Surviving Tough Times

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Surviving Tough Times
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The Environment

• Credit is tight
• Stock market has collapsed
• Unemployment is rising
• Consumers are spending less
• A steady stream of bad news

In the best of times, 40,000 businesses fail
each year
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Impacts on Small Businesses

• Fewer customers with less dollars to spend
• Greater competition for their dollars
• Rising debt loans difficult to obtain
• Business becomes unpredictable

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Warning Signs

• Cant pay monthly bills
• No profit at month end
• No paycheck at month end
• Inventory accumulating
• Buying patterns changing

Danger
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What are the Options?

• Reduce costs and Increase Revenues

Revenues
Expenses
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First Steps

• Do worst case forecast for next 12 months Focus
  on the next three to six months
• List steps required to stay solvent
• List actions to address 5 largest expenses
• Be severe, its much easier to cut hard once than
  multiple times
• Do not assume that sales growth will save you. It
  never does
• Review your Business Plan
• Product mix, Location, Appearance, Pricing,
  Structure
• Identify why your customers like to do business
  with you and do more of that
• Identify key personnel and make sure they stay
  happy
• Get help from an objective 3rd party
• Accountant, Lenders, SCORE

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Dangers to Cash Flow

• Low inventory turnover
• Slow pay receivables
• High interest expense excessive debt
• Out of control expenses
• Too low selling price
• Missed discounts
• Shrinkage (inventory and cash)

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Stop the Bleeding

• Owners review all expenditures sign all checks
• Monitor all expenses closely
• Review cash flow for next 3-6 months
• Assign one employee to collect past due accounts
  consider factoring
• Secure extended payment terms from suppliers
  consider purchasing via company credit card
• Prune excess/obsolete inventory
• Secure line of credit for unforeseen expenses
• Reduce employees hours

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Increase Revenues

• Assess the marketplace for changes
• Apply extra effort to see if what worked before
  is likely to work again if not, adapt
• Revisit old sales leads
• Consider increasing your marketing budget and try
  new approaches
• Bundle products provide special sales offerings
  or more attractive pricing
• Expand product line or geographic reach buy out
  struggling competitors

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Downsize

• Downsize office Reduce all office expenditures
• Reduce wages
• Reduce employees
• Eliminate slow moving inventory
• Review advertising and reduce if possible
• Get help from objective 3rd party to determine if
  can survive the recession
• If you cannot maintain your debt levels, develop
  a restructuring plan

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Restructure Debt

• If you can afford to pay off past due debts over
  the next three months, you can handle the debt
• If you need six months to pay off these debts,
  you can probably negotiate with your creditors
• If you need one year to pay off debts, you need a
  restructuring plan
• If you need more than one year, seek professional
  help

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A Settlement Proposal Needs

• A hardship cover letter summarizes the problem
• A payment plan proposal offers alternative
  payment options
• A business history profile summarizes causes,
  extenuating circumstances and actions

Source Corporate Turnaround
(www.CompanyDebts.com)
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Be Strong

• Be mentally prepared to handle unexpected events
• Maintain good physical mental health
• Include the family
• Communicate, Communicate, Communicate
• People, including creditors, follow leaders not
  victims

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Summary

• Think strategically act tactically
• Focus on the next three to six months
• Reduce Costs AND increase marketing focus
• Aggressively attack expenses
• Focus on the five largest expense items
• Centralize control of expenditures
• Make time to increase marketing
• Get help See SCORE!

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Why Plan?

• The value lies in the process of researching and
  thinking about your business in a systematic way
• The act of planning helps you to think things
  through thoroughly and look at your ideas
  critically
• It takes time now, but avoids costly, perhaps
  disastrous, mistakes later

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What is a Business Plan?

• What do you want to do?
• Describe your product and/or services
• Describe your business and your niche
• When do you want to do it?
• How are you going to do it?
• Organization
• Facilities and capital items
• Start up costs and timing
• Funding (equity and debt)
• Marketing strategies
• Why do you think you will succeed?
• Mission and Objectives
• Competitive advantage
• Cash flow forecast
• Breakeven point and Risks

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Business Plan Outline

1. The Title Form
2. Table of Contents
3. Executive Summary (complete last)
4. Business Section
5. Marketing Section
6. Financial Section
7. Supporting Documents

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Marketing

• Small business success requires the ability to
  market products and services
• You cant be all things to all people
• Key to success
• Segment, Differentiate, Promote
• Market research reduces your risk

