Surviving Tough Times

SCOREGrand Strand ChapterSilicon Valley ChapterPhiladelphia Chapter

Houston Chapter

The EnvironmentThe Environment

Credit is tightCredit is tight Stock market has collapsedStock market has collapsed Unemployment is risingUnemployment is rising Consumers are spending lessConsumers are spending less A steady stream of bad news…A steady stream of bad news…

In the best of times, In the best of times, 40,000 businesses 40,000 businesses

fail each yearfail each year

Impacts on Small BusinessesImpacts on Small Businesses

Fewer customers with less dollars to spendFewer customers with less dollars to spend Greater competition for their dollarsGreater competition for their dollars Rising debt; loans difficult to obtainRising debt; loans difficult to obtain Business becomes unpredictableBusiness becomes unpredictable

Warning SignsWarning Signs

– Can’t pay monthly billsCan’t pay monthly bills

– No profit at month endNo profit at month end

– No paycheck at month endNo paycheck at month end

– Inventory accumulatingInventory accumulating

– Buying patterns changingBuying patterns changing

Danger

What are the Options?What are the Options?

Reduce costs and Increase RevenuesReduce costs and Increase Revenues

RevenuesExpenses

First StepsFirst Steps Do worst case forecast for next 12 months; Focus Do worst case forecast for next 12 months; Focus

on the next three to six monthson the next three to six months List steps required to stay solventList steps required to stay solvent List actions to address 5 largest expensesList actions to address 5 largest expenses

– Be severe, its much easier to cut hard once than multiple timesBe severe, its much easier to cut hard once than multiple times– Do not assume that sales growth will save you. It never doesDo not assume that sales growth will save you. It never does

Review your Business PlanReview your Business Plan– Product mix, Location, Appearance, Pricing, StructureProduct mix, Location, Appearance, Pricing, Structure– Identify why your customers like to do business with you and do more of Identify why your customers like to do business with you and do more of

thatthat– Identify key personnel and make sure they stay happyIdentify key personnel and make sure they stay happy

Get help from an objective 3rd partyGet help from an objective 3rd party– Accountant, Lenders, SCOREAccountant, Lenders, SCORE

Dangers to Cash FlowDangers to Cash Flow

Low inventory turnoverLow inventory turnover Slow pay receivablesSlow pay receivables High interest expense; excessive debtHigh interest expense; excessive debt Out of control expensesOut of control expenses Too low selling priceToo low selling price Missed discountsMissed discounts Shrinkage Shrinkage (inventory and cash)(inventory and cash)

Stop the BleedingStop the Bleeding Owners review all expenditures & sign all checksOwners review all expenditures & sign all checks Monitor all expenses closelyMonitor all expenses closely Review cash flow for next 3-6 monthsReview cash flow for next 3-6 months Assign one employee to collect past due accounts; Assign one employee to collect past due accounts;

consider factoringconsider factoring Secure extended payment terms from suppliers; Secure extended payment terms from suppliers;

consider purchasing via company credit cardconsider purchasing via company credit card Prune excess/obsolete inventoryPrune excess/obsolete inventory Secure line of credit for unforeseen expensesSecure line of credit for unforeseen expenses Reduce employees hoursReduce employees hours

Increase RevenuesIncrease Revenues

Assess the marketplace for changesAssess the marketplace for changes Apply extra effort to see if what worked before is Apply extra effort to see if what worked before is

likely to work again; if not, adapt likely to work again; if not, adapt Revisit old sales leads Revisit old sales leads Consider increasing your marketing budget and try Consider increasing your marketing budget and try

new approachesnew approaches Bundle products; provide special sales offerings or Bundle products; provide special sales offerings or

more attractive pricingmore attractive pricing Expand product line or geographic reach; buy out Expand product line or geographic reach; buy out

struggling competitorsstruggling competitors

DownsizeDownsize Downsize office; Reduce all office expendituresDownsize office; Reduce all office expenditures Reduce wagesReduce wages Reduce employeesReduce employees Eliminate slow moving inventoryEliminate slow moving inventory Review advertising and reduce if possibleReview advertising and reduce if possible Get help from objective 3Get help from objective 3rdrd party to determine if party to determine if

can survive the recessioncan survive the recession If you cannot maintain your debt levels, If you cannot maintain your debt levels,

develop a restructuring plandevelop a restructuring plan

Restructure DebtRestructure Debt

If you can afford to pay off past due debts over If you can afford to pay off past due debts over the next three months, you can handle the debtthe next three months, you can handle the debt

If you need six months to pay off these debts, If you need six months to pay off these debts, you can probably negotiate with your creditorsyou can probably negotiate with your creditors

If you need one year to pay off debts, you need If you need one year to pay off debts, you need a restructuring plana restructuring plan

