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Financial Bully in the Playground

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

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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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