What’s “Bankruptcy” and How Does it Work?

What exactly is a Chapter 11 bankruptcy filing and how does the process work?

A Chapter 11 is a “reorganization” bankruptcy. That is, it is filed with the assumption that the filer will use the protection of the court to reorganize its finances so that it can continue as a going concern.  That doesn’t always happen, but it’s the intention going in.

There are a number of schedules you have to file with the court when the bankruptcy occurs.  These included assets and liabilities, income and costs, a schedule of existing contracts and some others.  Typically, the owner of the business becomes the “debtor in possession” and is responsible for the continued management of the business and control of the associated assets.  He is in a position of fiduciary responsibility with the same powers and obligations as if a Trustee had been appointed to manage the business. He’s required to file the monthly reports, can hire attorneys, accountants, appraisers or other professionals to help with the case, and file tax returns.

Note that a corporation has standing as a separate entity, so an owner’s personal assets are not at risk in a corporate filing, except to the extent of his equity in the business (or if he has given a personal guarantee, though that’s an issue outside of bankruptcy).  A sole proprietor filling a chapter 11, on the other hand, will find his personal assets are part of the bankruptcy.  Something to think about.

All You Need Is Cash- and a Bankruptcy Attorney

With the filing of the bankruptcy petition, all collection efforts by creditors are required to cease.  In fact, the company is not permitted to pay any unsecured debts incurred prior to the date of the bankruptcy filing.
Actually, it’s worse than that. The debtor in possession has the right and maybe the obligation to recover certain payments or transfers of property made prior to the bankruptcy filing so they can be equally divided among creditors. You can understand how the bankruptcy judge and creditors might insist on that if the owner used corporate assets to buy a Caribbean island a week prior to the filing when he wasn’t paying his creditors. Giving stuff to relatives or other insiders in anticipation of the filing is also a no-no.

Generally, this does not apply to payments made in the ordinary course of doing business, so one thing you make sure you do is pay your employees everything you owe them up to the day of the filing.  Remember you’re trying to restructure the business and it can be kind of hard if the employees have been stiffed right along with the other unsecured creditors.

You’re also going to need cash for a retainer for your friendly bankruptcy attorney, who knows he won’t get paid for 120 days or so after the filing and wants some money to bill against.  The phone company and other utilities will probably want a deposit to continue providing service, and some of your suppliers you haven’t paid and now can’t pay by law may be reluctant to ship you more merchandise on credit (though their chances of getting paid on new shipments may actually have improved).

It takes some cash to file a successful chapter 11.  Any company thinking about it should be hoarding some in advance.

Cash Collateral

If there’s a bank or other financing source involved, chances are they have security in the company’s assets.  If you don’t pay them, they have the right to the inventory, receivables, trade name, furniture and fixtures, patents, copy machine, and your lunch in the office refrigerator.  But of course, if they take all that and try to liquidate it to get themselves paid, there’s no business.

The debtor in possession can’t use that cash collateral, as it’s called, without permission of the secured creditor or authorization of the court. The court is required to make sure the collateral belonging to the secured party is adequately protected on a continuing basis. So typically there will be a cash collateral hearing where the secured creditors, the judge, and the debtor in possession, along with appropriate attorneys, will figure this all out.

The secured creditors’ interest is in ultimately collecting their money.  They know things were going to hell before the filing.  They also know that if they had to sell the debtor’s inventory and collect his receivables themselves, it might not go too well.  So, if they believe they can continue to be adequately secured and that the debtor in possession has a fighting chance to turn the business around, they will often not oppose the debtor’s use of cash collateral.  And even if they do the bankruptcy judge, who has quite a bit of discretion in the whole bankruptcy process, can require them to allow it as long as they have “adequate protection.”

The debtor needs use of the cash collateral to continue to operate the business, but there’s a chance he also needs some additional financing.  There is a class of lender who provide “debtor in possession” financing.  Remember that as a result of the filing, all the unsecured creditors have made an involuntary and hopefully temporary contribution to the debtor’s capital, immediately strengthening the balance sheet.  A lender supplying debtor in possession financing often has priority over existing unsecured debt, so their risk is reduced.

I don’t know what the debtor in possession financing market is like right now given current economic conditions.  It will be interesting to find out.

Now What?

Well, the immediate pressure is off the debtor in possession, and he can try and restructure his business.  He’s no longer spending all his day shucking and jiving with creditors and figuring out how to make payroll.  He has an exclusive period of 120 days in which to file a plan of reorganization. Nobody else can do it during that time. The 120 day can be extended, but not past 18 months.  Knowing that somebody else (like the creditors’ committee) might be allowed to file one can motivate the debtor to get it done.

There’s probably been a creditors’ committee formed which typically consists of the 7 largest unsecured creditors. They can be more or less active, but typically consult with the debtor in possession on running the business and developing the plan.  It can be useful to have the committee looking over the debtor’s shoulder.

There may be various legal proceedings going on where, for example, certain creditors try to get relief from the stay that keeps them from trying to collect their money.

The debtor has the right to reject contracts and leases he does not believe are in his interest.  He’ll be busily using that leverage to restructure his business.

He’ll also be working to convince customers, suppliers (who have not been paid but can be paid for new work in bankruptcy), and employees that the business is viable and that they should continue to deal with him.  What fun.

The Plan

At the core of the plan eventually filed with the courts is the issue of who gets paid how much. As the business and its assets are the source of that repayment, how the business is going to operate and how much cash it flows off are critical.  It would be typical for the plan to classify those who are owed money as secured creditors, unsecured creditors, and equity security holders, though there can be others. The further down the list you are, the lower your priority.  The tax authorities and the lawyers and other professionals who worked with the firm during the bankruptcy are at the top of the list.

Typically, there’s not going to be enough to give everybody 100 cents on the dollar, so there’s some negotiations involved in getting the plan approved. If I remember this right, a whole class of claims is said to accept the plan if the creditors in that class who do accept it represent at least two-thirds in amount and more than one half of the numbers of claims in the class. One of the things that’s sometimes done to simplify the approval process is to agree to pay all the smallest claims 100% of their claim when the plan is approved. That tends to get them on your side.

