News Column

Money-Counting for Growth

June 2002, HISPANIC BUSINESS magazine

Scott Williams

How a company manages its finances will determine how much the business grows and, in some cases, whether it survives.

Yet corporate executives often make financial management a low priority because they lack the training to deal with it effectively.

“That’s not a criticism, that’s just reality,” says Robert C. Benson III, president of American Business Advisors of Greenwood, Colorado. Even people brilliant at other aspects of starting and running a business may fall short in understanding financial matters, Mr. Benson says, and that’s why one of the first things he does when a client hires him is to determine whether they’re on what he terms a “mission possible.”

“Many businesses have a financial structure that makes it impossible for them to succeed,” Mr. Benson observes. “What I often hear is, ‘I got my financial statement and it shows that I made X amount of money or lost X amount of money, and other than that I don’t know what this information means.’ ”

Walter Haas, CEO at Alhambra Capital Management in Florida, says one of the best hires a company can make is a good money collector. Accounts receivable will control a company’s cash flow, which in turn drives a company’s ability to pay its bills and grow. You can have a thriving business on paper, but be unable to pay your bills because you’re cash poor, says Mr. Haas, whose company provides financial management services. It ranks number 147 on the Hispanic Business 500®.

Besides the operational budget, financial management includes obtaining capital for growth. Edward De La Rosa, CEO of E.J. De La Rosa & Co., a California investment banking firm, says credit can be cheaper than cash in the long run. A line of credit or capital reserves will help a company cover unexpected costs, a major problem during the economic slowdown last year.

Mr. De La Rosa, whose company ranks 467 on the Hispanic Business 500, says many clients have moved from fixed-rate debt to variable-rate debt to lower interest costs. They also have built investment portfolios designed to earn the best possible yield while providing the liquidity needed to fund growth projects.

Mr. Benson says it’s critical that CEOs use short-term debt for short-term needs and long-term debt for capital improvements. He recalls one executive who used the company’s line of credit to purchase equipment, leaving no working capital to finance business growth to utilize the new equipment.

“Start your plan before you start your business,” suggests Michael Zambrana, CEO of Pangea Group, the number 350 company on the Hispanic Business 500. “Analyze yourself, your people, and your markets to find the fit.”

During slow times, Mr. Benson says, managers should examine their costs to lower the break-even point, making sure not to cut more value than cost. He also points to the need for timely financial information – quarterly statements won’t cut it, and reports must give the information needed for rapid decision-making.

Ultimately, failure to anticipate financial developments ranks as the biggest mistake most companies make, according to Mr. Benson. He adds: “Your ability to manage money significantly affects your ability to borrow funds, and that has an impact on your ability to grow.”

Source: HISPANIC BUSINESS magazine

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