On its face, a chance for a $1 million-a-year manufacturer to boost sales by 15 percent in a single chunk might sound like a bonanza, but Bill Bajcz (pronounced “Badges”) knew it wouldn’t be as easy as simply saying yes.
His company, AMS Electronics Inc., with about 40 employees and all of its operations in Butler, is a contract manufacturer of components including circuit boards, cables and finished assemblies for the electronics industry, and supplies parts in quantities from a handful to the truckload. When one of AMS’ customers approached Bajcz to take over all of the production of components that AMS and two other suppliers had been handling, he welcomed the opportunity, but knew that he would have to make some adjustments in his cash flow to accommodate the influx of new business.
The customer, based in Pittsburgh, had become disillusioned with two other suppliers and came to Bajcz earlier this year with a proposal to divert that business to AMS. The deal would mean an additional $150,000 in sales for Bajcz’s 10-year-old company.
But Bajcz had little faith left that public entities that could help him take on this new business. He had had some fruitless experiences with the local community development corporation, including a loan application for an $8,000 soldering machine that was approved but never closed because, he was told, there was no money available at the time. When he wanted to expand his operations, the local CDC offered to build a new facility that would have cost $5.75 per square foot initially, but increase annually at a rate where his rent would double in 10 years.
So Bajcz decided to tap his banker, his vendors and his customers for the help he needed to take on the extra business.
Bajcz went to his vendors and asked them to extend their payment schedules from 45 days to 60 days. All have agreed to the terms, says the 61-year-old businessman.
Then Bajcz went to his customers and offered them a 1 percent discount if they agreed to pay within 15 days rather than 30 days, an offer that all have taken and has meant that cash flows back faster to AMS.
Robert Kollar, manager of accounting and auditing with Schneider Downs & Co., says offering discounts for early payment and securing an extended payment schedule from vendors can be good ways to improve cash flow, but to do so, solid, trusting relationships with vendors and customers are essential. Some vendors might interpret a request for additional time as a warning flag that you are in trouble, says Kollar. Asking customers to pay sooner could stir their suspicions as well.
Finally, Bajcz went to his bank, the local Mellon branch in Butler and asked his lending officer to increase his line of credit from $35,000 to $50,000. “He said, ‘Let’s see what Mellon Bank really thinks of AMS,'” says Bajcz, and the lending officer suggested Bajcz increase his request to $100,000. Mellon came back with an offer to extend the line to $75,000.
Bajcz says he’s had a good track record with his banker, a factor that allowed him to increase his line of credit. The line of credit he has had with Mellon has been used primarily to finance short-term cash needs, and funds drawn off the account have generally been paid back within a matter of weeks. His strong credit earned him an advocate at the local bank branch who went to bat for him when he needed more money.
Bajcz says he has also developed strong relationships with his vendors and his customers, which helped when he asked for new payment terms. A small manufacturer in Pittsburgh, for instance, asked for the smallest production run possible of a circuit board. Bajcz agreed to manufacture 10, ship five in the first batch and the rest in 120 days. “He called me a dinosaur,” says Bajcz.
Bajcz has had some good luck, too. He ended up getting the extra space he needed at a bargain rate. When the owner of the building that houses his current headquarters-a former Kroger supermarket-went belly-up in a bankruptcy, the buyer of the property offered to give him an additional 3,000 square feet in the structure, increasing his space by 50 percent, and reduced his rent by $400 a month.
Kollar suggests that businesses can consider other ways to improve their cash flow. A company that has been in business for several years and is hitting the $1 million mark might want to do a top-down review of expenses. Businesses can look at planned capital expenditures and decide whether or not they can be deferred; they can look at refinancing long-term debt if rates are favorable; and they can determine if they are being aggressive enough in their collections.
While these steps, as well as the ones Bajcz took to strengthen his cash flow, might appear elementary, small-business people don’t always think of them.
“Oftentimes, at a small-business level, those things are overlooked,” says Kollar.