If you need more than one year, seek If you need more than one year, seek professional helpprofessional help

A Settlement Proposal Needs:A Settlement Proposal Needs:

A hardship cover letter – summarizes the problemA hardship cover letter – summarizes the problem

A payment plan proposal – offers alternative payment optionsA payment plan proposal – offers alternative payment options

A business history profile – summarizes causes, extenuating A business history profile – summarizes causes, extenuating circumstances and actions circumstances and actions

Source: Corporate Turnaround (www.CompanyDebts.com)

Be StrongBe Strong Be mentally prepared to handle unexpected eventsBe mentally prepared to handle unexpected events Maintain good physical & mental healthMaintain good physical & mental health Include the familyInclude the family Communicate, Communicate, CommunicateCommunicate, Communicate, Communicate People, including creditors, follow leaders not People, including creditors, follow leaders not

victimsvictims

SummarySummary Think strategically; act tacticallyThink strategically; act tactically

– Focus on the next three to six monthsFocus on the next three to six months– Reduce Costs AND increase marketing focusReduce Costs AND increase marketing focus

Aggressively attack expensesAggressively attack expenses– Focus on the five largest expense itemsFocus on the five largest expense items

Centralize control of expendituresCentralize control of expenditures Make time to increase marketingMake time to increase marketing Get help – See SCORE!Get help – See SCORE!

Why Plan?Why Plan?

The value lies in the process of researching and The value lies in the process of researching and thinking about your business in a systematic waythinking about your business in a systematic way

The act of planning helps you to think things The act of planning helps you to think things through thoroughly and look at your ideas critically through thoroughly and look at your ideas critically

It takes time now, but avoids costly, perhaps It takes time now, but avoids costly, perhaps disastrous, mistakes laterdisastrous, mistakes later

What is a Business Plan?What is a Business Plan?

1.1. WhatWhat do you want to do? do you want to do?– Describe your Describe your productproduct and/or and/or services services – Describe your Describe your business and your nichebusiness and your niche

2.2. WhenWhen do you want to do it? do you want to do it?3.3. HowHow are you going to do it? are you going to do it?

– OrganizationOrganization– Facilities and capital itemsFacilities and capital items– Start up costs and timingStart up costs and timing– Funding (equity and debt)Funding (equity and debt)– Marketing strategiesMarketing strategies

4.4. WhyWhy do you think you will succeed? do you think you will succeed?– Mission and ObjectivesMission and Objectives– Competitive advantageCompetitive advantage– Cash flow forecastCash flow forecast– Breakeven point and RisksBreakeven point and Risks

1.1. The Title FormThe Title Form

2.2. Table of ContentsTable of Contents

3.3. Executive Summary Executive Summary (complete last)(complete last)

4.4. Business SectionBusiness Section

5.5. Marketing SectionMarketing Section

6.6. Financial SectionFinancial Section

7.7. Supporting DocumentsSupporting Documents

Business Plan OutlineBusiness Plan Outline

MarketingMarketing Small business success requires the ability to Small business success requires the ability to

market products and servicesmarket products and services You can’t be all things to all peopleYou can’t be all things to all people Key to success: Key to success:

– Segment, Differentiate, PromoteSegment, Differentiate, Promote

Market research reduces your riskMarket research reduces your risk

Key QuestionsKey Questions

What useful thing will you do or sell?What useful thing will you do or sell?– Product or service descriptionProduct or service description

Who will pay you for it?Who will pay you for it?– Target marketTarget market

Why will they pay you and not someone else?Why will they pay you and not someone else?– Competitor analysisCompetitor analysis

Will you make enough to make it worthwhile?Will you make enough to make it worthwhile?– Forecasting sales volume & margin + CASH FLOW PROJECTIONForecasting sales volume & margin + CASH FLOW PROJECTION

Define Your Competitive Define Your Competitive Advantage*Advantage*

1. Cost– Buying power– Distribution – Technology

2. Quality/Performance– Technology– Features– Guarantees

3. Service– Customer service– Strong sales force– Extra services– Customization

4. Convenience– Location– Broad line– Product bundling– Hours of service

* Define this for your target market (or niche)

Define Your StrategiesDefine Your Strategies

SellingSelling LocationLocation PricingPricing PurchasingPurchasing PromotionPromotion

Marketing StrategiesMarketing StrategiesQuickest to slowest resultsQuickest to slowest results

Direct contact & follow up Direct contact & follow up (telephone, cold canvas)(telephone, cold canvas)

Word of mouth; Referrals; TestimonialsWord of mouth; Referrals; Testimonials Recruiting CheerleadersRecruiting Cheerleaders NetworkingNetworking Public SpeakingPublic Speaking Writing-Public RelationsWriting-Public Relations Promotional eventsPromotional events Building AlliancesBuilding Alliances AdvertisingAdvertising

Low Cost Marketing ToolsLow Cost Marketing Tools Easy to remember Company name/Tag lineEasy to remember Company name/Tag line Business cardsBusiness cards WebsiteWebsite BrochuresBrochures FlyersFlyers Thank you notesThank you notes SignageSignage SamplesSamples GuaranteesGuarantees Newsletters; e-mail blastsNewsletters; e-mail blasts

CommunicateCommunicateEducateEducateAdvertiseAdvertise

Sell (e.g. ebay)Sell (e.g. ebay)

Creating your BrandCreating your Brand What’s in a name?What’s in a name?