I’ve described in about 1,500 words a process and set of circumstances on which many books have been written. There can be a lot of permutations and combinations, but I hope this gives you the general picture.  The process of getting a company through a bankruptcy is interesting and challenging – though not so much if you’re the debtor or a creditor.
Read more at http://business.transworld.net/features/market-watch-chapter-11-bankruptcy-what-does-that-mean-exactly/#0zv6LhGGjHbcbx60.99


The Dilemma of Growth in Action Sports

Help me out here. Name me one company that (1) has its roots in action sports, (2) has grown to have revenues greater than, say, $200 million, (3) has gone public, (4) hasn’t been acquired and, (5) is continuing to grow and prosper. In retail, I’d name Zumiez though I imagine some people won’t like that. A nonretail brand? I can’t think of one. Can you?

The genesis of this article is some recent thinking I’ve done after reviewing industry company annual reports. I’ve noted that the requirements of being a strong brand and meeting Wall Street expectations may be at cross-purposes. I have also watched companies struggle the further they get away from action sports and the more they find they have to focus on youth culture and fashion in broader distribution.
Why is that? The economy has something to do with it. But more fundamental are the characteristics of the “real” action sports industry and the dramatically different competitive conditions you discover when you step outside it.
What Is the Action Sports Industry?
To start with, it’s really small. Its customers include the people who participate in the sports and perhaps the first level of nonparticipants who follow the sports and are into the lifestyle. That’s it. Everything else is hype and glory. During “The Best Economy Ever,” anybody who could make or sell a hard good or figure out how to spell “EXTREME!!” was thought to be in action sports. The industry looked way bigger than it was as cash flow covered up evolving structural weaknesses.
Now, in “The Worst Economy Ever,” those structural weaknesses (over distribution, lack of product differentiation, weak balance sheets; I could go on) have been exposed and the action sports industry, bloodied but unbowed (well, maybe a little bowed), has returned to its roots as a community of like-minded enthusiasts that is too small for big companies to really care about unless they can co-opt the action sports ideal to reach the broader market.
I’m not saying this is good—more that it’s a survival mechanism for small action sports retailers and brands that are really in the market as I’ve defined it. And I’m certainly not suggesting nothing has changed and that we’re back where we started. Far from it. There’s the internet and consumer empowerment, the fact that there’s so much quality product everywhere, big companies trying to co-opt and extend the action sports ideal, a declining sense of exclusivity, and yes, the economy.
But if this is where we are, and if you accept my industry definition, what are the implications for growing in the space? Let’s start by looking at how brands used to grow and how they grow now before answering that.
The Process of Growth- Then
It was about patience. Somebody would start a brand or open a store because they wanted to work with their friends, have a job in something that meant something to them, or be able to get in extra days on the hill (little did they know). You’d hand out some stickers, print up some t-shirts, and visit local retailers with your first batch of products which your friends were already using. The process was a bit more casual than it is today and, initially at least, there didn’t seem to be a sense of urgency. Indeed, you couldn’t be in a hurry because the independent specialty shops were pretty much your only choice for retail distribution. There was enough margin to go around and you could rely on distribution being controlled—probably more than you wanted.
Not only did you have to be patient, but humble. You built relationships and waited for the intimate action sports community to look for your product. Spending a bunch of money (which you probably didn’t have anyway) on marketing to try and push your brand was counterproductive. Your brand became credible through supporting the industry and the retailers.
You knew you were succeeding once the marketing guy was trying to hold the finance guy hostage for more budget because the perception of the brand exceeded its actual size and financial resources. You knew you’d arrived when the first retailer asked you for terms.
What’s implicit in this process is the passage of time. I’ve arbitrarily suggested that it used to take five years to really establish your brand with the core action sports consumer. They and the retailers just needed that long to get used to who you were and what the brand stood for. It was hard to circumvent the need to be around a while no matter how good a brand builder you were.
In that time, you became established in the action sports market as I’ve defined it. You’d grown within the specialty retailer community. Next, to provide opportunities for your employees and, truth be known, because you wouldn’t mind making some more money, you looked for opportunities outside that niche.
And it was a niche. You’d work hard to be credible and establish your brand in it. Now you were going to ……”Sell Out!” Remember the outrage of core customers when brands took the first tentative step towards broader distribution?
But it was more like a leap over a chasm. Some of the changes in retail and consumer behavior that are unfolding now weren’t even on the horizon. Expansion of distribution by definition meant going from the “cool” niche market you’d created to the clearly “uncool“ outer circle. There was little of the tiered distribution we have now. Either you were core, or you weren’t. The dichotomy created barriers- both ways.
The Process of Growth- Now
With the coming of the recession forcing an accelerated reaction to trends already in play, the action sports market has devolved back towards what it used to be. In some ways—the number of independent specialty retailers comes to mind—it’s smaller. Meanwhile, the steps to broader distribution are more obvious—less chasm leaping is required–and probably more necessary.
Bluntly, the business model is tougher. Consumers have less money to spend and are more discriminating in where and how they spend it. Sales growth is harder to come by. Product that is truly distinctive is rare. Distribution is wide open and the action sports culture has been melded into and suborned by the youth culture/fashion market.
You no longer have five years to build brand recognition and acceptance. Interestingly, I don’t think you need it.  As soon as you start to get some traction and sales growth, you’ll find that some multi-store retailer or another is interested in giving your brand a try. That’s hard to resist given general market conditions. The retailer will tell you they are going to help you develop your brand. The blowback that used to accompany growing distribution too much and too quickly doesn’t exist. It’s so completely expected that everybody seems to take it for granted, or at least be resigned to it.
But you haven’t spent five years establishing your brand identity. Your customers aren’t all the same customers you would have been selling to had you launched in the past and they aren’t as committed to your brand. The further you get from core distribution, the truer that is. They may know your brand, but they don’t know your story. You are trying to sell to customers (because you’re being “helped” by the retailer) who don’t know the difference between your logoed plaid shirt and the same product at JCP with their store brand logo. The problem, as we all know, is that there may not be much difference.
You didn’t mean to be, or at least you probably didn’t want to be, but somehow you’ve found yourself in the much broader fashion market. You have become dependent on the good will of the large retailers. We all know how long that lasts if you don’t sell well at good margins (of course that’s true, though I like to think not as true, in core retailers as well). Even if you’re doing $100 million in revenue, the competition is ten, twenty, thirty, forty, or fifty times bigger than you. Or more. They have resources you can’t think about competing with. The things that gave your brand strength in the action sports market aren’t as important in the broader fashion market.
The Usual Result
You know, succeeding and being acquired is a good thing. So is sticking to the market niche you know and maybe growing less but having a successful, profitable business. What’s bad is not understanding the impact of growth and the competitive environment it’s going to put you in when you take the step into the broader fashion market. What’s bad is not recognizing the pressures and requirements of being a public company. The requirements of being public can conflict with building and sustaining a brand.
The good news is that consumers are willing to trust new brands faster these days, sometimes at the expense of heritage brands. That’s one reason you can grow faster. No need for five years of building credibility.
Your brand positioning decision is now much more complicated than core or noncore. There’s a whole range of customers and distribution channels to pick from and it takes some hard, thoughtful work to figure out where you belong. Accepting the invitation of the first big retailer that wants to carry you is not the way to approach it. Remember, all those retailers are busy building themselves as brands and carrying lots of proprietary product. I’d approach retailers I think might be appropriate for my brand based on my customer analysis. Yes, I know that you can’t always been that “pure” in who you decide to sell to.  I also know I have the privilege of way over simplifying the decision process, but just think about the concept.
Finally, I’m implying that if you’ve done your homework, you could find yourself turning down some business you might otherwise have accepted. Hard to do, I know. Maybe that’s where the business model I’ve been pushing, where gross margin dollars and operational efficiency have a focus equal to sales growth, comes in. You can’t think of marketing and brand positioning as distinctive from operations and inventory management any more.
You don’t want the usual result. To avoid it, start by recognizing what that usual result has been way too often in our industry and how the environment has changed.



