CMTC's Shifting Gears

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Episode 4 - Seeing Red? How to Maintain Cash Flow During Uncertain Times

Posted by Rachel Miller

 

Episode Show Notes

In this episode, Gregg is joined by Mike Daniel, the Regional Director of the Orange County Inland Empire Small Business Development Center Network. They dive into the ways any manufacturer can get smarter about cash flow, risk, receivables, and more in 2021.  They wrap up the conversation with some creative ways manufacturing companies have pivoted to optimize cash flow during the pandemic.

Mike Daniel is the Regional Director of the Orange County Inland Empire SBDC Network, which assists aspiring entrepreneurs and current business owners throughout Orange, San Bernardino, and Riverside Counties. Mike was formerly the director of the SBDC office at Long Beach City College from 2010 to June 2015. As a business owner and entrepreneur himself, he started his career as the owner of a Rocky Mountain Chocolate Factory location in Manhattan Beach and went on to open a second location in Long Beach in 2001. At their peak, the locations had a total of 20 employees and both locations had managers and assistant managers. In 2007, Daniel sold the Manhattan Beach store for an above-market offer then invested in several additional locations as a minority shareholder. Mike currently owns a new venture located in Shoreline Village in Long Beach called Sugar Daddies Sweet Shoppe, based on “fill-it yourself” candy options.

Highlights

00:00:00 – Introductions

00:01:16 - Current reality of the manufacturing sector in California from a financial perspective

00:02:47 - Importance of balance sheet, income statement, and statement of cash flows

00:04:13 - Practical ways to ensure solid cash position during economic uncertainty

00:09:09 - Evaluating variable and fixed expenses to have the most significant effect on cash flow

00:11:10 - Practical steps that manufacturers can take to expedite receivables

00:12:11 - Helpful programs and the best way to connect with them

00:14:31 - Strategies and keys to effectively balance short-term and long-term needs

00:17:30 - Services provided by SBDCs

00:20:35 - Creative ways companies have adapted or pivoted to optimize cash flow

00:22:42 - Tips to manage cash flow

00:25:05 - Increasing cash flow from a sales and marketing perspective

00:26:54 - Building company awareness through digital methods

00:28:17 - Summary

Transcript

Gregg Profozich [00:00:02] In the world of manufacturing, change is the only constant. How are small and medium-sized manufacturers, SMMs, to keep up with new technologies, regulations, and other important shifts, let alone leverage them to become leaders in their industries? Shifting Gears, a podcast from CMTC, highlights leaders in the modern world of manufacturing, from SMMs, to consultants, to industry experts. Each quarter we go deep into topics pertinent to both operating a manufacturing firm and the industry as a whole. Join us to hear about manufacturing sectors' latest trends, groundbreaking technologies, and expert insights to help SMMs in California set themselves apart in this exciting modern world of innovation and change. I'm Gregg Profozich, Director of Advanced Manufacturing Technologies at CMTC. I'd like to welcome you. In this episode, I'm joined by Mike Daniel, the Regional Director of the Orange County Inland Empire Small Business Development Center Network. Mike and I dive into the ways that any manufacturer can get smarter about investment, risk, receivables, and more in 2021. We wrap up the conversation with some creative ways manufacturing companies have pivoted to optimize cash flow during the pandemic. Welcome, Mike. It's great to have you here.

Mike Daniel [00:01:14] Yeah. Thank you so much, Gregg. It's great to be here.

Gregg Profozich [00:01:16] Manufacturers manage uncertainty in demand, and economic conditions, and increasingly competitive markets. On top of these, 2020 was a year characterized by unprecedented disruption from the norm, from initial cases of the coronavirus in China at the turn of the year, to its spread into a pandemic in the first quarter, to the lockdowns and countries around the globe throughout 2020. At the beginning of each of these, there was no way of knowing how far-reaching they would be nor how long each would last. It's fair to say that these uncertainties still exist today as we talk. In this podcast, we'll talk about some practical steps in maintaining cash flow during uncertain times. Mike, let's get started here. Paint us a picture. What is the current reality of the manufacturing sector in California from a financial perspective?

