Workouts, Turnarounds, ReOrganizations: ReInvigorating Your Business In A Recovering Economy

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Workouts, Turnarounds, Re-OrganizationsRe-Invigo
rating Your Business In A Recovering Economy

• Presented by
• Darlene K. Gregory, President

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How Did My Business Get This Way?

• 1. Slowing Sales
• 2. Uncontrolled Growth
• 3. The Bad Economy
• 4. Lack of capital
• 5. Rising costs
• 6. Turnover in staff
• 7. Less favorable terms on credit
• 8. Higher interest rates on personal debt
• 9. No one to turn to for help
• 10. I thought I could handle it

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Whats A Workout? How Will It Help Me?

• Workout a proposed repayment plan to business
  creditors as an alternative to bankruptcy.
• Turnaround A detailed operating plan to identify
  to the challenges to address, create a recovery,
  and ensure future profitability.
• Re-Organization a general review of the
  companys shortcomings and successes, resulting
  in a written, concrete plan for future
  profitability, often accompanied by changes in
  organizational structure, staff, pricing,
  competitive position and standard operating
  procedure.

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The Workout Buying Time New Cash Flow From
Your Existing Customers

• Who owes my company a debt?
• How far overdue are these customers or notes,
  including employee debt?
• Should I settle for less than is owed?
• When do I turn these customers over to
  collection? Is it worth it?
• What does it cost me to carry them?
• What if I lose this customer?
• Pride, prejudice and profit

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The Workout Buying Time Cash Flow

• Negotiating the Workout with your vendors.
• Negotiating the Workout with your bank.
• Negotiating the Workout with your partners and/or
  investors.
• Finding new sources of investment or credit.
• The IRS and The State Comptrollers Office.

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Knowing The Real Challenges To Address

• Do you know how to evaluate your financial
  statements? What is a financial statement?
• Why is a Balance Sheet so important to running my
  business?
• Why do banks only lend money to folks who dont
  need it?
• How do I present my company in the very best
  light to a lender or investor?

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Who Wants To See The Balance Sheet?

• Many people and organizations are interested in
  the financial affairs of your company, whether
  you want them to be or not.
• You, of course, want to know about the progress
  of your business and what's happening to your
  livelihood.
• Your creditors want assurance that you will be
  able to pay them when they ask.
• Prospective investors are looking for a solid
  company to bet their money on, and they want
  financial information to help them make a sound
  decision.

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The Balance Sheet

• 1.What is a balance sheet? Why is it important?
• A balance sheet is a statement of a business or
  institution that lists the assets, debts, and
  owners' investment as of a specified date.

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Assets

• Current Assets
• Current assets include cash and other assets
  that in the normal course of events are converted
  into cash within the operating cycle. Almost all
  of the assets that are used to conduct your
  business, such as buildings, machinery, and
  equipment, can be converted into cash within the
  time required to complete an operating cycle.
  However, your current assets are only those that
  will be converted into cash within the normal
  course of your business. Current assets are
  usually listed in the order of their liquidity
  and frequently consist of cash, temporary
  investments, accounts receivable, inventories and
  prepaid expenses.
• Cash
• Cash is the money on hand and/or on deposit that
  is available for general business purposes. Its
  always listed first on a balance sheet.
• Marketable Securities
• These investments are temporary and are made
  from excess funds that you do not immediately
  need to conduct operations. Until you need these
  funds, they are invested to earn a return. You
  should make these investments in securities that
  can be converted into cash easily usually
  short-term government obligations.

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Assets

• Accounts Receivable
• Accounts receivables are the amounts owed to you
  billed to your customers and owed on the balance
  sheet's date.
• Inventories
• Inventories are goods that are available for
  sale, products that you have in a partial stage
  of completion, and materials you will use to
  create your products.
• Prepaid expenses
• Payments made for services that will be received
  in the near future. Often your insurance premiums
  or rentals are paid in advance.
• Investments
• Investments are cash funds or securities that
  you hold for a designated purpose for an
  indefinite period of time, including real estate
  or mortgages that you are holding for
  income-producing purposes or money that you may
  be holding for a pension fund.

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Assets

• Fixed Assets
• Fixed assets include land, buildings, machinery,
  and equipment that are to be used in business
  operations over a long period of time. It is not
  expected that you will sell these assets and
  convert them into cash. Fixed assets simply
  produce income indirectly through their use in
  operations.
• Intangible Assets
• Your other fixed assets that lack physical
  substance are referred to as intangible assets
  and consist of valuable rights, privileges or
  advantages. Although intangibles lack physical
  substance, they still hold value for your
  company. Sometimes the rights, privileges
  advantages of your business are worth more than
  all other assets combined. These valuable assets
  include items such as patents, franchises,
  organization expenses and goodwill expenses like
  brand recognition and market share.
• Other Assets
• When preparing your balance sheet you will
  notice other assets that cannot be classified as
  current assets, investments, fixed assets, or
  intangible assets. These assets are listed as
  other assets, usually consisting of advances
  made to company officers, the cash surrender
  value of life insurance on officers, the cost of
  buildings in the process of construction,
  miscellaneous funds held for special purposes.