There Is No Action Sports Industry. Or Maybe It’s the Same as its Always Been

Sometimes I just can’t help myself. Many years ago, I wrote an article called “Are There Any Core Shops Left?” My good friend and editor at the time Sean O’Brien thought enough of it to put it on the Transworld web site for discussion. Without telling me. In hindsight, his instincts were good, but I was the slightest bit confused when I started seeing posts and getting emails that either told me how smart I was or hung me in effigy.
I think I might be about to do it again. What I want to tell you is that many of you who think you’re in the action sports business are wrong. And if you don’t act accordingly, things could become difficult. More difficult. I want our old economy back!
This has been in my head for a while in unformed ways. The launch of Nike’s Chosen campaign, their investment conference yesterday, an email I got from somebody who’s had a lot of success in our industry, and my evaluation of some of the recent industry deals including Volcom and Sanuk has caused neurons to fire and thoughts to coalesce. So let’s look at just what this industry is and has become, what I think are the major, long term, strategic trends, and the implications for how this industry, whatever it is, will change.
What Is the Action Sports Industry?
I’ve expressed an opinion about this before, but want to do it a bit more forcefully. The action sports industry is a small industry composed of businesses that sells products to participants in a number of individual sports and to the first level of non-participants that closely associate with the lifestyle and athletes. If that isn’t who most of your customers are, then you’re in the youth culture or fashion or some term I haven’t thought of business.
That doesn’t mean that your roots can’t be in action sports, and I’m not trying to imply any kind of criticism of a company that’s graduated out of action sports (we are way, way past any concerns about “selling out”. That almost sounds laughable now). But if you think you’re selling to action sports customers, as I’ve defined them and you’re not, you’ve got a challenge because you’re probably trying to punch outside of your weight class.
Why did we ever believe action sports was a bigger industry than it is? That’s easy; it’s due to 20 or 25 years of THE BEST ECONOMY EVER. With rising incomes and asset values, easy credit, and low inflation you can, as the saying goes, sell snow to the Eskimo. So any shop that sold hard goods could be known as a core store. But it wasn’t.
As I suggested in the title, then, the real action sports industry is a lot like it’s always been. We just thought it was different. What made it change?
Trends We Should Pay Attention To
How do you know when a successful brand has graduated out of the action sports market? That’s easy- they get acquired. Somewhere around $40 million in revenues, to pick a number, they start to get big enough to be attractive to a strategic buyer that makes it worthwhile to sell.  Hopefully, they also get smart enough to know that they don’t really have the resources, expertise, or competitive advantage to step outside the action sports market they came from without help. Expect more CONSOLIDATION as the trends I’m discussing here play out. 
Volcom pretty much said in their filings that industry conditions and difficulty growing meant it was time to sell while they could get a good price. Look at the deal Sanuk got. Notice that PPR’s CEO specifically said in an interview they didn’t pursue Quiksilver because they didn’t see the growth potential. Buyers want growth potential. Successful sellers know they have it, but that they can’t do it themselves.
And that means, if you try and grow out of the real action sports space, you’re going to face some big honking competitors. Bigger all the time. Nike’s almost its own trend. I’ll get to them. Think about Burton in the snowboard space a few years ago. Why did Burton own the hard goods market?
First, great product.  I’ve never heard anybody say different. Second, financial strength. That strength meant the best athletes and the biggest advertising and promotion program. So consumers wanted the product and it checked at retail at good margins as long as the distribution was well managed.
In its snowboard niche, Burton was like Nike in the athletic footwear market; unless they screwed up everybody was fighting over second place. But Burton has a problem Nike doesn’t have. Nike’s concern, they say, is about picking the best of their growth opportunities. Burton, as best as I can figure it out, hasn’t been able to grow much outside of its core snowboarding franchise. Even if it were for sale, Burton would not be attractive to a strategic buyer lacking that growth opportunity.
The lesson? Either plan to stay in the core action sports market, or be prepared to sell when you threaten to break out of it. 
Let’s talk about NIKE, THE ONE COMPANY TREND. At the start of this article were a couple of links to Nike that may interest you. Here’s another one to a press release on a conference they held last year. It’s worth a read. I actually have the transcript of that conference, though I can’t find it on line any more. It’s 75 pages long but worth reading. If you’re really interested, let me know and I’ll send you a copy.
Nike is $20 billion in revenue. As you’ve no doubt read, they are now taking the Nike brand directly into surf, skate and snow. They think they’ve now got the credibility to do that, having been somewhat cautious in their approach for a couple of years.
I have to say their timing surprised me a bit. For years, Nike flopped around the action sports space screwing up their attempts to get in it. Then they got a little realistic and decided to exercise some patience. They hired a few of the right people and used their unmatched product capabilities and financial strength to edge their way in cautiously. I thought they were doing fine. But it feels like they might have run out of patience sooner than they should have.
It will be interesting to see if the Chosen campaign is seen as authentic or arrogant.     
In its investment conference, Nike talked about its ability to market and merchandise a product or brand down to the city level. They pointed to their focus on customizing product for individual consumers (try it on line!). They discussed the process where an innovation from one product makes its way to other products and brands. They were very thoughtful about the integration of brick and mortar and digital and expect growth there. The analysis they’ve done about what kind of stores to put where is intriguing. And they had a good discussion of their integrated systems for managing costs and inventory, which I love.
Of course, it’s their investment conference, so you’d hardly expect them to highlight where things hadn’t worked out so well. Still, it was impressive. There was a clear analytic framework that I think gives them unusual flexibility for a company their size.