Mike Daniel [00:01:57] Yeah, great. That's a great question. And I think what we're trying to figure out is who are your customers? Are they still buying from you? Most manufacturing companies have taken a huge hit, whether it be financially with their current customers, whether it be with their current staffs, whether they can't show up to work, or whether they've been hit by COVID themselves. And I think it's trying to figure out when will this uncertainty stop, and what is available to me as I'm trying to get through this, and just trying to get through breakeven status. And I think that's where all business is at right now. How do I get through COVID, and when is this going to stop, because I don't know that anybody knows. And so I think a lot of businesses are trying to figure out what steps can I take to diversify my business, and what changes can I make within my business operation to cut costs, gain some new customers, gain some access to things that I didn't have before, I didn't have to think about before.

Gregg Profozich [00:02:47] Yeah, unprecedented uncertainty. I was talking with a business owner last week, one of our clients, and he basically coined a term for me, which I told him I was going to pirate and use often. We were talking about 2021 and how he's planning for the year, and he said, "I'm planning to improvise. Essentially, I can't forecast. I don't know what it's going to hold. I'm planning to just pivot and improvise all the way along the way." So great uncertainty in every aspect of the economy. So, manufacturers and all businesses, in fact, manage their financial position using the big three: the balance sheet, the income statement, and statement of cash flows. From your perspective, which is the most important to focus on in times of uncertainty, or are they all equally important?

Mike Daniel [00:03:23] They're all important, but obviously, I think cash flow is king at this moment. You really need to sit down and figure out the trajectory that you're on and how long you have before you run out of cash. And for a lot of businesses, that's the steps they're taking. There's two ways to change your business structure. You can cut your expenses, or you can increase your revenues. The easiest step is to take a look at what you're currently doing, and what your current expenses are, and what can you start to eliminate. If they're some minor expenses, that's all great, but when you start getting into tough choices and looking at your revenues and where they're coming from, at some point, can I cut my employee costs? Can I cut some of my manufacturing costs? Can I cut some rent, and just taking a look at the biggest percentages of what's hitting your cash and your cash flow, and what can I eliminate and still be just as efficient.

Gregg Profozich [00:04:13] So, yeah, there's a lot of different levers to pull, it sounds like, and you talk about some of the cost-cutting. I think there's probably also some on accelerating collections, or accelerating receivables, and those kind of things, too. So, we'll get into those as we go through the conversation. So, with cash being incredibly important... You got to make payroll. You got to feed the monsters, it's been called. If I don't make payroll, I've got larger problems. What are some practical ways manufacturers can ensure their cash position remains solid, remains viable in the face of economic uncertainty?

Mike Daniel [00:04:42] Yeah. I think it's taking a look first at what's available to you. So, economic injury disaster loan, EIDL. I know none of us want a loan necessarily for some of these things that we'll be hit with, but is EIDL, an economic injury disaster loan, which comes from the SBA, an option for my business? A 30- year amortized loan at 3.75 percent. Originally, it came out that I could qualify for up to $2 million. A lot of people got pushed down to the $150,000. cap. But is that something that can sustain me for a short period of time? That would be my first look. Paycheck Protection Program. SBA rolled out a whole bunch of programs real quick. Paycheck Protection Program was a great option if you still had your employees. In California, we got hit so fast so hard that a lot of businesses laid off their employees before Paycheck Protection Program even came out. But for manufacturing companies, a lot of them still were working. So, that was a great option for them. And I don't want to be a prognosticator here, but it looks like another round of... It's going to come out, probably, by the end of this week. That will hit us starting January 1. Great opportunity to cover the cost of my employees as I look to grow my revenue. So, that's the other side of it. What subsidies are available to me to really get through some of this? So, if I'm hiring employees, which a lot of us are not necessarily in that case, but for a lot of manufacturing companies, maybe they shut down for a short period of time, and then employees didn't want to come back. So, if you're hiring, there's a lot of subsidies available to you, whether it be the Cal Competes Tax Credit, which there's millions of dollars in that; Workforce Investment Board funding, which, as I'm hiring employees, they subsidize that training for three to six months. So, imagine getting a 50 percent subsidy as I'm training new employees to come on board. All these things immediately impacts your balance sheet and your financials. It hits the bottom line, because you're not paying for some of these things that let others subsidize some of these different pieces. The other piece is can I just get a line of credit? Or you brought up if my receivables are dated, can I give better terms so that they pay quicker? Or can I look at PO financing, which never necessarily is the option that we always want to go to, but maybe in today's reality, deal financing option is the best option for my business just so I can stay above water.