– Make sure you can legally have it; register itMake sure you can legally have it; register it– Visualize it in a headline “Your Name here” Reports Rapid GrowthVisualize it in a headline “Your Name here” Reports Rapid Growth– Make sure your name tells what you doMake sure your name tells what you do– Make it easy to rememberMake it easy to remember– Do you want to be listed first in the yellow pages?Do you want to be listed first in the yellow pages?

Convert your differentiating points to customer Convert your differentiating points to customer benefits … benefits … This can become a sloganThis can become a slogan

Design your logo Design your logo …. This can becomes your identity…. This can becomes your identity

Consistency is beautyConsistency is beauty– Your Name, Logo and Slogan appear on everything!Your Name, Logo and Slogan appear on everything!– Your Benefits appear wherever practicalYour Benefits appear wherever practical

Customer Buying FearsCustomer Buying Fears

Can I get the product/service cheaper some where Can I get the product/service cheaper some where else? Money’s worth.else? Money’s worth.

The product won’t do the job as promisedThe product won’t do the job as promised What other people thinkWhat other people think ProcrastinationProcrastination

Overcome them with proof, Overcome them with proof, testimonials, and testimonials, and guarantees. Answer in your guarantees. Answer in your presentationpresentation

Close the SaleClose the Sale

Buyer must understand your messageBuyer must understand your message– Briefly summarize the benefitsBriefly summarize the benefits– Quote your price and ask for the orderQuote your price and ask for the order

Be clear and direct - then Be clear and direct - then shut upshut up When you get your order - When you get your order - LEAVELEAVE Sell honestly and with integritySell honestly and with integrity

Success MarketingSuccess Marketing

You can’t be all things to all people so You can’t be all things to all people so SSegment, egment, DDifferentiate and ifferentiate and PPromote - Find a niche and romote - Find a niche and become known for itbecome known for it

Choose simple, effective strategies and do them Choose simple, effective strategies and do them over and over and overover and over and over

Rely on Persistence Effect, not on WishesRely on Persistence Effect, not on Wishes Market the RESULTS of your work, not the Market the RESULTS of your work, not the

process you useprocess you use Ask the people you already know for helpAsk the people you already know for help

Finding Money for Your Business Finding Money for Your Business During Tough Times During Tough Times

Personal Saving Personal Saving – This is a primary source of funding for micro-businessesThis is a primary source of funding for micro-businesses

Friends and Family Friends and Family Banks Banks

– Most common source of funding; SBA guarantees availableMost common source of funding; SBA guarantees available

Alternative LendersAlternative Lenders– ACCION, HBDI, etc.ACCION, HBDI, etc.

Factoring, Vender Financing, LeasingFactoring, Vender Financing, Leasing Angel Investors, Venture Capital GroupAngel Investors, Venture Capital Group

You … 5 C’s of credit:You … 5 C’s of credit:– Character.….Character.….determined by honesty, reliability, willingness to pay determined by honesty, reliability, willingness to pay

(Credit score)(Credit score)– Collateral……Collateral……measured by financial resources, such as Income, home equity, measured by financial resources, such as Income, home equity,

business or household goods, automobiles, life business or household goods, automobiles, life insurance, insurance,

savings accountssavings accounts– Capacity……Capacity…… Ability to pay the debt judged by earning power and Ability to pay the debt judged by earning power and

current financial commitmentscurrent financial commitments– Conditions..Conditions..……Economic conditions of area and industryEconomic conditions of area and industry

– CapitalCapital…..…..…..…..The amount you will investThe amount you will invest

Purpose of the loanPurpose of the loan Your ExperienceYour Experience Your Business PlanYour Business Plan

What Do Lenders Look For?What Do Lenders Look For?

Capacity Capacity Demonstrated with a cash flow forecastDemonstrated with a cash flow forecast

If start up or existing business - not able to prove If start up or existing business - not able to prove cash flow then an cash flow then an alternate source of income is alternate source of income is requiredrequired..