And that brings me to the email I received from the gentlemen with a lot of success in our industry who said, in part, “Based on how they [Nike] have single handedly destroyed the competitive brand environment in sports like Football, Tennis and Golf does this mean that Action Sports brands have to work on the basis that they will be relegated to being a fringe player in a culture and sport they created?”
Well, maybe. But let’s not over dramatize this. There’s nothing we can do about how Nike (or any of the other large companies) runs their business except, in this case, maybe learn some lessons from them based on the things they do well. I might have said this a time or two, but don’t worry too much about what the competition is doing- just run your own business well. If you adopt just a bit of Nike’s thoughtful, analytical approach to your market, you’ll be doing a good thing.
One thing you might think about is whether Nike is trying to ‘take over” the action sports market or just use legitimacy in that market to be credible with customers outside of what I’ve defined as action sports customers. See, this is why explaining what action sports is and being aware of how it’s changed is so important.
One way you need to do that is to FOCUS ON THE ECONOMY. I know it’s hard when you have to run your business on a day to day basis, but look beyond, the day, week, month, quarter and even the year. Recognize that, historically, the “good old days” were an aberration we’re not returning to in the foreseeable future. Want to know why? Go read this book so I don’t have to make a long speech. It’s a pretty easy read. The bottom line is that this is a financially caused, global recession and they last a long, long time. Always have. You must build your business around that assumption. Most of you, I hope, already have.
One of the economic things you’ve got to think about is inflation. You are going to see some product cost increases, and it’s not clear how much you will be able to pass through to your customers. Factor that into your financial model.
Next, we can’t forget VERTICAL RETAILING, which I expect will continue to grow and even accelerate. Vertical retailing is a financial and merchandising strategy that is viable partly due to changes in consumer perceptions and habits and because we’re selling a lot of product to a different consumer. You don’t have to be “core” anymore to be cool and most of our customers aren’t action sports consumers as I’ve defined them.
Where does this leave the “core” retailer? Well, kind of where they’ve always been if they are really core retailers; servicing the group of customers I’ve described above for whom community and expertise are the most important factors. That was never a huge market.
Specialty shops and small chains that really weren’t core retailers have mostly gone away. Even some really good retailers who have been around for many years are struggling. Partly that’s because we’re no longer in the best economy ever. But it’s also because they are dependent on customers outside the traditional action sports niche as I described it and don’t have an adequate advantage with those customers over the vertical retailers and large chains for the reasons we’re discussing here.
Some years ago, I created a list of things I thought core retailers had to do well to succeed. The list included good systems and financial data, close connection with the community, a reasonable internet presence, quality, trained employees to whom you could offer a career path, revenues in excess of $1 million and a willingness to take some risks in the product you carried as a point of differentiation.
It’s not a bad list, but when I wrote it I thought a specialty retailer who did all that would just kill it. Now it’s kind of a minimum bar to succeed. And doing all that isn’t enough if you’re trying to compete with the big, vertical brands for the non-action sports customer.
Price has become more of an issue than it ever was and (forgive this gross generalization) there is no financial model that makes sense for a specialty retailer that carries the same brands as the chains and vertical retailers and serves the same customers. This is going to be especially true as product costs rise.
Related to vertical retailing is distribution, or rather NOT DISTRIBUTINGHere’s a link to an article I wrote after SIA posted its sales report in March. Basically, SIA members reported higher margins and better sell through with lower sales. They sold less but earned more and created perceived value through scarcity. I’ve been beating the drum for focusing on gross margin dollars rather than sales or gross margin percent for years. It took the worst recession since the Great Depression to scare them into controlling inventories. I really hope they don’t screw it up next year.
Around 2000 when I took my first close look at THE INTERNET and its impact on the industry, I thought it was just another distribution channel. Maybe that was an adequate answer then, but it’s way more now.
It’s your most important point for customer contact and information. It’s a tool for managing and controlling inventory. There is no successful brick and mortar retail without a closely integrated internet presence. I could create a much longer list, but just imagine running your business without the internet and we’ll leave it at that. It’s no longer a choice and I guess it really hasn’t been for a long time.
So What?
Determining whether you are “action sports” or “not action sports” is obviously not as clear cut as I’ve made it sound. Most retailers and brands fit somewhere along a continuum. Yet determining who your customers are is critical (duh) and maybe the distinction I’ve made is a good way to start thinking about it. For most of you, it’s not the same customer you used to have.
For better or worse, big companies have learned to buy brands in our industry and support them without killing what made them special. Consumers won’t know that Volcom is owned by PPR. More importantly, if they did, they probably wouldn’t care anymore. 
The buyers of industry brands can’t justify their purchase prices unless those brands grow at a pace that means they take market share. So you, as an independent brand or retailer, are competing with businesses that were successful in their own right but are now backed by various 900 pound gorillas committed to growing them. Sophisticated, well managed gorillas at that.
Don’t despair. Just recognize the market you’re in and who you’re competing against. Then plan accordingly. Like the old saying goes, “Call on God, but row away from the rocks.”           



A Living, Breathing Thing; Cash Flow Management

That’s actually the way he put it to me. Many years ago, the CEO of a company that had been in deep financial trouble and had clawed its way out said, apparently in frustration with my failure to understand his concept, “You don’t understand, the cash flow is a living, breathing thing.”

