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Financial Bully in the Playground

Explore unconventional financial strategies inspired by Benjamin Franklin's lightning rod invention. Discover how redefining problems and creative solutions can drive success in a turbulent economy.

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Financial Bully in the Playground

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  1. Financial Bully in the Playground An exercise in thinking out of the box for our turbulent economy

  2. Ben Franklin and thinking out of the box • In Ben's day lightning was a scourge to the people. • Conventional thinking was that we needed to find a way to avoid lighting. • Keep it away • Keep it far away if possible • It was the wrath of God

  3. Not Ben! • First, Ben knew that lightning is simply static electricity, not the wrath of God. • Second, it’s not lightning we are afraid of it’s the effects on buildings. • If we actually attract lightning and channel it into the ground we will accomplish our goal.

  4. Lightning Rods were examples of • Using new knowledge to overcome conventional wisdom. • Redefining the problem. • Out of the box thinking

  5. Application to today's economy • The debt to equity ratios should be trimmed back, see PowerPoint's on “Is your WACC Out Of whack?” • It does not automatically follow that the balance sheets should be trimmed. • Let’s examine three scenarios that may call for additional investment; • Expansion of accounts receivable • Expansion of Inventory • Purchase of competitors

  6. Conventional wisdom on receivables • Quicker turnover and less days outstanding is always better. • The median from RMA is the “minimum” standard • The real goal is the upper quartile

  7. Bolt, Nut and Screw Manufacturer • RMA Statistics • SIC Code 3429 • Days in Accounts receivable • Top 25% quartile (Fast) 38 days • Median of all in SIC class 47 days • Worst quartile i.e. 75% did better 55 days

  8. Sample RMA data “Good” 38 DAYS

  9. Tell your sales manager to get out there and sell!!! • OK boss, but to I sell • Price or terms? • If we sell terms our days outstanding will increase. • Do the math! • Your customers are under pressure • Easing credit terms could have both positive short term and long term strategic benefits

  10. Credit Policy or Credit Strategy • Basic terms • Extended terms • Seasonal dating • Other creative tactics • Credit Strategy is a higher level thinking than credit policy • Think Big!

  11. Alternative to Aggressive Credit Strategy • To sell on simply price • You must cut price and gross margins

  12. Tell your sales manager to get out there and sell!!! (the sequel) • OK boss, but to I sell • Price or service? • If we sell service, selection and reliability the days in inventory will increase. • Do the math • Carrying additional inventory will not only increase selection options for your customers it will; reduce your stock outs and back orders.

  13. Benefits to you and your customers for holding higher inventory levels Increase selection for you customers • Not only Penn’s Oil but also Quaker State Oil • Not just the one quart size but pint, quart, gallon and five gallon size is available Increased Reliability • Your customers will see fewer stock outs and back orders. Your reliability index will go up

  14. RMS Statistics • Days in Inventory SIC 3429 • Bolt, Nut and Screw Manufacturing • Upper Quartile 53 Days • Medial 81 Days • Lowered Quartile 129 Days

  15. RMA Statistics “Bad 129” Days

  16. Increased inventory continued • Reduce stock outs and back orders. • Reduce response time on rush orders. • Provide critical support especially to manufacturing customers. • As your customers increasing look to Just-In- Time inventory policies you can be the supplier of first choice • Do the math!!

  17. Growth through acquisitions • It is generally cheaper to buy a customer than create one. • Solid old line companies are available for acquisition at favorable multiples • Opportunities exist for expansion in both geographic or product line expansion.

  18. Alternative to Aggressive Inventory Strategy • Sell on price • Cut price and gross margins • Or sell on selection, reliability and dependability

  19. A bulked up balance sheet is a true financial weapon in today's market • Selling terms, selection, service and reliability takes financial capacity • You can become the financial bully in your market if you are properly capitalized

  20. Great but where to I get the capital in this Market? • Retention of profits, plow back • Noble but slow • If Tom Edison had grow solely by retained earning we would be electrified as far as Pittsburg PA. • Examine the opportunities presented by the Private Equity Groups (PEG) • Do the math! (or have Kepler Financial do it for you)

  21. Jack Cassidy • Kepler Financial • http://www.Keplerfinancial.com • SELLER SERVICES • Exclusive Representation • Exit Strategy & Planning • Business Valuations • Growth Capital Services • Consulting • BUYER SERVICES • Exclusive Representation • Business Valuations

  22. What is additional equity appropriate for? • Growth capital, either organic growth or acquisitions • Intergenerational transfer • Management buy-out or buy-in • Reduction of minority shareholders • Personal liquidity and diversification • Elimination of personal guarantees and obligations • Or simply retirement.

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