Gregg Profozich [00:06:52] A lot of different levers to pull there, and it sounds like a balanced approach. How do I cut my internal costs? How do I take a look at that? How do I look at any subsidies available to help bridge until there is some more certainty? And hopefully, with vaccines coming out and beginning to be distributed, we can get to a point where we have something close to an opening, or the beginning of an opening, of the economy again, and return to some normalcy. And also what can I do creatively to accelerate the collection of any cash that I have out there or conversion along the way? So, no shortage of challenges, but also there seem to be no shortage of different ways to take a look at and see how you can adapt, and pivot, and respond to what's coming up.

Mike Daniel [00:07:32] Yeah, absolutely. I think that's the other side of it. So, we talked a lot about expenses. But how do I now pivot my business to think differently? So, if I manufactured and I just sold to distributors, do I have the ability to leapfrog that and be more successful? Can I start an e-commerce platform where I can sell direct? And all these have to make sense for your business. If I'm not doing any type of international trade, there's opportunities. There's also subsidies for that. Can I get into other markets that I currently hadn't thought of or currently wasn't on top of mind for me, because I was busy just getting through my business? Now all of a sudden, I need to look at other markets and see where can I be successful in selling my products.

Gregg Profozich [00:08:09] Right. And so, I think a good rule for that, something we've always used in our export practices when we're talking to a small or mid-size manufacturer here at CMTC: do you have orders from overseas? Has somebody found your website or found you? Because if somebody went to enough trouble to find you from a foreign market and they need your product, they're probably not the only one. There's probably more opportunity there. And there are structured ways through SBA, SBDC programs that can help with that as well as some things that are offered by different organizations in the US Commercial Service.

Mike Daniel [00:08:39] Yeah. And that's probably where I would start, Department of Commerce and the United States Export Assistance Centers, that will help you locate potential buyers. Now, sometimes there are fees, and usually they're pretty minimal. And then sometimes research assistance that you need to figure out who's buying and where are these products going. And that's where we can step in. And we can help you produce market research reports to understand what countries are buying, where are they going to, who are the buyers. And we can do all that at no cost for your business so that you can start to think strategically how do I diversify where I'm selling to.

Gregg Profozich [00:09:09] So, we've talked a little bit about some of the financial items, and some financial items are largely fixed. How should manufacturers look at evaluating variable and fixed expenses to have the most significant effect on cash flow?

Mike Daniel [00:09:21] Yeah. I think it's, obviously, looking at your variable expenses first, which you could possibly cut. I would say if you rent or lease your building, most likely that's going to be one of your largest expenses. Can you have that conversation with your landlord, whether it be abatement, meaning they're going to cut off some of the cost of what you owe, or deferment, so they're deferring some of those costs to a later date. But those are usually the biggest expenses that you're going to have. And then for some of us that might be in a whole different situation, it might be cheaper to go out and buy another building and get a 504 loan that is at 2 1/2 percent. That might be a lesser of two evils and set you up long-term financially to be successful. Obviously, that's a rare situation right now with where we're at, but it's definitely an option. At a 2 1/2 percent, 25-year amortized rate, a lot of the time we can find buildings that you can purchase cheaper than what you can rent them for.

Gregg Profozich [00:10:07] So, yeah, even looking at the fixed items on the balance sheet is not out of play in this situation.

Mike Daniel [00:10:13] Not at all. If you have fixed debt, it may be time to take a look and see what those rates are. If we can restructure it into one and cut the rate in half, sometimes that's possible.

Gregg Profozich [00:10:21] Okay. Excellent ideas. I'd imagine in the current situation, a lot of landlords, a lot of owners are going to be motivated to keep existing longer term renters, right?

Mike Daniel [00:10:31] Absolutely.

Gregg Profozich [00:10:31] I'm better off than losing you and having it empty for months. I'll take X percent less than the rent until we get through the crisis.