 Now I know he was right. You don’t just create a spread sheet and manage cash. Especially in conditions of seasonality or fast growth you massage, tweak, manipulate and coerce it. You plead with it and threaten it. You spend too much time trying to get the numbers just right even though you know they will be different the next day.
Like a complex computer program with some interesting bugs, cash flows sometimes seem to have personalities. Once you learn about the dynamics of that personality, you’ll be an effective cash manager.
In the beginning, most small business owners, be they retail or brands, manage their cash flow out of their back pocket. They know their bank balance and checks outstanding. They understand what bills have to be paid when and can estimate their cash receipts pretty closely. When the numbers are small, sales steady, and the business relatively simple, this works fine.
But things change with seasonality and growth. Other people are involved in decisions about receipts and disbursements. The sheer number of factors means keeping it in your head gradually, almost imperceptibly, becomes impossible. A business owner’s tendency not to share critical financial information with others can exacerbate the situation.
If you now recognize that you’ve gotten to the point where you have to take a little more formal and proactive approach to cash management, what should you do?
First, let’s talk about what we mean by cash flow. We don’t mean the traditional financial analyst’s definition of net income plus non cash expenses like depreciation. Regardless of adjustment for traditional non cash items, the accounting measurement of net income has very little to do with cash flow as I’ll explain below. You can have income and no cash. Not all that unusual a situation in the snowboard industry I’ve noticed.
Instead, look at your balance sheet. The assets are what you have and the liabilities are what you owe. The balance sheet is calculated at a particular point in time. Think of your balance sheet as a telephone pole on your street (bear with me on this analogy for a minute). Down the street is another telephone pole. It’s your balance in, say, two months. There’s a bunch of wires strung between them. Instead of electric current, the wires, in this analogy, carry the transactions that result in the changes from the balance of the first telephone pole to the second. Your cash flow is like a voltmeter. It measures the current and changes in the current in the wire.
How could you have lots of income and no cash? Let’s say that in the two months between telephone poles one and two you sell $300,000 dollars of merchandise. But the terms under which it is sold don’t require payment for 90 days. Two months later, your accounting based income statement will show sales of $300,000 and profit of whatever your margin after expenses is. But you won’t have a cent in a bank from those sales. Income, but no cash flow. Retailers, of course, are fortunate in not having to worry about that exact scenario since they don’t typically sell on terms, but it’s still important to understand the principal.
Now of course if you’ve sold $300,000 in the previous two months under the same terms with the same expense structure, then you could expect to collect that money in the current two month period. So you would have cash flow. And as long as your sales and expenses were the same from months to month, your net cash flow would basically equal your accounting income.
I guess everybody who has the same sales and expenses each month of the year can stop reading now. But in case your business isn’t quite so consistent, let’s talk about a simple way to begin to forecast your cash flow and develop good instincts about it.
First, let’s look at our two telephone poles. In the two months between one pole (balance sheet) and the other, the dollar amounts of what you own and what’s owed you will change. The net change in those amounts represents the result of all the transactions that occurred during that period of time. For example, let’s look at the inventory number on the two balance sheets. Say that at the first balance sheet date, inventory is $500,000 and at the second it’s $600,000.
It probably didn’t make that jump in one mighty leap. Product came and product went with the result being an inventory level of $600,000 at the date represented by the second telephone pole. At different times in the period, inventory may have been well over or under either of those numbers. But at the end of the day, you know you’ve got an extra $100,000 tied up in inventory. So you’ve used an additional $100,000 over that period to buy stuff. Had inventory gone down during that period, you would have a source of cash because less was tied up in inventory. That is, you would have converted inventory into cash.
Now, let’s look down at the bottom of the telephone poles in the what you owe section (liabilities) At the first telephone pole you owe the bank, say, $100,000 and at the second, $150,000. If you owe more, than you’ve taken in more money to work with. You’ve increased your cash by $50,000. If bank borrowings had gone down $50,000 instead of up, you would have decreased your cash position by $50,000, though you might be sleeping better at night because you owed the bank less.
You can see that the “what you own” (asset) accounts at the top of the telephone pole work exactly the reverse of the “what you owe” (liability) accounts at the bottom. Increase the asset accounts and you tie up cash. Increase a liability and you create cash to work with.
Decrease an asset and you free up cash. Decreasing a liability is a use of cash.
Probably, I’ve been doing this too long because otherwise I wouldn’t say that there’s a certain elegance in how the various accounts all work together, each related but at the same time independent of the other. Study a couple of balance sheets and think about how the accounts changed. When you begin to have some intuitive comfort with these relationships, you’re well on your way to good cash measurement and management.
To be really on top of things, you still need your voltmeter to measure the flow of current across the wires and the changes. Do it on a computer or a piece of paper. Here’s the format I recommend and use myself in various business situations. There’s no magic to the categories. Change them to reflect your business situation.
                                                            Jan.      Feb.     Mar       Etc.
Beginning Cash Balance
Sources of Cash
            Cash sales
            Collection of receivables
            Line of credit borrowing
            Interest income
Total Sources of Cash
Total Cash Available
Uses of Cash
            Product purchases
            Repayment of bank line
Total Uses of Cash
Ending Cash Balance
The beginning cash balance is whatever is in your checking account plus (if you’re a larger company) any liquid investments you may have. The ending cash balance each month becomes the beginning cash balance for the next period. Depending on how quickly your situation is changing, your estimate of expenses can usually be based on your historical experience. But remember that just because you get your phone bill in July doesn’t mean you pay it that month. Typical many of your operating expenses will be paid in the month following receipts, and your cash flow has to take this into account.
If you’re a retailer, a lot of your product purchases are paid for well after the product is received, and the cash flow has to reflect that.
If you already have a budget and are creating and tracking it on a spreadsheet, use the program to adjust your budget to manage the differences between the budget and cash. If you don’t have to pay for your product for 90 days, reflect product costs from August as a cash expense in November.
Don’t get too caught up in the process of creating a perfect model. Get it done and work with it. Modify it as you learn more. Look at your projections versus what actually happens. Creating the model isn’t really where you get the benefit. Using it and watching the variables change with each other is. It’s a lot like learning a language. You only get better with practice and as soon as you stop speaking it, you start to lose it.
Print it out and hang it on your wall. As changes occur, use a pencil to change entries. Consider the impact of each change on future months. When there are so many pencil marks that you no longer can have a feeling for the cumulative result of all the changes, make those changes on a clean version, print it out and start over again.
You’ll quickly find that it is a living, breathing thing that responds to your attentions by surprising you less and less.