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Liabilities

• Current Liabilities
• On the equity side of the balance sheet, make a
  distinction between current and long-term items.
  Current liabilities are obligations that you will
  discharge within the normal operating cycle of
  your business. In most circumstances, your
  current liabilities will be paid within the next
  year by using the assets you classified as
  current. The amount you owe under current
  liabilities is a result of acquiring current
  assets such as inventory or services that will be
  used in current operations. Show the amounts owed
  to creditors that arise from the purchase of
  materials or merchandise as accounts payable.
  Bank loans or other loans payable, are shown as
  notes payable. Other current liabilities may
  include the estimated amount payable for income
  taxes and the various amounts owed for payroll,
  utility bills, payroll taxes, local property
  taxes, etc.
• Long-Term Liabilities
• Debts not due until more than a year from the
  balance sheet date are classified as long-term
  liabilities. Notes mortgages are listed under
  this heading. If a portion of your long-term debt
  is due within the next year, remove it from the
  long-term debt classification and show it under
  current liabilities.
• Deferred Revenues
• Your customers may make advance payments for
  merchandise or services. The obligation to the
  customer will be settled by delivery of the
  products or services and not by cash payment.
  Advance collections received from customers are
  classified as deferred revenues, pending delivery
  of the products or services.

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Liabilities

• Owner's Equity
• Owner's equity must be subdivided on the balance
  sheet One portion represents the amount invested
  directly by you, plus any portion of retained
  earnings converted into paid-in capital. The
  other portion represents your net earnings that
  are retained. Ordinarily, owners, also known as
  stockholders, are not personally liable for the
  debts contracted by a company. A stockholder may
  lose his investment, but creditors usually cannot
  look to his personal assets for payment. Under
  normal circumstances, the stockholders may
  withdraw as cash dividends an amount measured by
  the corporate earnings. The distinction in this
  rule gives the creditors some assurance that a
  certain portion of the assets equivalent to the
  owner's investment cannot be arbitrarily
  withdrawn. Of course, this portion could be
  depleted from your balance sheet because of
  operating losses.
• The owner's equity in an unincorporated business
  is shown more simply. The interest of each owner
  is given in total, usually with no distinction
  being made between the portion invested and the
  accumulated net earnings. The creditors are not
  concerned about the amount invested. If
  necessary, creditors can attach the personal
  assets of the owners.

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Beginning Steps To Recovery

• Recognize your business didnt get to this
  position overnight, and it will take time to fix.
• Delegate, delegate, delegate all tasks that you
  dont have to personally handle, which is 90 of
  the stuff you do every day that doesnt make you
  money.
• Get up close and personal with reality. Analyze
  your balance sheet seek to improve it.
• Plan your work, work your plan.
• Write down the steps you have to take, why and
  how.
• Organize a team of advisors and key managers to
  help you with your workout. Yes, Virginia, there
  is a Santa Claus.

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Why Am I Over-Extended?

• Many businesses get in trouble because they are
  over-extended. They are offering more
  products/services than can be managed. In a
  well-run company, the revenues are matched to the
  expenses. This makes it easier to determine which
  products/services make money and which ones are
  killing the company. With the mess you now have,
  you likely can't tell which product is
  subsidizing a money loser and which ones can
  stand on their own.
• Have your employees keep a detailed time log for
  one week. While they are doing this, contact your
  largest customers and ask them which of your
  products and services they consider essential.
  When you compare the two lists, you may find the
  staff is spending 80 percent of its time on the
  least important projects, probably the ones that
  make the company the least amount of revenue.

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Steps to Recovery

• Cash Assets First
• Liquidity
• Equity
• Market Share
• Investors/Other Sources of Private Cash
• Bank Loans and Lenders
• Avoiding Bankruptcy at all costs

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Steps To Recovery

• Negotiating with the IRS or Comptroller
• Negotiating with your bank to reduce your debt
• Negotiating with your vendors to reduce your
  accounts payable
• Re-negotiating your lease
• Re-examining payroll and operating expense

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Finding Funding- Why The Banks Only Lend to
Companies Who Dont Need It

• Bank Financing Lines of Credit
• Factoring Your Receivables
• Refinancing Existing Debt
• Short Term Loans/Government Backed Loans
• Equity Investors
• Sale/Lease Back of Equipment
• Negotiating Favorable Credit Terms/Extensions on
  Current Terms

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Other Sources of Cash

• Getting cash for non-physical items you may own
• Information/data mining
• Franchising
• Buy/Sell Agreements
• Barter and Trade

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Creating More Traffic Sales

• Free or low cost methods to building cash
• Defining and capturing market share
• Best advertising buys in the Coastal Bend
• Buzz about your business, aka PR, to create sales
• Internet marketing/Blogging/Expert Advice
• You Tube
• Six Degrees of Separation/Social Networks
• Craigs List
• The trades
• Giving Your Business A Voice