Mike Daniel [00:10:37] Right. And you have to know how to have that conversation. It needs to be a positive conversation. Your landlords may say no at first and at some point relent if you continue. As this prolongs, a lot of businesses haven't paid their rent since March. If you're current, they're more likely to have that conversation with you. But even if you're not, I think you should constantly have the conversation, and maybe you can even adjust the terms. Maybe switch from a flat rate to a percentage of sales. There's a lot of different ways to take a look at rent. And a lot of landlords, as you said, Gregg, are willing to have that conversation, because the last thing they want is an empty building.

Gregg Profozich [00:11:10] Right. So, everything is negotiable. Just because it's a fixed cost doesn't mean it's truly fixed. It's important to keep that in mind. It's an important insight so we don't overlook something. We spoke a little bit about receivables earlier. Manufacturers can focus on increasing cash by getting receivables closed out. Are there practical steps that manufacturers can take to expedite receivables? What would you recommend?

Mike Daniel [00:11:32] Like I said, I'm never a fan of saying go to PO financing, but that is the quickest and easiest way to get it off your balance sheet and get the cash into your business. Other ways are, I think, a constant reaching out to who you're selling to and who your customers are. Sometimes you just wait for them, give them terms. I think that's another way to get them to pay a little faster. Say, "I'll give you 2 percent off, and you can pay in the next 10 days." Obviously, that's not necessarily where everybody wants to land. But you need to take steps to get your customers to pay, because if they don't pay, you're out the money, as well. And there's going to be a lot of your customers that may not make it through this, as well, and you may not ever get paid back. So, whatever you can do to get that payment today.

Gregg Profozich [00:12:11] Excellent, excellent. Great ideas. So, Mike, you mentioned a couple of subsidies that are available. And I'm sure the SBDCs have a number of programs, and they probably recommend a number of lenders and other financial institutions, leasing companies, etc. on the receivable side, potentially even some factors that could help. What are some of the programs that are out there that people may not know about, and who's the contact? Who would I go to if I needed to sign up for one? Who would I go to? What's the best way to do that?

Mike Daniel [00:12:34] Sure. Let me just walk through a few of them. At the State of California level, there is the sales tax deferment program, where you can go directly to the state. That's covid19.ca.gov. Great place to start. They'll go through all the different types of resources. They also have a loan program. It's pretty small. It's about $100,000 per loan. So, it may not fit everybody's needs, but it's 4.25 percent. So, that might be an option for you. Economic injury disaster loan. You can either come directly to an SBDC or you can go to californiasbdc.org. The website will get you to the closest SBDC to you. There's 65 centers spread throughout the state of California. Or you can go directly to the SBA at sba.gov. They'll talk about the economic injury disaster loan, where you're at. A lot of people have struggled with that, as well, where maybe you received money, and it wasn't enough; maybe you didn't get it because something was wrong, and you don't know how to ask for reconsideration. We can actually help you through that. Paycheck Protection Program, understanding forgiveness, directly through the SBA or directly through us. We do a call every single day. If you go to us at ociesmallbusiness.org or you go to californiasbdc.org to find the location nearest you. A lot of people are doing Paycheck Protection Program forgiveness so that you understand how to do that. The Workforce Investment Boards, those are spread throughout the state of California. There's many in each county. A lot of the counties run their own Workforce Investment Boards. But if you just look up Workforce Investment Board, you'll find the one closest to you. That's really for the subsidies for new employees. And then also they have other subsidies and other hiring mechanisms that they have available to them, like on-the-job training, ETP, or employer training panel funds, that they can come out and help you really upskill your workforce and make them more efficient. And that's some of the things that we're looking at. And then the step grant. It allows you to go on to different trade shows, or to receive a subsidy to help you prepare for a trade show, or to help you prepare to sell overseas, whether it be translation on your website or other things like that. You can go to step.ca.gov, or you can go to SBDCs, or you can go to the Department of Commerce, as well. Will all take you to those different sites.

Gregg Profozich [00:14:31] So, truly a plethora of different programs for different needs, but many, many different ways to access either capital or additional markets that can lead to more cash flow, more sales revenues. So, great programs, great programs. Thank you for that. Mike. Capital investment is another area of opportunity. What is your perspective on revisiting capital investment plans, and what are some of the strategies and keys to doing this effectively to balance short-term needs and the longer term?