Getting In Deep Trouble; Why Companies Get There, and What it Takes To Recover

It doesn’t matter if you’re a retailer, distributor or manufacturer. It doesn’t even matter if you’re in the snowboard business. In every industry, companies get in trouble for the same basic reasons, and require the same things to recover

All businesses in trouble share two characteristics: denial and perseverance in the face of inescapable change. It’s easy to believe in what worked in the past, and hard to step outside our comfort zone and do things differently.
Businesses suffer from information overload, just as individuals do. Big surprise since businesses are made up of people. When companies get into trouble, day-to-day management of immediate crises (like finding enough cash for payroll) consume managers. Their ability to identify opportunities and problem solutions decline because they can’t see past the next phone call from an irate creditor or reluctant supplier. Pretty soon, they’re paralyzed by action. Managers and staff alike are frantic, but nobody addresses the fundamental changes that get companies in trouble in the first place.
A business owner once looked me straight in the eye as he told me that he had to sell his product for under what it cost to produce it. Why? Because that’s what his competition was doing, he said. Denial and perseverance. The fact that he was liquidating his net worth a little at a time and working for less than he could have made at McDonalds wasn’t really something he’d focused on.
The owner of a business can’t afford to shut out critical information just because there doesn’t seem to be time to consider its significance. Ignorance can kill.
Like the frog that won’t hop out of water if the temperature is raised slowly to boiling, many companies seem all too willing to cook rather than change with the business environment.
There are a lot of reasons businesses boil rather than hop out. The five most common ones that I’ve seen in my work with troubled companies include:
Failure to answer the question “What’s the Goal?”
Seems like a simple question, right? What are your goals for your business? Can you measure them? By when do you want to achieve them?
Think about it. How do you know if you’re succeeding if you don’t have tools to measure success and keep you focused on where you want to go? Most businesses that get into trouble have never answered this question and companies jumping into the snowboard business today are often prime example.
Business goals are measurable and realistic. They can always be quantified; an increase in sales, gross profit percentage or dollar sales per employee. Don’t be constrained by traditional measures. If it meets the criteria, works for your business, and keeps you focused, it can be a goal.
Failure to respond to a change in the market
Does anybody doubt that IBM could have dominated the PC market if they had decided to do it early enough? Bill Gates offered them a chance to buy the rights to MS-DOS and they turned him down. Oops.
It’s easy to keep doing what has worked for you in the past. Everybody likes to stay in their comfort zone. A dramatic change in the way your business operates involves perceived risk and is inevitably disruptive and messy. Building an organization that is receptive to change, so that change is ongoing and incremental instead of chaotic, is a critical ingredient of business success.
A character flaw in the owner/chief executive
No, we’re not talking a crook or a psychopath. Like all of us, business executives have strengths and weaknesses. The strengths that allowed Steve Jobs to establish and build Apple Computer became, in the judgment of some, liabilities when it was time to manage the larger, corporate organization that Apple became.
Perhaps individuals who establish and build companies come to believe in and depend on themselves too much. They are often right to think that they can do anything in the organization better than anybody else. Trouble is, they can only do one thing at a time, and this hands-on-everything approach creates a bottleneck at their door and discourages other employees from taking the initiative to solve problems.
Inadequate control systems
“Inadequate Accounting System Scuttles Company” isn’t the kind of headline that boosts circulation, but it should be obvious that you can’t run a business without current, accurate information.
A company I was hired to turn around was operating two businesses on one accounting system. “Nothing wrong with that!” you say. True enough, unless you use one data base for both companies. You credit one business and debit the other. At the end of the month, the books balance, but the numbers are meaningless.
As a result, monumental adjustments were required to create good, meaningful data and they were months behind in doing it. The owner, by the way, was a CPA. Before I ever got there, he’d invested close to $1 million in the venture and ended up losing most of it. Go figure.
Growing too fast
Remember the business cycle; especially in a highly seasonal business like snowboarding. You have to invest money (for salaries, advertising, inventory, whatever) before you can sell anything. The more you sell, the more money you have to invest to keep the business running. It’s called working capital. Profit is an accounting concept. Nobody ever pays their bills with profit. Companies run on cash. If you grow faster than your financial capabilities allow, you can be profitable, but still broke.
If your business is growing (even if it’s not, but especially if it is), do a simple cash projection. It can be as easy as beginning cash balance, plus sources of cash during the month, less itemized expenses for the month, equal cash balance at the end of the month. That number becomes the starting place for the next month. Make it as simple or as complex as you like; whatever works for you.
You know two things for sure about a cash projection. First, that it’s never right. Hey, it’s a projection! Second, that the more you use it, the more valuable it becomes. It’s your money. You must understand the financial dynamics of your business no matter how much you’d like to leave it to your accountant.
Find some quiet time to evaluate your business with regards to these five issues. Better still, have an objective third party whose business acumen you trust evaluate them with you. However hard it is to correct any deficiencies you discover, it’s easier to do now than after the business is in decline.
Company Already In Trouble?
What Does it Take To Climb Out?
·         A viable business
Evaluate your competitive position. Why are customers going to buy your product instead of somebody else’s? If you don’t have a good answer, ask yourself if the risk you’re taking is worth the potential return.
·         Bridge capital
There’s always a shortage of capital, though it’s typically a symptom rather than a cause of the company’s problems. There has to be cash from some source to keep the business going while the problems are fixed.
·         Management
Managing a turnaround requires a different set of skills than managing a healthy company. Often the individuals who were at the helm as the business declined are the wrong ones to rebuilt it, if only because their credibility and confidence is poor.
·         A little time
If creditors have judgments and are attaching bank accounts, the bank has called the loan, and the IRS is padlocking the place for failure to pay withholding taxes, an organized liquidation or bankruptcy filing may be your only choice. Positive changes take time to have an impact. Options decline with circumstances.
·         A plan
You have to convince yourself, your employees, customers, suppliers banker and other stakeholders that you can recover.



Sam And The Gradunzel-Eating Monster; It’s (hopefully) a fairy tale.

Long, long ago in an industry far, far away (cue the heroic music), the sale of moss-covered, three-handled family gradunzels* had taken off. Now, gradunzels had been around for a long time, and they were manufactured by a dedicated group of companies, the founders and owners of which had been among the earliest users of gradunzels. They were still the product’s strongest supporters and were respected and trusted by the people who bought the product.

