Mackinac Partners Senior Managing Director Melissa S. Kibler presented “Understanding and Managing Cash in Distressed Companies” today at a forum of the Liquidity Crisis Panel at the American Bankruptcy Institute’s (ABI) annual spring meeting.
In the presentation, Kibler, who previously has served as President of the ABI, emphasized the importance of: a strong internal and external communications plan; a proactive approach with customers, suppliers, vendors and employees; strengthening of forecasting and measurement tools; prioritization and reduction of expenses; a review committee for cash oversight; taking appropriate steps to optimize working capital; and well considered pre-bankruptcy steps. The notes of Kibler’s presentation at the ABI conference are below.
Executives must have the knowledge to identify and address impending cash shortages in time to avoid a crisis.
Managing Cash in a Distressed Company
Communication around Cash Forecasting
Implementing an Effective Cash Management System
Obtaining the Data
Preparing the Forecast
|Selected Drivers in cash-flow forecasting
Revenue/receipts – price, volume, growth, seasonality, billing cycle, accounts receivable, sales outstanding, bad debts.
Cost of sales/gross margin – product/materials, inventory purchases, direct labor, overheads, inventory balances, inventory turns, terms/days payable outstanding.
Payroll and benefits – headcount, wages, bonuses, commissions, payroll taxes, healthcare costs, benefits.
Operating expenses – sales, general and administrative (SG&A), occupancy, locations, fixed vs variable, percentage of sales, terms/ days payable outstanding.
Taxes – income tax rates, refunds.
Capital expenditures – maintenance level, remodels, acquisitions, dispositions.
Financing – revolver, borrowing base, debt service, letters of credit, interest, fees, refinancing.
Cash on hand – minimum levels, float, historical variability.
Reporting and Updating the Forecast
Commitment Review Committee
Cash Requirements – Preparing for Bankruptcy
Source: Kibler, Melissa S., et al. (2010) When cash is king: Understanding cash requirements for distressed companies and maintaining effective management and reporting systems, Navigating Today’s Environment: The Directors’ and Officers’ Guide to Restructuring.