Mike Daniel [00:14:57] Yeah, and I think it's having a strategy. Exactly. You said the right word there, is thinking long-term for your business. As you're looking at expansion or you're looking at reducing debt long-term but also accruing assets and accruing wealth, there's never been a better time to take a look at that, whether you're looking to increase, or enhance, or just bring in new equipment to automate things. If you're looking at purchasing buildings, there are some great programs out there. I know we briefly discussed a 504 loan, which is an SBA product, but that is to purchase a building or equipment. The current rate is 2 1/2 percent amortized over 25 years. You come in with 10 percent, a bank comes in with 50, and then a CDC, which is an SBA backed program, comes in with the other 40 percent. And the current rate, like I said, is 2 1/2 percent. So, if you're looking to borrow a million dollars, you're only coming in with 10 percent, yet you can purchase an entire building. Those rates are residential rates right now with where we're at, and it's never been lower as far as commercial property. The caveat to a 504 loan is that you have to occupy 51 percent with your own business. It's not meant to be purchase of an asset like a building that you will then just rent out to somebody else; you have to operate 51 percent in that building.

Gregg Profozich [00:16:07] Good. But still an incredibly low rate and great terms.

Mike Daniel [00:16:09] Yeah. But as you're looking at financing, you have a couple different options. You can go to your bank. Any major lender, which I'm sure that most of us bank at, you're going to go in and ask for a loan. They're going to determine conventional, which means it goes directly through them, or they might push it to an SBA product, which still goes through them, but now it goes the SBA route. And that's probably where they're most likely going to push any business. Or it's going to go alternative. Current rates for businesses, just so that you're aware, because a lot of people take a look at residential rates and say, "That's what the rate should be if I get a business loan." Not necessarily the case. Usually, you're looking for what we would consider a credit paper. You're looking at somewhere between 5 1/2 and 8 percent for a loan. That's going to be fixed between five and seven years. That's usually the term. So, that's a credit paper. When we start to get to alternative, we're going to get 8 1/2 to 10 1/2 percent. And then what we want to avoid is getting online, getting some of these predatory loans, when we start getting 20, 30 40 percent, or a payday loan that's coming right out of your merchant service fees. We want to avoid all of that. What we do is financing here. We work with about 100 different lenders across the state, across the country. A lot of these lenders are national. And what we do is we package a loan for you, and then we matchmake a lender directly to you based on your need.

Gregg Profozich [00:17:21] Okay. So, talk a little bit more about that. I think there's a whole range of services that the SBDCs across the state... And there were 60. How many?

Mike Daniel [00:17:27] There are 65 centers across the state of California.

Gregg Profozich [00:17:30] All right. So, across those 65 centers, I could go into my local SBDC office, if you will, and get some assistance. And that can be in looking at my financials, understanding different loan products. What's the full range? What you do at the SBDCs?

Mike Daniel [00:17:43] Yeah, absolutely. So, across the state, we have about 2,000 consultants, and we are all business owners, experts in what we do, and very specialized. We do have finance centers in each one of our locations. And so, what we do there — and I'll start with finances, because that's really the core of today's topic — we will help you put together what we would consider a bank plan, which most people don't know how to put together. But it's what's the opportunity, a little bit about the business, what are you going to use the funds for, putting together all these forms that are really unique to a lot of people. But a 4131919, I don't need to get into the technicalities of it. But we'll put all those together really for you and with you, but then understanding the need and then the matchmaking side of it. And so, there are lenders everywhere. And unfortunately, what usually happens is you go to your lender or your bank of choice that you usually bank with. They're going to say yes or no, and that's the end of it. You don't know where else to go. There are hundreds of lenders that are out there that are all legitimate lenders that will do good deals. That's where we fit is helping put all this together and then finding you the right lender to work with. And that's the fit of the SBDC. Combined between our 5 networks and our 65 centers, this year we've helped people get about a billion dollars, whether it be EIDL, PPP, traditional financing, or unconventional financing. We do a really good job of helping you access the right resource. And so, for a lot of us, we don't know how to put together a bank plan or a business plan, let alone putting all those together: put the words correctly, have all the forms, making sure we understand the secondary sources of income, how we're going to use the proceeds. Those are all important factors in this. And also personal guarantees, that you understand that you're going to guarantee a lot of this. Most banks aren't willing to just say, "You can put under the corporate name, and we're good." You're going to personally guarantee this so that you understand what you're doing. That's really where we fit. We help put all this together with you and help you understand the process better.