            These companies had worked hard to make the best-performing gradunzels they could make. They had all worked so hard, in fact, that all their gradunzels performed well, and it was not always easy to distinguish one from another—as far as how they worked. They had all been so successful in making good products that, at the end of the day, the customer selected his gradunzel based largely on loyalty to the company and people he knew who used the product. Even the prices were more or less the same.
            Oh, sometimes the colors of the three handles were changed, or a different variety of moss was allowed to grow on the gradunzel, but it still worked basically the same as all the others. Once somebody, who was not part of the group that had made gradunzels forever and ever, actually made a gradunzel with four handles. Some said it did a better job at whatever it was gradunzels did. Some said not. In any event, it didn’t look like all the other gradunzels, and soon it was gone and forgotten.
            For a long while, gradunzel users were a pretty small group, at best ignored, at worst scorned, by the rest of the people. But they didn’t care. They just went about making the best use of gradunzels they could. And if they were, from time to time, disappointed that everybody didn’t like gradunzels, they were also pleased to be part of this special and distinctive group
            And then a funny thing happened. One day—nobody knows exactly why—everybody wanted to buy a gradunzel. New gradunzel factories and brands sprung up all over the place. These came and went. Some succeeded, some didn’t.
            The small group of old-line gradunzel makers was overwhelmed and didn’t quite know what to think. It was true, of course, that they were selling all the gradunzels they could make and making more money than they had ever imagined. They were producing all kinds of new gradunzels in different sizes and colors and with different names, although of course they were all still just gradunzels. That was a good thing, and they were proud that after all their years in the wilderness so many other people had recognized what a wonderful invention gradunzels were. But they were also just the smallest bit concerned.
            Gradunzels had become so popular that even people who didn’t use them wanted to share in their popularity and be part of the excitement. There were all kinds of new gradunzel products: toy gradunzels, gradunzel cleaners, tools for fixing gradunzels, and clothes and shoes to wear when you were using your gradunzel, or even when you weren’t. The original gradunzel makers didn’t manufacture most of these products, but they represented a big part of the industry’s total sales. The old-line producers felt they were losing a little control of what they had created and supported, and they wondered if, in the midst of all the growth and prosperity, things would ever be the way they had been before. And sometimes they even wondered if they really, really wanted them to be.
            Undoubtedly, all this noise, growth, and excitement was what ultimately attracted the  gradunzel-eating  monster. The monster had an enormous appetite that was never really satisfied. But he had to eat so much that he couldn’t waste his time on mere appetizers. Suddenly, the gradunzel business looked like a tasty, full-course, gourmet meal. And it was making so much noise that he couldn’t help but notice.
            The monster didn’t really care what a gradunzel was or how you used it. He just needed to keep his stomach full. His stomach, it turns out, was full of production equipment, and he already had everything (well, almost everything) he needed to make gradunzels.  He wasn’t a bad monster really. He didn’t want to hurt anybody, though he knew that what he was planning might make things difficult, or at least different, for some of the smaller monsters in the food chain. Still, he hoped that the people who bought and used gradunzels might get better ones for less money and he thought that was a good thing.
            Now, because he was a very old monster and had grown big and wise over many years of gobbling things down, he had the resources to carefully study gradunzel making. So that’s what he did. He discovered he could make gradunzels as well as anybody else’s for quite a bit less money, if only because he already had almost everything else he needed. He even had a few ideas for making them better and wasn’t reluctant to try them. He had to buy a few machines and reorganize some space, but the building, the people, the computer system, and everything else he needed was already there. There was just one problem: To whom was he going to sell gradunzels?
            The monster disguised himself (not very well, actually, in a button-down and khakis, although he did manage to ditch the tie) and went out into the world of gradunzel makers and users. He didn’t understand everything he saw, but he knew he wasn’t “cool,” and somehow that mattered.
            He wondered what he could do. Then he became aware of how many brands of gradunzels there were. He knew, because he was an old and wise monster, that many of those brands—through no fault of their own—probably wouldn’t survive, or at least wouldn’t succeed at the level they hoped for. There were just too many brands and not enough competitive advantages to be had. He wondered if he could find one of those brands to work with. Then maybe he could be a little cool, or at least make gradunzels for somebody who was.
            Still, the monster wasn’t completely happy. He wanted to make a lot of gradunzels, and no brand that was going to work with him would need very many. So he called his friend Sam. Sam owned almost 3,000 stores and had bought a lot of stuff the monster had made over the years. He already sold gradunzels, but they weren’t very good, and they certainly weren’t cool—whatever that meant.
            Sam had tried to buy gradunzels from the old-line manufacturers, but they wouldn’t sell to him for three reasons. First, if they sold to him, they wouldn’t be cool anymore. Second, they couldn’t make enough gradunzels for him and still meet demand from their other customers. Third, Sam never paid anybody until the following season, and the old-line companies couldn’t afford that.
            The monster didn’t care about the first and could handle the second and third. So he said to Sam, “If I could sell you a better product for a lower price, produce as many as you need, wait to get paid, make it cool, and advertise and promote it, how many would you buy?”
            They haggled over the specifics a little. Sam looked thoughtful, then said, “Well, not too many. But if you can do all that, maybe we could handle three-quarters of a million gradunzels in the first year. We’re already selling almost that many, and we know it’s a lousy product. Would that be enough?”
            The monster smiled.
            When the monster went to talk to some of the second-tier gradunzel makers, the first thing they all told him was that everything was great. After he got to know them a little better, often over a couple pints of grog, he found that some of them were running just to stay in place, having a hard time cash-flowing their business, and needed to get a lot bigger quickly to have a financial model that really worked. But they were cool.
            Usually when he got around to asking them about selling to Sam, they’d get up to leave. But when he quickly asked them if they’d like to sell more gradunzels in two years than they could reasonably expect to sell in twenty, they sat back down again. It turns out that making money is cool, too.
            The gradunzel-eating monster returned to his lair to  plan. He didn’t know if what he was thinking would work, or if serious gradunzel users would buy from Sam. But if he could get this meal cooked, it would be big and tasty, and the ingredients wouldn’t cost much. What did he have to lose by trying?



Foreign Exchange Management; What’s All This Brouhaha?

Actually, there’s nothing to it. The differential in rates of inflation between the economies of two countries equals the percentage change in the exchange rate over the same period. This is known as the Purchasing Power Parity theorem.

