Workouts, Turnarounds, Re-Organizations: Re-Invigorating Your Business In A Recovering Economy

1. Workouts, Turnarounds, Re-Organizations:Re-Invigorating Your Business In A Recovering Economy Presented by: Darlene K. Gregory, President

2. 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

3. What’s 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 company’s 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.

4. 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

5. 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 Comptroller’s Office.

6. 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 don’t “need” it? • How do I present my company in the very best light to a lender or investor?

7. 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.

8. 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.

9. 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. It’s 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. Beginning Steps To Recovery • Recognize your business didn’t get to this position overnight, and it will take time to fix. • Delegate, delegate, delegate all tasks that you don’t have to personally handle, which is 90% of the stuff you do every day that doesn’t 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.

15. 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.

16. 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

17. 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

18. Finding Funding- Why The Banks Only Lend to Companies Who Don’t “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

19. Other Sources of Cash • Getting cash for non-physical items you may own • Information/data mining • Franchising • Buy/Sell Agreements • Barter and Trade

20. 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 • Craig’s List • The trades • Giving Your Business A Voice