Surviving Tough Times

1. Surviving Tough Times SCORE Grand Strand Chapter Silicon Valley Chapter Philadelphia Chapter Houston Chapter

2. 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

3. 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

4. Warning Signs Can’t pay monthly bills No profit at month end No paycheck at month end Inventory accumulating Buying patterns changing Danger

5. What are the Options? Reduce costs and Increase Revenues Revenues Expenses

6. 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

7. 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)

8. 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

9. 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

10. 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

11. 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

12. 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)

13. 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

14. 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!

15. 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

16. 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

17. Business Plan Outline • The Title Form • Table of Contents • Executive Summary (complete last) • Business Section • Marketing Section • Financial Section • Supporting Documents

18. 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

19. 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

20. 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 Your Competitive Advantage* * Define this for your target market (or niche)

21. Define Your Strategies • Selling • Location • Pricing • Purchasing • Promotion

22. 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

23. 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)

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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, 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

30. 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

31. Cash Flow ForecastBegin 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

34. Break-Even Analysis

35. Break-Even Analysis