| Revenue is vanity, profit is reality and cash is | | | | other low-risk and fee-based services. |
| certainty. In medical analogy, revenue isthe food, | | | | The Singapore SMEs suffer from "corporate |
| profit is the water and cash is the oxygen. You | | | | asphyxia", deprived of its vital oxygensupply - cash. |
| cannot pay rent with profit, youcan only pay your | | | | The demands for funds will be there - paying the |
| rent with hard cash. Cash talks, the rest walks. | | | | rental, workers' salaries, bank loan andinterests, |
| Just as a critically ill person needs to be administered | | | | implementing new technology, upgrading current |
| with fresh oxygen, an ailingcompany's immediate | | | | equipment, reviving R&D,providing advertising |
| lifeline is cash, cash and more cash. Fresh fund | | | | support to brands, training people, acquiring |
| injections willprovide the fillip needed to get the | | | | competitors to addcritical mass to the company, and |
| system moving on an even keel as well as to | | | | so on - the list is endless. |
| createstable platforms for growth. | | | | Hence it is vital for the turnaround manager to find |
| In almost every turnaround situation, there is a | | | | ways of improving short-termliquidity, cut costs and |
| troubled project that is bleeding ordraining cash at an | | | | at the same time, negotiate new loans from the |
| accelerated speed. For a variety of unhealthy reasons | | | | current lenders. |
| such as neglect,denial or mismanagement, these | | | | Measures to improve cash flow include - reducing |
| problems remain unresolved. The turnaround team | | | | inventory and disposal of obsoleteones, tightening |
| needto apply the tourniquet and immediately stop | | | | stock control, increasing the selling price, divesting |
| the continuous haemorrhage andunrelenting outflow | | | | ventures that do notadd value to the core business, |
| of cash. The turnaround team's task is to stomp out | | | | reducing costs, finding refinancing, factoring |
| the fire and slowdown the rate of burnt-out. The | | | | thereceivables, implementing sales and leaseback, |
| West would call this "stopping the bull by its | | | | exploiting hidden assets, recoupingprepaid expense, |
| horns,"and the East calls it "catching the tiger by its | | | | renting out idle capacities and persuading the |
| tail." The managers need to adopt thisapproach during | | | | customer to pay cash andin advance as well as laying |
| restructuring. Also they need to promote "corporate | | | | off/downsizing. Fresh funding is critical to jump |
| catharsis" to purifythe system and set the tone of | | | | starting thesystem. Avoid bankruptcy and improve |
| the mode of operation. It is no more business as | | | | your cash flow. |
| usual. | | | | Every bad debt starts out as a slow repayment, so |
| Other cash flow problem arises when the bank recalls | | | | you need to be vigilant of yourcollections. |
| its loan or terminate other lines ofcredit to the | | | | Disproportionately high receivables and inventory are |
| company. In Singapore, many small and medium size | | | | trouble signs. Thebalance sheet calls them assets. |
| enterprises (SMEs)run into cash flow problems when | | | | They should actually be called liabilities. Cash is |
| the local banks cut or reduce the bank loans. In | | | | anasset, you can buy many things with it. Mounting |
| 2003,there was a record high of 4484 individuals who | | | | inventory or receivables is the firstwarning that the |
| were declared as new bankrupts. In thepast there | | | | service or product is slipping while your income |
| were six major local banks with banking officers who | | | | statement still showsprofits. Also do not confuse |
| understood thesentiments and businesses of SMEs | | | | external borrowing with positive cash flow. |
| and had close banking relationships with them. | | | | Properaccounting says it is, but this is short-term |
| However, in recent years with mergers and | | | | thinking. Only sales collected are the authenticcash |
| restructuring in the local banking scene, onlyfour | | | | flow. All else is temporary or even worse. |
| major banks remain with many of these banking | | | | Managing cash flow to meet working capital |
| officers retrenched and the bankloans to the SMEs | | | | requirements is very important. Withinsufficient |
| drastically reduced. The banks' understanding and | | | | working capital, a business can wind up despite being |
| rapport with the | | | | profitable. On theother hand, an unprofitable business |
| SMEs are lost. The new banking officers are stricter | | | | can continue operations if it has sufficient cash topay |
| and loans are not given to SMEs,which exceed the | | | | its creditors. |
| banking credit facilities and do not provide proper | | | | Though cash is not everything, its level of importance |
| accounting records. | | | | is the same as oxygen. Without it,you will certainly |
| Also, the local banks have shifted their focus to | | | | perish. |