Operating capital is the lifeblood of any organization and one of the key factors that keep companies running in both smooth and challenging economic conditions. When a distributor has cash flow, it can make payroll, pay its suppliers, keep the lights on and even manage the unexpected costs of running a business. Without this financial cushion, companies quickly find themselves operating invoice to invoice, and pulling resources from one area to cover expenses in another.
With the national economic recovery in its 10th year, wholesale distributors may have forgotten what it takes to keep the lights on and the wheels running in a more challenging selling environment. Despite industry disruptors like Amazon Business, geopolitical issues such as trade wars, and a massive uptick in business-to-business e-commerce, wholesalers have been posting healthy year-over-year sales growth.
Distributors saw their top-line revenue numbers and profits grow in 2018, according to the National Association of Wholesaler-Distributors’ most recent State of the Industry report. Most segments of the industry experienced record-high levels of activity. In total, the industry reached a record-high $6.01 trillion in sales for 2018 (up 7.5% from 2017), and now comprises 29% of the U.S. gross domestic product. Based on various earnings reports and quarterly announcements, 2019 was a year of similar results.
But there’s a wind of change in the air. Unlike other post-recession years, 2020 brings some uncertainty with it. By the second half of 2019, for example, some economists and analysts were predicting a downturn within the next 12-24 months. NAW was also picking up on some “slowing growth” occurring in the industry. This braking was expected to last through 2019 and into early 2020. “The current 12-month growth rate (12/12 rate-of-change) is 7.5%,” NAW states, “but the quarterly growth rate is a smaller 4.7%, confirming that the industry is on the back side of the business cycle.”
This is one of several signs that distributors can use to prepare ahead. As part of that preparation, companies can carefully examine their cash flow positions and take the necessary steps to build and/or retain those reserves. In a new white paper launched by Modern Distribution Management (MDM), we explore the current business environment, show how it could evolve over the next year or two and provide actionable advice that all companies can use to preserve cash flow in any economic condition.
Click here to download “How You Can Preserve Cash Flow to Strengthen Business in a Slowing Economy” white paper.