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Key Questions

• What useful thing will you do or sell?
• Product or service description
• Who will pay you for it?
• Target market
• Why will they pay you and not someone else?
• Competitor analysis
• Will you make enough to make it worthwhile?
• Forecasting sales volume margin CASH FLOW
  PROJECTION

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Define Your Competitive Advantage

• Cost
• Buying power
• Distribution
• Technology
• Quality/Performance
• Technology
• Features
• Guarantees

• Service
• Customer service
• Strong sales force
• Extra services
• Customization
• Convenience
• Location
• Broad line
• Product bundling
• Hours of service

Define this for your target market (or niche)
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Define Your Strategies

• Selling
• Location
• Pricing
• Purchasing
• Promotion

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Marketing StrategiesQuickest to slowest results

• Direct contact follow up (telephone, cold
  canvas)
• Word of mouth Referrals Testimonials
• Recruiting Cheerleaders
• Networking
• Public Speaking
• Writing-Public Relations
• Promotional events
• Building Alliances
• Advertising

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Low Cost Marketing Tools

• Easy to remember Company name/Tag line
• Business cards
• Website
• Brochures
• Flyers
• Thank you notes
• Signage
• Samples
• Guarantees
• Newsletters e-mail blasts

Communicate Educate Advertise Sell (e.g. ebay)
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Creating your Brand

• Whats in a name?
• Make sure you can legally have it register it
• Visualize it in a headline Your Name here
  Reports Rapid Growth
• Make sure your name tells what you do
• Make it easy to remember
• Do you want to be listed first in the yellow
  pages?
• Convert your differentiating points to customer
  benefits This can become a slogan
• Design your logo . This can becomes your
  identity
• Consistency is beauty
• Your Name, Logo and Slogan appear on everything!
• Your Benefits appear wherever practical

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Customer Buying Fears

• Can I get the product/service cheaper some where
  else? Moneys worth.
• The product wont do the job as promised
• What other people think
• Procrastination

Overcome them with proof, testimonials, and
guarantees. Answer in your presentation
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Close the Sale

• Buyer must understand your message
• Briefly summarize the benefits
• Quote your price and ask for the order
• Be clear and direct - then shut up
• When you get your order - LEAVE
• Sell honestly and with integrity

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Success Marketing

• You cant be all things to all people so Segment,
  Differentiate and Promote - Find a niche and
  become known for it
• Choose simple, effective strategies and do them
  over and over and over
• Rely on Persistence Effect, not on Wishes
• Market the RESULTS of your work, not the process
  you use
• Ask the people you already know for help

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Finding Money for Your Business During Tough
Times

• Personal Saving
• This is a primary source of funding for
  micro-businesses
• Friends and Family
• Banks
• Most common source of funding SBA guarantees
  available
• Alternative Lenders
• ACCION, HBDI, etc.
• Factoring, Vender Financing, Leasing
• Angel Investors, Venture Capital Group

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What Do Lenders Look For?

• You 5 Cs of credit
• Character.. determined by honesty, reliability,
  willingness to pay (Credit score)
• Collateralmeasured by financial resources, such
  as Income, home equity,
• business or household goods, automobiles,
  life insurance,
• savings accounts
• Capacity Ability to pay the debt judged by
  earning power and
• current financial commitments
• Conditions..Economic conditions of area and
  industry
• Capital....The amount you will invest
• Purpose of the loan
• Your Experience
• Your Business Plan

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Capacity Demonstrated with a cash flow forecast

• If start up or existing business - not able to
  prove cash flow then an alternate source of
  income is required.
• Financials are Required (Tax Returns, PLs,
  Balance Sheets, and Bank Statement)
• Debt-to-Income lt 50 (including new loan)
• 30-40 of your available revolving credit

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Cash Flow Forecast Begin with 4 Basic Budgets
Typical Budget Period 1st year Month 2nd year
Quarter 3rd year Annual

• Personal Budget
• Make sure minimal personal needs are met
• Start-up Budget (or expansion budget)
• Cash required to begin your business
• Sources of Funds equity debt
• Expense Budget (or increase in costs due to
  expansion)
• Forecast of all expenses Variable Fixed
• Sales Revenue / Gross Margin Budget
• Forecast of sales revenues and gross margin
• Comes from the marketing plan

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Break-Even Analysis
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Break-Even Analysis