The recent credit crisis is just a reminder of the importance and benefits of having a sound strategy that you can use to navigate through turbulent times. Don’t hesitate to contact a qualified Certified Public Accountant for objective guidance in helping you make intelligent financial decisions for the future of your business.
In the meantime, below are some tips to help you assess your current financial condition and start rethinking your business plan to face the current economic challenges you may find yourself in right now.
1. Don’t panic. We’ve seen too many businesses make bad decisions because they’re reacting in a panic mode. Take a deep breath and assess the situation and analyze the facts. Start by reviewing your cash position and anticipated cash needs. Are they in line with your business’s short-term needs, goals and risk tolerance?
2. Go through and analyze your monthly income and expenses. Are you meeting your
budget projections? If you have noticed a drop in your revenues, try to determine how much of a drop in revenues your business can handle and for how long?
Determine your cash-flow needs for the next 3 to 4 months? What about the next 6 months?
Do you have sufficient cash reserves for the next 30 to 60 days?
3. Check with your lenders on the status of your credit lines. Ensure your in compliance with their
terms? Contact your banks and ask if they will renew their commitments at similar amounts, rates and terms?
4. Minimize the need for credit by reducing or eliminating any non-critical expenses.
5. Refocus on your balance sheet and how much credit you are extending to your customers.
6. If your credit lines are frozen or at their maximum limits, consider meeting with vendors and
working out a schedule of partial payments that would allow continued delivery of critical
materials and supplies.
7. Look into alternative types of financing. Some to be considered are loans on life insurance
policies, loans from key customers that rely on your business for their materials and supplies
or from labor unions, local development agencies or the U.S. Small Business Administration.
8. Keep an eye on your accounts receivable. Watch for new patterns of slow payments and
follow up immediately. Review your largest and riskiest accounts to determine whether credit
constraint or economic slowdown will affect their ability to pay you. Keep receivables aging
current at all times.
9. Manage accounts payable more closely. Forfeiting early pay discounts may be more
advantageous in preserving cash that may be needed for critical items. Keep payables aging
current at all times because that’s an important tool for managing cash.
10. Analyze your expenses and determine which ones can be controlled. Can you reduce
spending in any areas to put less of a burden on your cash-flow needs? As necessary,
communicate to staff/team members about the need to tighten spending. If you are a
manufacturer, review inventory management practices. Are there opportunities to reduce your
on-hand inventory? Service companies should make sure they’re capturing all their billable
hours and invoicing promptly. Have you billed all your contractual items? How about all your
pass-through expenses, such as billable third-party services and travel and living expenses?
11. Consider ways to pass your increased costs (i.e., fuel expense) on to your customers.
12. Check the safety of any cash deposits you have. On October 3, 2008 the FDIC deposit
insurance was temporarily raised from $100,000 to $250,000 per depositor through December
31, 2009. If you have more than $250,000 in any one bank, move the excess to another FDIC
insured bank. Consider investments such as CDARs (Certificates of Deposit Account
Registry) to spread the risk of short- to medium-term cash you may have invested in CDs.
13. Don’t engage in panic selling of your investments. Make sure your portfolio is diversified and
in accordance with your risk tolerance.
14. Come up with a plan NOW to respond to future declines in revenues, before they actually
occur. Re-think your business strategies and update projections. Review your
product/service lines to identify the most profitable items and determine how to leverage for
future growth in profits.
15. Contact your good customers. Even casual discussions can lead to new business
opportunities.
16. Review all your insurance coverage, particularly any from companies with weak balance
sheets. Be careful not to surrender a policy, as securing new coverage might require
underwriting that can affect your coverage.
17. Calm your employees’ fears about how this crisis will affect the company, their jobs and their
retirement or other benefit plans. Speculation and gossip are counterproductive, so it’s better
to address their concerns directly.
18. Finally, remain focused on your own advantages. Remember that:
• Your small business has greater flexibility and can more easily adjust to these economic changes than the larger companies within your industry.
• As a small business owner, you can use the recent crisis as an opportunity to buckle down, refocus, assess and make your company more financially sound, disciplined and less reliant on credit.
Although times are tough and things may seem impossible, remember that you are not alone and this is a situation that is manageable with the help of a trusted and experienced adviser.
If you would like to set up an appointment so that we can assist you in navigating through these tough economic times, please contact us. Alvarez Company PA CPA is a firm that has been helping small business owners just like you for the past 33 years, we understand how these challenging times effect your business and we can work with you and help you navigate through the challenges. Please contact us today and we can help you gauge your current situation in the wake of recent market events and create a sound business plan in response.
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