Transcript Document

Surviving Tough Times
SCORE
Grand Strand Chapter
Silicon Valley Chapter
Philadelphia Chapter
Houston Chapter
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
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
Warning Signs
Danger
– Can’t pay monthly bills
– No profit at month end
– No paycheck at month end
– Inventory accumulating
– Buying patterns changing
What are the Options?
Reduce costs and Increase Revenues
Revenues
Expenses
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
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)
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
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
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
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
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)
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
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!
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
What is a Business Plan?
1.
What do you want to do?
–
–
2.
3.
When do you want to do it?
How are you going to do it?
–
–
–
–
–
4.
Describe your product and/or services
Describe your business and your niche
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
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
Marketing

Small business success requires the ability to
market products and services

You can’t be all things to all people

Key to success:
– Segment, Differentiate, Promote

Market research reduces your risk
Key Questions

What useful thing will you do or sell?
–

Who will pay you for it?
–

Target market
Why will they pay you and not someone else?
–

Product or service description
Competitor analysis
Will you make enough to make it worthwhile?
–
Forecasting sales volume & margin + CASH FLOW PROJECTION
Define Your Competitive
Advantage*
1.
Cost
3.
– Buying power
– Distribution
– Technology
2.
Quality/Performance
– Technology
– Features
– Guarantees
Service
–
–
–
–
4.
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)
Define Your Strategies

Selling

Location

Pricing

Purchasing

Promotion
Marketing Strategies
Quickest 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
Low Cost Marketing Tools










Easy to remember Company name/Tag line
Business cards
Communicate
Website
Educate
Advertise
Brochures
Sell (e.g. ebay)
Flyers
Thank you notes
Signage
Samples
Guarantees
Newsletters; e-mail blasts
Creating your Brand

What’s 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
Customer Buying Fears

Can I get the product/service cheaper some where
else? Money’s worth.

The product won’t do the job as promised

What other people think

Procrastination
Overcome them with proof,
testimonials, and guarantees.
Answer in your presentation
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
Success Marketing

You can’t 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
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
What Do Lenders Look For?

You … 5 C’s of credit:
– Character.….
determined by honesty, reliability, willingness to pay
(Credit score)
– Collateral……measured by financial resources, such as Income, home equity,
– Capacity……
business or household goods, automobiles, life insurance,
savings accounts
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
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, P&L’s,
Balance Sheets, and Bank Statement)

Debt-to-Income < 50% (including new loan)

30-40% of your available revolving credit
Cash Flow Forecast
Begin with 4 Basic Budgets
1.
Personal Budget
–
2.
Cash required to begin your business
Sources of Funds: equity + debt
Expense Budget (or increase in costs due to expansion)
–
4.
Make sure minimal personal needs are met
Start-up Budget (or expansion budget)
–
–
3.
Typical Budget Period
1st year:
Month
nd
2 year: Quarter
3rd year: Annual
Forecast of all expenses: Variable & Fixed
Sales Revenue / Gross Margin Budget
–
–
Forecast of sales revenues and gross margin
Comes from the marketing plan
CASH FLOW FORECAST
(,000$,s)
Start up
1 BEGINNING CASH
(Cash on hand - beginning of month)
Sources of Cash
2 Cash Input at Start up
Cash from You
25
Cash from Investors
25
Cash from financial lenders
100
Cash from Others (suppliers, etc.)
0
Start up Cash Input 150
3 Sales Revenue (disaggregate by department)
4 Cash Injection (Loan / Other)
Total Cash Available (1+2+3+4)
Uses of Cash
Start Up Costs
Capital & Real Estate (including improvements)
Pre - Opening expenses
Working Capital
5
Start up (ex. inventory)
150
Merchandise Purchases
Other variable expenses (5%)
Total Variable Expenses
6
Total Employee Expenses
Other expenses
Total Fixed Expenses
7
60
50
15
10
75
60
8 Loan repayment
9 Capital Purchases
10 OWNERS DRAW
Total Cash Paid Out
Net Cash Flow
ENDING CASH
(Cash on hand - end of month)
135
15
15
CASH FLOW FORECAST
(,000$,s)
Start up Month 1Month 2Month 3
1 BEGINNING CASH
15
7
2
(Cash on hand - beginning of month)
Sources of Cash
2 Cash Input at Start up
Cash from You
25
Cash from Investors
25
Cash from financial lenders
100
Cash from Others (suppliers, etc.)
0
Start up Cash Input 150
Sales
Revenue
(disaggregate
by department)
3
80
100
127
4 Cash Injection (Loan / Other)
Total Cash Available (1+2+3+4)
Uses of Cash
Start Up Costs
Capital & Real Estate (including improvements)
Pre - Opening expenses
Working Capital
5
Start up (ex. inventory)
150
Merchandise Purchases
Other variable expenses (5%)
Total Variable Expenses
6
Total Employee Expenses
Other expenses
Total Fixed Expenses
7
60
95
107
129
62
4
66
10
5
15
3
77
5
82
10
5
15
3
98
6
104
10
5
15
3
5
5
5
135
88
105
127
15
(8)
(5)
0
15
7
2
2
50
15
10
75
60
8 Loan repayment
9 Capital Purchases
10 OWNERS DRAW
Total Cash Paid Out
Net Cash Flow
ENDING CASH
(Cash on hand - end of month)
Break-Even Analysis
SALES & EXPENSE FORECAST
Jan Feb
Revenue
10
20
Expenses
(60) (60)
Cash flow
(50) (40)
Cash in
bank
150
100
60
Mar
30
(60)
(30)
Apr
40
(60)
(20)
May
50
(60)
(10)
Jun
60
(60)
0
Jul
70
(60)
10
Aug
80
(60)
20
30
10
0
0
10
30
ACTUAL SALES & EXPENSES: If sales
Revenue
5
10
15
Expenses
(60) (60) (60)
Cash flow
(55) (50) (45)
Cash in
bank
250
195 145 100
grow slower than expected…
20
30
40
50
60
(60) (60) (60) (60) (60)
(40) (30) (20) (10)
0
60
30
10
0
0
Break-Even Analysis
SALES & EXPENSE FORECAST
Jan Feb
Revenue
10
20
Expenses
(60) (60)
Cash Flow
(50) (40)
Cash in
bank
150
100
60
Mar
30
(60)
(30)
Apr
40
(60)
(20)
May
50
(60)
(10)
Jun
60
(60)
0
Jul
70
(60)
10
Aug
80
(60)
20
30
10
0
0
10
30
ACTUAL SALES & EXPENSE: If sales grow slower than expected…
Revenue
5
10
15
20
30
40
50
Expenses
(60) (60) (60) (60) (60) (60) (60)
Cash Flow
(55) (50) (45) (40) (30) (20) (10)
Cash in
bank
250
195 145 100
60
30
10
0
60
(60)
0
0