Show me the money: Liquidity leads to opportunities

Toronto — The lack of confidence in the global financial systems is forcing financial institutions to be more cautious about lending. According to PricewaterhouseCoopers (PwC), in this volatile market, private companies need to be proactive in managing their balance sheets to ensure continued liquidity and access to capital so that they can be in a position to take advantage of opportunities the market presents.

“The general market conditions for loans are obviously not what they were a year ago,” says Michael Vermette, partner in PwC’s Corporate Advisory and Restructuring practice. “This new reality is lost on many private companies who look at their strong balance sheets and positive cash flows and view themselves as immune to the credit crunch. Private company leaders need to recognize we are in unprecedented, unstable markets—and avoid overlooking the importance of liquidity.”

Vermette adds, “At the same time, a volatile and uncertain economic environment often presents unexpected opportunities: moving in on markets held by under-performing competitors, buying up cheaper real estate or acquiring struggling companies. But to seize these opportunities, private companies have to be in a position to act fast.”

To ensure businesses have the liquidity they need to manage cash flow and working capital, Vermette offers these strategies for private company leaders:

* Shore up any access to cash that you have. Short-term investments should be extremely liquid. If you can do anything to monetize assets on your balance sheet, do it.

* The same goes for credit. Whatever credit you have access to, lock it in for as long as you can and don’t worry about the cost.

* Look beyond the usual suspects for funding. Explore all your options including banks, private equity, asset-backed lenders, distressed-based funds and strategic lenders.

* Look at operations with an eye to whether they are profitable and produce positive cash flow. Operations that are cash neutral may have substantially higher value to the organization if they can be monetized and the cash put to other uses in the operations. If the operations are not cash positive, urgently consider your strategic options.

* For the foreseeable future, the most important business decision will be to manage the liquidity and capital structure of your balance sheet.

* Talk to your advisors. The businesses that will benefit the most for the next several quarters will be those with the most liquidity. The more liquidity, the more opportunities—regardless of what your business is and regardless of what your longer term business decisions are.