Financial Strategies for Businesses in Challenging Times

Business may slow down – what are my options

Signs of Trouble

1. Payment delay – you become your customers banker
   

2. A/P aging reports show increasing concentration of aged payables in excess of projected cash flow from on-going operations  - Practice pointer – ask yourself if, without the burden of old debt, could company still survive – how did debt bulge happen (customer did not pay, mispriced a job, slow down in business, etc. – is it an isolated event or one expected/likely to occur again –key question – is the industry declining or will it recover
   

3. Cash flow demands are outstripping ability of business to generate revenues – shortfall being funded by credit lines or, worse yet, contributions from principals and, if latter, from what – assets that are shielded from creditors vs. assets that are not.
   

4. Capital contributions of increasing amount and frequency – paying yourself by liquidating your own assets – using home equity line as borrowing line of credit
   

5. Tax liens and levies of bank accounts, public law suits by creditors and harassing phone calls, sheriffs seizures, bank account seizures (payroll vs. operating accounts)
   

6. Want to take action before all assets (personal and business) are used up so have a war chest available
   

How can I get my business healthy again –

1. What is it (all or part of business) and is it worth saving – can you isolate cause of problem and has it gone away or is it still there – throwing good money after bad is not a good idea.
   

2. Who am I dealing with – friendly or hostile – this will dictate the formality/path of the reorganization effort
   

3. Creditor Composition – Meet with creditors and work out a plan together without intervention of third parties – most informal and least expensive alternative
   

4. Creditor Trust – Appoint a third party to administer the creditor composition – trust issue
   

5. Reorganization/Chapter 11 – Court can assist in restructuring – obtain legal rights against creditors that are unwilling to negotiate
   

6. ABC – cease operations and turn over operations to a third party to sell assets and give money to creditors
   

Benefits and Burdens

1. Eliminate debt
   

2. Relationship building – damaged or salvaged
   

3. Expense and time to complete work out
   

4. Publicity
   

5. Preserve enterprise value – what you have built up
   

6. Work for someone else
   

How to find a lawyer and what to say

1. Referral from others in the industry/personal relationships
   

2. Due diligence on-line
   

3. Get your records in order – accounting help very important to show correct picture of what is happening
   

4. Experience with your industry and creditor negotiations/availability and responsiveness/nearby-easy to meet

My customer is very slow in payment – what can I do

1. Personal guaranty, third party payment
   

2. Collateral for debt – mortgage, title to vehicle, cash deposit, lien
   

3. Law suit – damage to relationship –how long and how costly
   

4. Customer files bankruptcy – can I still get paid – yes but there are rules to follow