USAID Macedonia Competitiveness Poject The Finanacial Platform Conference Access to Finance in Times

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USAID Macedonia Competitiveness PojectThe
Finanacial Platform ConferenceAccess to Finance
in Times of Recession

• Working Capital Management and Investment
  Planning
• A Crisis Management Tool?

2
Session summary

• Acess to finance issues from the economic
  recession perspective
• Key strategic issues
• The business model of the company and strategic
  fit with the industry
• The management aspects
• Financial health and control system
• Working Capital Management Strategies
• Next expansion and investment planning
• Access to finance implications

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Access to Finance from the Economic Recession
Perspective

• The industry perspective
• Demand for goods and services in one industry is
  slower than the supply
• The economic recession hand in hand with credit
  crunch (money supply)
• Ultimate impact to a single firm within an
  industry?
• Declining revenues due to shrinking market
• Price pressures
• Liquidity issues
• What to do?

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Economic definition of the business cycle
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Economic recession and Financing Short-term vs
Long-term perspective
Economic Recession
Balance both (conflicting?) Perspectives
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Key IssueThe current business model of the firm
versus recession

• Assessment of the business health factors
• Product/service competitiveness and client base
• Profitability and cash flow generation
• Cost structure and cost accounting system
• Current business financing structure
• Flexibility to alter products/services
• Understanding the competition and their moves
• Resource skills and know-how for inovation
• The position within the industry supply chain

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Key IssueThe management aspects

• Qualities of one firm management team
• Understanding of the current business model and
  fit within the industry
• Knowledge, skills and tools available for
  analysis and control
• Financial management skills and control
• Long-term vision for the business and strategic
  themes
• Flexibility and level of trust established with
  the business partners (vendors, customers, banks)
• Leadership skills

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Key IssueFinancial health and control

• Profitability of goods and services
• Revenues against the break-even point
• Liquidity factors
• Cash from operations
• Receivables days against payables days (trade
  credit)
• Short-term borrowings (line of credit)
• Cost management accounting systems
• Annual budgets with monthly cash flow projections
• Financial modelling and sensitivity analysis on a
  multi-year basis

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Short-term financial strategies

• Working capital management analysis tools
• Assessment of working capital components
• Inventory levels (SCM perspective)
• Trade credit terms A/P and A/R days
• Cash conversion cycle (days)
• Short-term finance structure against the cash
  cycle
• Monthly cash flow projections
• Will the firm eventualy go out of cash, and if
  yes, when and why?

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Short-term financial strategies

• Short-term finance instruments
• Line of credit on annual basis (commercial banks)
• Export finance against signed contracts
  (commercial banks and institutions)
• Debtors management tools
• Factoring
• Fortfeiting
• Discounts Allowances
• Special credit lines for working capital on
  multi-year timeframe (MBPR)
• Working capital portion of the long-term loan for
  a new investment project and growth opportunity
  (MBPR)

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Long-term financial strategies versus business
cycle

• Identify, plan and finance strategic growth
  opportunities
• Existing and new market opportunities (marketing
  intelligence tools)
• Development of new products or services
• Upgrade the business model within the industry
• Identify and rank investment projects (capital
  budgeting)
• Identify long-term finance options
• Equity capital (VC, private equity)
• Strategic investors
• Long-term debt
• Mezzanine products (convertible debt, shareholder
  loan)

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Conclusions

• Strong emphasis on understanding the underlying
  factors of the economic recession in a single
  industry and inter-dependecies
• Effective financial control system (annual
  planning and monitoring of key financial
  indicators)
• Concurrent focus on both short-term versus
  strategic issues and their financial implications

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QA