Gregg Profozich [00:19:26] So, expertise and understanding the overall process, understanding of all the different sources of funding that are out there, and then the practical steps of how to actually prepare and apply. SBDCs can do all that for me.

Mike Daniel [00:19:38] Absolutely. At no cost. 

Gregg Profozich [00:19:39] I was going to say it sounds too good to be true. What's the hook?

Mike Daniel [00:19:41] That's usually the thing. There really is no hook. We're funded by the SBA directly, and then we also get funding from the state of California. And so, we've already been paid for. What we ask from you is that we're going to work with you, not necessarily just do all the work for you. We want you to understand what you're getting into. We want you to understand what you're doing. And that's the role that we like to play so we're educating you along the way.

Gregg Profozich [00:20:01] So, the more informed I am, the more informed and better decision I can make.

Mike Daniel [00:20:05] Absolutely. We work with a ton of businesses that have no financials. We're going to help you put all those together but then understand how to run your business through your financials, how to help you become a better business owner, which is exactly why CMTC exists, as well. Help you become a better business owner, that you're growing, you're scaling, you're helping the economy, you're helping your community. That's what we want to see.

Gregg Profozich [00:20:24] Absolutely, absolutely. So, both mission-based organizations, both here to serve and help manufacturers thrive.

Mike Daniel [00:20:31] Yeah, absolutely. And if you sell chocolate, I'll buy from you. That's what I do.

Gregg Profozich [00:20:35] Excellent. So, Mike, you mentioned some of the clients that you've worked with. I'd imagine that you guys work with hundreds or thousands across the state, and you mentioned the number. I believe it's in the thousands. I would guess you have some real-life examples that you could speak to without violating any confidentialities. What are some creative ways companies have adapted or pivoted to optimize cash flow during this time of uncertainty during the pandemic?

Mike Daniel [00:20:55] Yeah, absolutely. One of the clients that we have in Riverside County, they needed one, just working capital, but then they sold to distributors that then sold to the end user. They ended up bypassing that and still selling to those distributors but also creating a different line that they could then sell directly to some of these retailers. But they needed funding to get all that started. So, we actually found them funding through a revolving loan fund, which no one has probably even heard of that term, possibly, through a county. And so, it helped them get $300,000 subprime, meaning it was 4 1/2 percent, right as the pandemic was hitting, and didn't need as much collateral and things like that. Wasn't as scrutinized as it would be going through a traditional lender, but it allowed them to create a whole other line and a whole other platform to sell directly to a retailer versus selling to a distributor.

Gregg Profozich [00:21:41] Excellent. So, practical case of pivoting, looking for a different sales channel, organization that was motivated to do it, and then reached out to find some creative and unique ways of financing it.

Mike Daniel [00:21:52] Absolutely. And another manufacturer, they sold food, not necessarily for humans, but I'll let you guys figure out where that might fit. But helping them with an e-commerce platform. Prior to that they sold direct to some of their distributors, some to retailers. But helping them to create an e-commerce platform, one to sell to a new user. And so, we built a whole platform for them, really at no cost. Now, it is a time-consuming piece to do that, but it allowed them to create a whole other sales revenue and channel. And at the same time, it allowed them to reach new customers that had never heard of their product before.

Gregg Profozich [00:22:22] Excellent. Creative, innovative ways of helping small businesses move forward.

Mike Daniel [00:22:27] Right. It's not always funding. Funding is not the solution to everything. Sometimes it's thinking differently.

Gregg Profozich [00:22:31] That's usually where it starts. I have to find out the innovative, creative way to do something to solve a new problem or to access a new market. The funding is just the grease that makes it happen. 

Mike Daniel [00:22:41] Absolutely.

Gregg Profozich [00:22:42] Okay. So, what other tips do you have on how to manage cash flow in uncertain times? Let's talk about that a little bit.

