Sunday, March 15, 2009

Crisis? What Crisis? 5 Steps to Help Your Business Survive

score_tjpg_bour This article was written by Norm Bour, SCORE Orange County Management Counselor

#1: Warning Signs: take a snapshot in time

  • Can’t pay monthly bills
  • No profit/ paycheck at month end
  • Inventory accumulating
  • Buying patterns are changing- more on that later

Think “big picture”: it’s nice to be optimistic, but…

  • Time to Deal with REALITY: need tactical survival strategies, crisis control
  • What made you successful initially? Is it still applicable?
  • Focus on the next three to six months. Can you make it?
  • Develop a comprehensive cash flow analysis

#2: Reduce overhead: Stop the Bleeding

A) Overhead

  • Review company expenses starting with the largest & work down
  • Downsize? : renegotiate the lease and other costs. Landlords are open to talk
  • Monitor all employee expenses, sign all checks personally
  • Ask employees for suggestions for improvement
  • Eliminate company cars or expense accounts where not required
  • Review advertising and reduce if possible-Consider return on investment

B) Personnel:

  • Consider temporary, flexible, reduced hours for employees, employee leasing, lay off when necessary. Keep your employees informed, eliminate those not performing (Be aware of the legal aspects of employment termination)
  • Consider using contract labor, i.e. 1099 vs. employee (careful here!)
  • Review all salaries, including owners, to see if they can be reduced
  • Reduce vacation time until things improve
  • Cross train your employees: create added value/ knowledge for them and you
  • If you do not have an Employee Handbook create one, let them know your position in all areas

C) Accounts payable

  • Stretch out payables, pay on time, but not early
  • Consider a twice monthly pay schedule
  • Negotiate everything- prices, terms, delivery schedules
  • Use your company credit card-may get 15-25 days extended terms: float
  • If you have the money negotiate early payment discounts
  • On the flip side, try to secure extended payment terms from suppliers
  • Eliminate obsolete inventory - even at a loss. Worthless inventory uses cash, monitor your turnover
  • Find vendors who can supply smaller quantities quickly
  • Keep inventories and assets (such as computers) secure. Have appropriate processes to avoid theft and fraud.

#3: Increase Sales/ income

A) Where’s the money?

  • Improve lead generation process to find new potential customers
  • Revisit old sales leads: easier to keep than to get, convert more potential customers into buyers
  • Find ways to get more repeat business from old customers
  • Target your high profit, lower volume clients
  • Encourage add-on products/ services or related items to increase income 
  • Have a talented, knowledgeable and motivated sales force
  • Consider increasing your marketing budget and try new approaches. There may be less competition out there than ever before
  • Create special promos—buy two get one free, premiums, etc.
  • Increase prices where possible.  Do this gradually, regularly and in small increments.
  • Watch successful competitors prices to stay on par

B) Accounting!

  • Have a solid collection strategy and follow it. Let the customer know you care about payment.
  • Monitor past due accounts: Get statement out quickly, delayed statements delays payment.
  • Minimize accounts receivables: get payment in advance or COD
  • Review credit policy, especially on larger customers.  Sales do not help if you don’t get paid.

#4: Reevaluate your business model

A) STOP! Analyze. Adjust.

  • Distinguish between Strategies vs. Tactics. Create a one year composite history, one year forecast by month, with as much detail as possible
  • Does what you do still WORK? Are others in your business in trouble, too?

B) Restructure Debt- Should you do it on your own?

  • 3 mo or less, you can handle the debt
  • 3-6 mo, you can probably negotiate with your creditors
  • 6-12 mo, you need a restructuring plan
  • 1 year+, seek professional help
  • if you need to terminate, seek legal guidance

Where to go

  • SCORE ORANGE COUNTY  714 550-7369
  • CPA, Lenders
  • Consumer Credit Counseling of OC

Keep your banker informed

  • Let them know you are aware and responsive to the problem
  • Get your accounting up to date and clean
  • Test your credit line- even if you don’t need it. See if your bank will still honor the amount/account
  • Keep an eye on the balance sheet; it shows the degree of relative risk to lenders

#5: Next steps: “The Old Rule book” vs. “The New Rule book”

  • The way it was:
    • easy credit
    • attainable mortgages
      stability of banks
    • faith (?) in Wall Street and Uncle Sam
  • Certain businesses are more prone to failure than others; over 60% of new businesses will not last beyond their fifth year.
  • Changing direction does not mean your direction was wrong