ASk SCC8L

Managlng llnanclal Leverage

llnanclal leverage ln your buslness ls Lhe relaLlonshlp beLween equlLy and debL. ?our balance sheeL ls a
balance" beLween Lhlngs of value LhaL you pald for called AsseLs, and where you goL Lhe money. lL was
elLher your money, called LqulLy, or someone else's LhaL you borrowed, called uebL. Plgh debL means
hlgh rlsk, and should noL be lncurred unless you are cerLaln LhaL lL can be supporLed for Lhe long Lerm.
1he prlnclpal porLlon of debL musL be pald for wlLh proflLs! ln oLher words, lf you have pay prlnclpal on
debL, you can'L afford Lo slmply break even.
So how can you manage Lhls klnd of rlsk? Look back. AsseLs equal uebL plus LqulLy. lf you can mlnlmlze
Lhe dollar value of Lhe asseLs needed Lo run your buslness, you can reduce debL, and lmprove Lhls raLlo.
SLarL wlLh your lnvenLory. Some very smarL and experlenced people have Lold me over Lhe years Lo LreaL
my lnvenLory llke rlpe oranges. 8uy only whaL you can move qulckly and don'L become a museum!
CosLco and vons Lurn Lhelr enLlre lnvenLorles 12 Llmes per year, how can we Lhlnk we are smarLer Lhan
Lhem, and sLock Lhree monLhs' worLh, and Lurn four Llmes per year? 1he key ls a very wlde and very
shallow lnvenLory, never a deep and concenLraLed lnvenLory wlLh llmlLed cholce.
nexL, look aL your accounLs recelvable. 8lg companles LhaL you sell Lo Lell you LhaL Lhe paperwork wlll
Lake 60 days, and Lhen Lhey Lake a dlscounL for prompL paymenL. llrsL, be sure LhaL you have enough
cllenLs LhaL pay on Llme, Lhen Lell LhaL blg company LhaL Lhey're on CCu. AbouL 30 of Lhe Llme, Lhey'll
come up wlLh a credlL card LhaL Lhey hadn'L used for a long Llme. ln any case, Lhe hlgh LhaL you geL from
Lelllng Lhem LhaL lasLs for a very long Llme. needless Lo say, you should have no one cusLomer LhaL
represenLs more Lhan abouL Len percenL of your recelvables.
8eLLer yeL, regardlng recelvables, learn from Lhe blg boys, and geL money from your cusLomers 8LlC8L
you sell Lhem anyLhlng. Annual plans, prepald. 8eLalners, prepald. A sLream of producL, prepald. lL ls all
ln maxlmlzlng Lhe Lurnover of your asseLs by holdlng Lhem aL Lhe mlnlmum requlred levels.
?ou geL Lhe ldea.
!ohn 8[eldanes ls a SCC8L advlsor. SCC8L San ulego ls a resource parLner of Lhe S8A. lf you would llke Lo
conLacL hlm, e-mall aL [ohnb[eldanes[msn.com or call SCC8L aL 619-337-7272 Lo ask quesLlons or
arrange for a free counsellng sesslon.