Mike Daniel [00:22:49] Yeah. It's taking a look at your P&Ls and really understanding them. And if that's something that you don't understand, sometimes getting a second look from the outside will help you adjust, because sometimes you don't always see it. You're in it every single day. Having somebody else come in and take a look... I know we went through a whole bunch of things, but it's taking a look at those high volume pieces that really eat up your budget. That's one way to take a look at it. I think the other side of it is looking at your margins. How do you compare to your industry? So, if you're selling something, let's just say, for $500 a unit and all of your competition is selling it for $600 a unit, maybe it's time to change that. Or can you cut costs somewhere? Can you move toward more localized some of the pieces that are coming to you? Or can you buy in bigger quantity? Some of these things seem very like, "Yeah, I should already know that," but sometimes when you're so stuck in your business you've been doing for 20, 30, 40 years, sometimes it just takes a fresh eye to take a look at some of those things.

Gregg Profozich [00:23:44] It's creative ideas like I have an existing sales channel; I have an existing market still strong in a hypothetical case. How do I decrease my cycle times? If I do that, I increase my order to cash, the time it takes from when somebody orders until I actually deliver the product and collect the cash. The shorter I make that, the more profitable I'm going to be, the better I have cash flow position.

Mike Daniel [00:24:03] Right. And looking at that whole cycle from start to finish, I can cut, possibly, across the board. I could cut my time in manufacturing. Maybe I could cut some of my costs in the products that I use. Can I decrease the amount of time it takes them to pay me? But there's so many different pieces in there. If you could just cut a little bit here and there, it's amazing what it does to a margin.

Gregg Profozich [00:24:22] It's interesting. You're talking about it very much from a financial perspective, and I'm thinking more from an operational inside the four walls perspective. So, how do I improve my order to cash by decreasing my overall cycle time? How do I focus on quality improvement? The less scrap and rework I have, the more real product and making more productivity, the more profit, better cash performance. How do I optimize schedules and minimize overtime? A huge waste in a sense if I can avoid it.

Mike Daniel [00:24:46] Absolutely. And how do I utilize some of the things that are out there? If I can't use my employees full-time, but they used to be, and I know that I need them, can you use EDD's work share program? There's other opportunities out there to take advantage of things. But yeah, this is definitely much more your world, too, when we start getting in between those walls. It's definitely outside of my realm.

Gregg Profozich [00:25:05] But I think there's definitely no shortage of things to be thought about. I think there's usually a way to find a pivot can happen and that some innovation can be brought to whatever the situation is. How about on the sales and marketing side? Anything you can think of in terms of ideas for increasing cash flow from a sales and marketing perspective?

Mike Daniel [00:25:25] Yeah. And that's always the big piece. How do I market what I'm doing? You get stuck in a cycle of pay somebody else to go out and do that, or we just don't do it very well, so we're not going to get involved in it and engage. It's taking a look at your marketing as a strategy as they cross all boundaries. Website, social, digital — does it all look and feel the same? Are you promoting to the right pieces? Are you getting the word out? And ultimately, it's taking a look at your analytics and identifying where are you successful and where are you not, and placing the emphasis on those things and placing emphasis on the products that you want to sell the most of. And that's a hard thing. And people pay hundreds of thousands of dollars to understand that better. We actually have a center here in Santa Ana that we've just redone. It's called the Digital Media Lab. That's exactly what we do. We put you through an assessment of your brand and your marketing, and then we go through all the gaps that you have. And then we create opportunities and then help you build those opportunities. So, they have a full-scale digital media production lab there, where we can help you build commercials; we can help you build better social; we can help you understand where your leads are coming from; help you understand where your leads are not coming from; paid advertising; unpaid advertising. It's an interesting world. Marketing is its own big animal that if you do it successfully, you don't have to spend a lot of money to generate additional revenue.

Gregg Profozich [00:26:41] And most revenue now is coming from non-face-to-face interaction.

Mike Daniel [00:26:45] Right. Advertising, unpaid advertising. Does my message even make sense as I put it out there? How do I compare to my competition? There's so many things to look at.