There. That should be clear. Of course, government intervention in the markets can also affect exchange rates and everybody knows that in the short term currencies with higher interest rates tend to be stronger, but of course the dollar has plummeted recently following a series of short term interest rate increases by the Federal Reserve, and various tariffs and trade barriers affect rates, so I guess that’s not always right.
What we really ought to do is read the 78 pages of fine type in Financial Accounting Standards Board pronouncement 52 that deals with accounting for foreign exchange transactions. Then this wouldn’t be so confusing.
On the other hand, we could say screw it. Unless we’re buying or selling in a foreign currency or, as a retailer, have a lot of time, effort and money invested in establishing and promoting a brand you’d like to see survive and offer better prices. Or unless you’re making boards (or other products) in the U.S. and exchange rates affect how your competitors price their products. Or unless you’re exporting boards and getting paid in a currency besides dollars.
The hypothetical U.S. based company BFD Snowboards is buying boards from that European snowboard manufacturing behemoth EPS. BFD is only buying 5,000 boards and EPS’s capacity is sold out, so they can insist that BFD pay for the boards in their currency. Let’s let our imaginations run wild and assume it’s the German Mark.
In spring, BFD opens a letter of credit (LC) through their bank in favor of EPS. Let’s say all 5,000 boards are the same and each costs 200 Deutsche Marks (DM 200). This board is hot. All 5,000 are committed to dealers (must be a signature board). BFD’s letter of credit is for DM 1,000,000 (5,000 times 200).
That’s as complicated as we’ll let this example get. In practice, partial shipments up to the total of the LC may be permitted, EPS may be allowed be over or under the DM 1,000,000 by maybe 10%, and some of the boards shipped may be second quality boards that carry a lower price. In addition, assuming BFD is buying ex factory (that is, they are responsible for all the costs after the boards leave the factory door) they will spend six to seven percent of the purchase price in freight (more if it’s air freight) and customs duty to get the boards to the U.S.
What these variables mean is that the actual DM amount you have to pay may be higher or lower than 1,100,000 and there may be more than one payment date.
The LC is opened in April. An LC, for those of you who have had the good fortune not to have to deal with them, is a promise made by a bank to pay a certain amount of money upon receipt of specific documents indicating shipment of the correct merchandise the right way, by the time required. Note that the bank pays based on the documents. There’s no protection against fraud. If the boxes get to BFD and are full of P-tex scraps, the bank has no liability if the documents they paid against were as required.
In April, then, BFD has a potential liability for DM 1,000,000. It doesn’t become an actual liability until EPS ships the product. If the exchange rate at the shipment date is, say, 1.60 DM to the Dollar, BFD will have to come up with $625,000 (DM 1,000,000 divided by 1.60) to pay for the merchandise. That payment date depends on the terms of their agreement with EPS.
Assuming it costs them about DM 12 for freight and duty, BFD’s landed cost for each snowboard is DM 212, or $132.50 at the exchange rate in effect when the LC was opened. Now BFD wants to earn a little money itself to pay for lift tickets, so it marks the product up and sell it to retailers for $172.25, giving BFD a gross profit of $39.75, or 30 percent.
Ah, but we forgot about that moving exchange rate. BFD had to price their boards before the letter of credit was ever opened so retailers could show up at the shows and know what they were going to pay for it. If, at the time BFD set their prices, the exchange rate was 1.70 DM to the Dollar, BFD is bummed. As the Mark has strengthened from 1.70 to 1.60 (strengthened because you get fewer Marks for each Dollar) BFD’s dollar cost per board has risen from $124.71 (DM 212 divided by 1.70) to $132.50 (DM 212 divided by 1.60). If, on the other and, the Mark was at 1.50 when BFD set its prices, it is mighty happy, because its dollar price per board has declined from $141.33 (DM 212 divided by 1.50) to $132.50 (DM 212 divided by 1.60).
The difference between a cost of $141.33 and $132.50 is 6.25%. To put that in perspective, it’s enough to be the difference between a profit and a loss for the year. For BFD, it’s a swing in gross profit of $44,150 on the sale of the 5,000 boards.
Exchange rates move every day. A lot, a little, up, down; there’s no way to tell. If BFD just waits until they have to pay EPS marks, it will have to pay whatever number of dollars the market dictates at that moment. That’s one possible strategy. There a couple of others.
At any time you can buy the marks you need and put them in a bank account in Germany earning interest. The marks will be available to pay EPS as required, and you will know your exchange rate and, therefore, your cost.
Choice two is to buy a forward contract. A forward contract is an agreement entered into with a third party, usually using a financial institution as an intermediary, to buy or sell a given amount of foreign currency at an agreed upon exchange rate on a specified date. Forward markets for major currencies are broad and deep. You can generally buy or sell whatever amount you need for delivery at the date required. The forward rate (that is, the exchange rate at which you buy or sell a currency for future delivery) is determined by market expectations.
BFD is buying DM 1,000,000 of boards from EPS. Let’s say EPS ships the boards May 15. The documents from the shipment go to EPS’s bank and then to BFD’s bank to be “negotiated.” The letter of credit calls for terms of “sight 60.” That is, BFD’s bank, and therefore BFD is required to pay DM 1,000,000 60 days after documents receipt. If the documents are received May 23, payment date would be July 23rd.
BFD decides the dollar is as strong as it’s going to get before payment is due and that, in any event, it doesn’t like it’s profitability to depend on the whims of an unpredictable market. It instructs its bank to purchase forward DM 1,000,000 for delivery on July 23rd. The bank enters into the contract and BFD now knows exactly what those boards will cost it. It no longer cares how the Mark moves against the Dollar between now and July 23rd. It’s cost in dollars will be the same.
On July 23rd, BFD receives the marks, paying dollars for them at the contracted exchange rate, and orders its bank to transfer the marks to EPS’s bank account to satisfy its liability to EPS. Depending on how the dollar and mark have moved against each other in the period between the date the forward contract was purchased and the date it matured, BFD’s financial manager may feel like a hero or an idiot. But a major source of financial risk will have been removed.
The third option involves what’s called asset liability management. Let’s assume BFD doesn’t really know anything about the U.S. market, but has convinced some Japanese distributor that it is a cool brand and that Japan really needs another snowboard (obviously, this is a hypothetical situation.). The Japanese distributor agrees to buy 4,000 of the boards, to pay for them in German Marks at a price of DM 250 per board, and that payment is due July 23, the same date BFD must pay EPS.
Suddenly, BFD has a perfect balance sheet hedge. They have an asset of DM 1,000,000 they will receive from the Japanese distributor and a liability, due the same day, to EPS. They no longer care how the dollar moves against the mark because they will not have to convert one currency into the other.
If you’re exporting and getting paid in a foreign currency, the problem is the mirror image of paying for imports in foreign currency. Most companies I know of solve this problem by insisting on payment in dollars.
Now you know a little about how foreign exchange risk arises and how it can be managed. You may also have realized that even if you don’t deal in foreign currencies, your suppliers and/or competitors probably are. That affects the prices you pay and the profit you can make and is worth a few minutes of thought.