></ul><ul><ul><li>Compares alternative investments with respect to risk: other things being equal, the investment with the shorter payback period is considered less risky. </li></ul></ul>© One World Partners, LLC 2010, All Rights Reserved

8.
Cash Management Makes Your Business Better… <ul><li>Managing a strong cash position increases your span of opportunities with customers and suppliers </li></ul><ul><li>Use metrics like discounted cash flow and payback period to force discipline </li></ul><ul><li>Having solid cash holdings strengthens your balance sheet, which in turn increases confidence and comfort for the Board of Directors and key stakeholders </li></ul><ul><li>Available cash increases likelihood of achieving strategic objectives </li></ul><ul><li>Improving liquidity will increase operational flexibility and performance </li></ul><ul><li>Positive cash flow reduces market risk and credit risk </li></ul>© One World Partners, LLC 2010, All Rights Reserved

9.
Complementing Cash… By Implementing Unprecedented Operational Changes <ul><li>We have seen the rise of business “fracturing” where one company (i.e. IBM) makes a better product by relying on others (i.e. Intel, Microsoft) to perform functions the business used to do itself. </li></ul><ul><li>We are in the midst of G2 Fracturing ® in American business. This lowers costs and generates cash. </li></ul><ul><li>G2 Fracturing has now created a complex pyramid of companies that serve and support each other. </li></ul><ul><li>Over time, this pyramid has grown exponentially, as companies shed employees and increase the number of independent contractors, while much of the time corporate profits go up. </li></ul><ul><li>As a result, this trend of Integrator/Complementor ® has produced unprecedented “false readings” on the U.S. economy i.e. re-classifying workers versus outsourcing workers, as financial, economic, and socio-political responses fluctuate and historical business cycles do not necessarily true up: </li></ul><ul><ul><li>Revenues may go down, as profits rise, entity may become smaller </li></ul></ul><ul><ul><li>Revenues may go up, while profits go down, entity could become smaller or get bigger </li></ul></ul>® All Rights Reserved, Herbert Meyer, © One World Partners, LLC 2010