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
- 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
- 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
- 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 www.score114.org 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