in a large number of transactions
across a wide spectrum of industries
Special to The Miami Herald
Business leaders know the value of creating contingency and recovery plans in case of natural disasters, yet few plan an organized strategy for surviving (and thriving) in economic downturns.
A strategic plan can be categorized into two phases: (1) situation analysis and operational modifications, and (2) necessary steps to ensure survival.
Do it now: The likelihood of successfully meeting financial challenges diminishes the longer an issue goes unaddressed. Excuses such as high fuel prices and tight credit markets are not in your control and won't go away soon. Focus on the things you can control.
Identify the challenges: Examine current market dynamics, improvement opportunities and future threats to your business model. Companies with longevity stay ahead of the times.
Lucky 13: Stop the cash bleed and develop a 13-week cash flow forecast. Carefully analyze all cash expenditures and suspend unnecessary expenses such as first-class travel, entertainment, capital outlays and hiring. Prioritize vendors in relationship to their impact to ongoing business activities. Check cash balance daily and refine the forecast with actual performance data at weekly meetings.
Take stock of inventory: Is your inventory turning over at a regular pace and in line with industry averages? Find out and consider converting slow-moving inventory to cash even if you must sell at a discount. However, do not liquidate inventory for less than you can borrow on it.
Make more money: Compare your margins with your competitors and increase margins where you can. If resources permit, consider going after a new market segment.
Collect from customers: Invoice quickly and limit extended payment terms. Speed up collections by calling delinquent customers more frequently.
Wake up call: Liquidity issues may arise first in the context of a missing payment to a creditor or breaching a loan covenant. It is time to take immediate steps.
Impartial aid: Developing and implementing a comprehensive restructuring strategy can be time consuming and distracting. Consider hiring a professional who brings objectivity and experience to the task. Lenders and creditors usually support (and sometimes require) the involvement of an expert to serve as a buffer and restore trust.
Deal down debt: Nothing is gained by avoiding creditors or misleading them. Contact noncore vendors and negotiate discounts or better payment terms.
Reorganize around the core: Sell all unproductive assets and those that are not key to your core business. Also consider selling or closing under-performing divisions.
Making the cut: Sometimes it is necessary to cut staff to survive the day. Review employment agreements and other legal issues such as the WARN Act, then consider layoffs of under-performing employees, those at unprofitable divisions and excess middle management. Consider reducing top executive pay in exchange for equity and instituting company-wide salary reductions.
Get a better deal: With less liquidity in the market and tighter credit standards, companies no longer can expect to easily refinance senior debt. However, when possible, converting original debt and outstanding amounts into a new debt instrument can consolidate debt and often obtain better interest rates. Likewise, consider converting senior or subordinated debt into equity, this can quickly right-size your balance sheet.
Face factors: Although you pay up to five percent of each invoice as a fee, selling your receivables to a factor can help generate cash quickly.
Sell to survive: Many business owners are reluctant to find outside capital by selling equity to an investor. However, it is better to have a smaller percentage of a viable business than all of a failing one. Do not wait until a full liquidity crisis to raise capital; it will likely be too late.
Attorney Steven Zuckerman is the head of the special situations group for Fort Lauderdale investment banking firm Farlie Turner & Co. The division serves middle market companies experiencing financial difficulties.