Raising some badly needed cash

Jan 26, 2009

Frank Fickleheimer had to do something different. His firm, Fickleheimer Enginee-ring, did not have the operating capital it needed. Fifteen good years of solid growth and profits had left them with a lot of mouths to feed, an insane amount of bank debt, and constant worries of having enough cash to pay the bills each week. And now that the economy was worsening, Fickleheimer was getting more and more worried about the situation. Here is a brief synopsis of Fickleheimer’s situation: 100 employees and revenues of $13 million annually structural, mechanical, electrical, and fire protection engineering services provided 90% inter-professional work with 10% prime 110-day average collection period $2 million owed on bank line of credit. Out of compliance on clean-up clause stating line must be “zero” for 30 days each year. So what did Fickleheimer do to solve the problem? He put a taskforce together that included his CFO, Marla Rubenstuck; a strong financial consultant with A/E industry background, Leroy Kirk; and his COO and CEO in-waiting, Stephen Ruggles. They had a two-hour meeting every other day for two weeks. Here is a brief listing of some of their decisions: Start to ween off architectural clients and instead work for institutional, government, and industrial clients. The inter-professional work had the slowest average collection period. But their marketing efforts were weak and architects were the easiest clients to get work from. The goal had to be at least 30% prime work in a year and 50% at the end of two years. Immediately cut off all work for clients who were more than 120 days late and had no good reason for it. Perform credit checks on all new clients. Require two signatures on all project initiation sheets with one being Fickleheimer or Ruggles. This was the only way to keep working again for bad-pay clients. Do a weekly cash flow forecast that runs eight weeks out. Show estimated cash in based on historical collection history, estimated cash out, and the difference. Share this with all managers at the weekly meeting. Designate one person in accounting as the full-time bill collector. Pick someone who is nice but firm to chase down all receivables. Have them make the first call within five to seven days of the invoice going out just to be sure it has been received. Pay this person a monthly bonus based on the average collection period of the firm. Start a relationship with a second bank. A small deposit account is one way to become a bank customer should they ever be forced to find a new bank by their present lenders. Pay every bill on the last day it is due. Over the years they had gotten in a little too much of a hurry to pay certain vendors— can’t afford to do that now. If a bill is due in 30 days, Fickleheimer wanted that check to get there on the 30th day and not a day sooner! Sell off all unnecessary assets and stop buying vehicles and equipment if leasing enabled them to save cash. All of these steps combined over the following months to cut the average collection period from 110 days to 80, raising over $1 million in cash that went straight to paying off the line. Another $100K was raised by selling off unneeded assets, and $250K from slowing up payments. This money, too, went straight to paying down the line. The lessons learned became a part of the culture at Fickleheimer Engineering— a disciplined way of life— that they never forgot. And everyone there breathed a lot easier, especially Frank Fickleheimer! Originally published 1/26/2009

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