Gregg Profozich [00:26:54] Yeah. And so, that whole digital world and that resource that's available is incredibly valuable. Trade shows aren't happening anymore. You have to find other ways of engaging with your customers. And working through some kind of a lead nurturing workflow, where I first have people become aware of me, and I convince them through the materials I publish that I do understand their industry, and I do understand their needs, and then they come to me looking for a solution. And that whole process of building that awareness through digital means — through social media, through websites, through search engine optimization — so incredibly critical, especially at this time. And I don't think if the pandemic ended tomorrow, if suddenly we could all come out of our lockdowns and congregate again, I don't know that that's going to change much. I think a lot of it's going to be here to stay now that people have seen the value and the ability to do business in it. What are your thoughts around that?

Mike Daniel [00:27:40] I completely agree. We have to adapt to a digital world, where we're not going out to be pressing the flesh. It's easier to get a meeting, but it's quicker... I actually think that a lot of businesses are going to succeed in a different way because of this. And they don't have these giant teams that are out there. Think about if you didn't have to go fly all around the world, all around the country, to try to get new contracts or get new customers, you could do this all from your office, you could schedule meetings every 15 minutes; you could have a much more efficient process. But what's the message, and how does it convey across this channel? That's the other piece is having a professional, consistent message across the channel.

Gregg Profozich [00:28:17] And how does it match up to the needs of my customers? Do I really understand them in-depth? Do I really understand what they're buying when they buy my product? So incredibly critical. Okay, so, to summarize our discussion, I think we talked about the importance of managing cash flow and staying solvent by making sure you have enough cash to finance operations in the short term. And it's one of the most critical things everybody needs to focus on right now at times of uncertainty. A lot of different methods we can do that. We can look at cutting costs. We can look at internal operational costs. We can look at receivables and see if we can accelerate those. We can look at trying to accelerate things through our value chain to get cash to come in more quickly. We can also look at some of the different subsidy programs and financing options that are out there. And the SBDCs can really help with that and provide some guidance and understanding of what your needs are, to put together your financial package for how you would present yourself to a financial institution, and then connect you with the right lenders. And there are various programs that Michael talked about here that could apply.

Mike Daniel [00:29:15] Yeah. As we take a look at your business and some of the needs that you may have, whether it's the state of California and its grant funding loan opportunities, all the way down to an economic injury disaster loan and Paycheck Protection Program, to the SBA, or the Cal Competes Tax Credit, it's taking a look at subsidies that are available to your business that will definitely change your cash flow in a positive manner. We want to make sure that you get to the right resource, and there's so many. I think that's the hard part, too. Even just today, we talked about 10 or 15 different organizations that do different things. It's where do I start? So, I would say CMTC. You can also start with the SBDC. You can go to one of them. And usually, I think we're pretty good resources to get you to everywhere else. And I think what I like to do is bring all the resources into our office versus sending you out to all these other offices. But you got to start somewhere. So, like I said, I would start with CMTC, and then they will help get you to us, if it's funding that you're looking for. And then all these other resources, it can definitely get you connected to them and get you connected to the right person. And there's nothing worse than calling and not getting an answer or not getting anybody to come back to you. That's what we want to avoid. And we want to get you the answers, and we want to get you to the right programs as quickly as possible.

Gregg Profozich [00:30:23] Absolutely. Mike, thank you so much for joining me today and for sharing your perspectives and insights with both me and our listeners.

Mike Daniel [00:30:29] Thank you.

Gregg Profozich [00:30:30] And to our listeners, thank you for joining us for this conversation with Mike Daniel on how to maintain cash flow in uncertain times. Stay safe and healthy. Take care. Thank you for listening to Shifting Gears — a podcast from CMTC. If you enjoyed this episode, please share it with others and post it on your social media platforms. You can subscribe to our podcast on Apple Podcast, Spotify, or your preferred podcast directory. For more information on our topic, please visit www.cmtc.com/shiftinggears. CMTC is a private nonprofit organization that provides technical assistance, workforce development, and consulting services to small- and medium-sized manufacturers throughout the state of California. CMTC's mission is to serve as a trusted advisor, providing solutions that increase the productivity and competitiveness of California's manufacturers. CMTC operates under a cooperative agreement for the state of California with the Hollings Manufacturing Extension Partnership Program (MEP) at the National Institutes of Standards and Technology within the Department of Commerce. For more information about CMTC please visit www.cmtc.com. For more information about the MEP National Network, or to find your local MEP center visit www.nist.gov/mep.

Topics: Business Management, Innovation & Growth

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