Debt management and cash flow management are inseparable. A poorly managed cash flow will eventually surface as a depletion of working capital. If working capital never presented a problem, you'd never have to go into debt.Your aim is to manage cash flow to minimize debt load - and generate better profits. The right debt at the right time, under the right terms, is a powerful tool. But like any mismanaged tool, it will cause damage in direct proportion to its power.
After making sure your cash flow is under control - including receivables and inventory management - you should consider getting your banker involved in your planning. At the very least, you'll enhance your credibility; more likely, you'll find that you can turn the banker's skills into a positive resource rather than a roadblock.
Action Plan: Debt Management and Banking
Focus on receivables, collection, and inventory. These can lead to an increase in cash over a short time, lessening the need to borrow.
Establish a contingency plan. It prevents panic and builds valuable credibility.
Tighten and maintain cash controls - continuously.
Determine your financing needs. Minimize your company's borrowing needs whenever possible.
Work with your banker in foul times as well as fair. Check in at least quarterly — and share the bad news as well as the good.
This material was excerpted from Chapter 5 of Financial Troubleshooting by David H. Bangs Jr. and Michael Pellechia. Copyright 1999 Goldhirsh Group Inc.