Financials are Required (Tax Returns, P&L’s, Financials are Required (Tax Returns, P&L’s, Balance Sheets, and Bank Statement)Balance Sheets, and Bank Statement)

Debt-to-Income < 50% (including new loan)Debt-to-Income < 50% (including new loan) 30-40% of your available revolving credit 30-40% of your available revolving credit

Cash Flow ForecastCash Flow Forecast Begin with 4 Basic BudgetsBegin with 4 Basic Budgets

1.1. Personal BudgetPersonal Budget– Make sure minimal personal needs are metMake sure minimal personal needs are met

2.2. Start-up Budget Start-up Budget (or expansion budget)(or expansion budget) – Cash required to begin your businessCash required to begin your business– Sources of Funds: equity + debtSources of Funds: equity + debt

3.3. Expense Budget Expense Budget (or increase in costs due to expansion)(or increase in costs due to expansion) – Forecast of all expenses: Variable & FixedForecast of all expenses: Variable & Fixed

4.4. Sales Revenue / Gross Margin Budget Sales Revenue / Gross Margin Budget – Forecast of sales revenues and gross marginForecast of sales revenues and gross margin– Comes from the marketing planComes from the marketing plan

Typical Budget Period1st year: Month2nd year: Quarter3rd year: Annual

CASH FLOW FORECAST(,000$,s) Start up

1 BEGINNING CASH (Cash on hand - beginning of month)

Sources of Cash2 Cash Input at Start up

Cash from You 25Cash from Investors 25Cash from financial lenders 100Cash from Others (suppliers, etc.) 0

Start up Cash Input 1503 Sales Revenue (disaggregate by department)

4 Cash Injection (Loan / Other)Total Cash Available (1+2+3+4) 150

Uses of CashStart Up Costs

Capital & Real Estate (including improvements) 50Pre - Opening expenses 15Working Capital 10

5 Start up (ex. inventory) 75Merchandise Purchases 60Other variable expenses (5%)

6 Total Variable Expenses 60Total Employee ExpensesOther expenses

7 Total Fixed Expenses8 Loan repayment9 Capital Purchases

10 OWNERS DRAWTotal Cash Paid Out 135

Net Cash Flow 15ENDING CASH (Cash on hand - end of month) 15

CASH FLOW FORECAST(,000$,s) Start up Month 1Month 2Month 3

1 BEGINNING CASH (Cash on hand - beginning of month) 15 7 2

Sources of Cash2 Cash Input at Start up

Cash from You 25Cash from Investors 25Cash from financial lenders 100Cash from Others (suppliers, etc.) 0

Start up Cash Input 1503 Sales Revenue (disaggregate by department) 80 100 1274 Cash Injection (Loan / Other)

Total Cash Available (1+2+3+4) 150 95 107 129Uses of Cash

Start Up CostsCapital & Real Estate (including improvements) 50Pre - Opening expenses 15Working Capital 10

5 Start up (ex. inventory) 75Merchandise Purchases 60 62 77 98Other variable expenses (5%) 4 5 6

6 Total Variable Expenses 60 66 82 104Total Employee Expenses 10 10 10Other expenses 5 5 5

7 Total Fixed Expenses 15 15 158 Loan repayment 3 3 39 Capital Purchases

10 OWNERS DRAW 5 5 5Total Cash Paid Out 135 88 105 127

Net Cash Flow 15 (8) (5) 0ENDING CASH (Cash on hand - end of month) 15 7 2 2

SALES & EXPENSE FORECASTJan Feb Mar Apr May Jun Jul Aug

Revenue 10 20 30 40 50 60 70 80Expenses (60) (60) (60) (60) (60) (60) (60) (60)Cash flow (50) (40) (30) (20) (10) 0 10 20Cash in bank 150 100 60 30 10 0 0 10 30

ACTUAL SALES & EXPENSES: If sales grow slower than expected…Revenue 5 10 15 20 30 40 50 60Expenses (60) (60) (60) (60) (60) (60) (60) (60)Cash flow (55) (50) (45) (40) (30) (20) (10) 0Cash in bank 250 195 145 100 60 30 10 0 0

Break-Even AnalysisBreak-Even Analysis

SALES & EXPENSE FORECASTJan Feb Mar Apr May Jun Jul Aug

Revenue 10 20 30 40 50 60 70 80Expenses (60) (60) (60) (60) (60) (60) (60) (60)Cash Flow (50) (40) (30) (20) (10) 0 10 20Cash in bank 150 100 60 30 10 0 0 10 30

ACTUAL SALES & EXPENSE: If sales grow slower than expected…Revenue 5 10 15 20 30 40 50 60Expenses (60) (60) (60) (60) (60) (60) (60) (60)Cash Flow (55) (50) (45) (40) (30) (20) (10) 0Cash in bank 250 195 145 100 60 30 10 0 0

Break-Even AnalysisBreak-Even Analysis