S&G Navigating The Recession 061609

Navigating The
Recession

June 16, 2009
Presented By:

Sponsored By:

Navigating The Recession

I. Introduction
Shepherd & Goldstein ~ Curtis A. Feldman, CPA
TD Banknorth ~ Ed Nunes

Curtis A. Feldman, CPA 2
© Shepherd & Goldstein LLP and RANONE June, 2009


Shepherd & Goldstein’s service
focus is – Making a difference in
our client’s lives via our Advisory
and Business Development
Services.


Table of Contents
I. Introduction
II. Change is Necessary
III. Four Essential Ingredients in Recession Navigation
1. Stabilize the Business
2. Revise Your Value Proposition and Increase Sales
3. Modify/Change Operations
4. Cash is King
IV. Financial Management of the Business
V. In Conclusion
Handouts
Customer Centricity Checklist
Navigating Through The Economic Crisis Articles
Seminar evaluation



II. Change is necessary



“May you live in interesting times”
Ancient Chinese Curse


What Recession?

“Our Company has chosen to not
participate in the current recession”

Quote from an anonymous CEO


A Whole New World Of
Challenges
From:
• Real estate to stock investments, to
• Credit line decreases, to
• Credit unavailability, to
• Massive layoffs/termination, to
• Home foreclosures, to
• Bankruptcies and Business closings

Both consumers and businesses have been
hit and hit hard!

Challenges
Stuck in a ‘do nothing’ strategy?
• Frozen in inaction because of the
vastness of economic change?
• Riding it out and waiting for things
to return to where they were?
• Making small unconnected changes
here and there?
“Given the vastness of the economic change now under way, the
temptation for many planners will be to gaze mesmerized at the
unfolding crisis.” McKinsey Quarterly
April, 2009


Challenges
Who Moved My Cheese
When mice lose their food source, they go off to find
another. But when humans lose something, they’re
likely to stay put, hoping it will somehow appear.
We weren’t raised to adapt to change.
Spencer Johnson, Author
People Magazine
May 1, 2000
Moral ~
The wisest response is not to wait or whine,
but to suck it up and deal with it.

Immediate And Long-Term Trends


1st Lack Of Consumer Capacity

Three ways to sustain consumption
• Earn money
• Borrow
• Spend down savings


Retail Sales


Unemployment Claims

Source: © Shepherd & Risk Blog and RANONE
Calculated Goldstein LLP June, 2009

Mortgage Equity Withdrawals

Source: © Shepherd & Risk Blog and RANONE
Calculated Goldstein LLP June, 2009

Case-Shiller Real Estate Index,
Year/Year Change

Source: © Shepherd & Goldstein LLPOffice
Congressional Budget and RANONE June, 2009

Personal Saving Rate

Source: © Shepherd & Goldstein LLP and RANONE
Baseline June, 2009

2nd The Aging Of America


3rd The Need For Tax Increases

• Budget Deficit
• Boomer’s
o Social Security
o Healthcare


Accept And Maintain Control

• Employees are looking for your strong
leadership and inspirational voice.
• Acknowledge the extreme difficult
environment we’re in, but also accept it.
• After acceptance you can focus your
attention on a corrective plan.


Be Proactive

In The Seven Habits of Highly Effective Business,
Stephen Covey defines his habit number one, being
proactive, as following:

“It means more than merely taking initiative. It
means as human beings we are responsible for our
own lives. Our behavior is a function of our
decisions, not our conditions.”


Be Proactive

Conditions are unpleasant
• Lots of troubling things happening
• Don’t waste time worrying about them
• You can’t directly change them

Direct time to things you can control:
the choices on how you are going to
move forward


Challenges

“This is not a cycle, this a reset.”
Jeff Immelt
GE Chief Executive Officer

“If this is a reset, it’s time to reorganize…
structures for today’s realities, rather than
cling to the sensibilities of the 20th century.”
Tom Brokow
NY Times
April 20, 2009


Don't Sit Back And Become A
Victim Of The Times
Right now there are businesses and market
segments that are making record profits.

• Find new markets at higher prices
• Be open to consider all new
opportunities
• Be pro-active; Re-invent yourself!

It’s time to ACT!

Leading Change

To minimize a team’s resistance to change, you
must be seen to be actively involved in working
on a lot of little things – not all at once, but
systematically designing, implementing,
reviewing, redesigning, measuring, and most
importantly, not subsequently ignoring.


What’s The Current Global View?
• Finding opportunity in turmoil
o by entering new markets where
weakened competitors are;
o hiring talent that would
otherwise not be available;
o seeking M&A opportunities.
• Smaller & private companies
are in a better position to react
quickly McKinsey survey done in Nov.’08


Help is on the way
American Recovery and Reinvestment Act of 2009,
signed into law 2/17/09
– $288 Billion - tax relief (not much for small business
owners)
– $144 Billion - State & Fiscal relief
– $111 - Infrastructure & Science
– $81 Billion - Protecting the Vulnerable
– $59 Billion - Healthcare
– $53 Billion - Education & Training
– $43 Billion - Energy
– $8 Billion - Other

© Shepherd & Goldstein LLP and RANONE April, 2009

What steps, if any, has your company taken or does your company plan to
take in the rest of 2009 as a result of the global economic crisis?
0% 10% 20% 30% 40% 50% 60% 70% 80%
Opportunities
Reduce operating costs 75%

Increase productivity 44%

Reduce capital investments 37%

Introduce new products/services to gain market share
34%
from weakended competitors

Restructure 28%

Seek merger or acquisition opportunities 22%

Hire talent that would not have been available
16%
otherwise

Leave certain markets 11%
% of respondents, 1 n=1424
increase hedging 5%
*Respondents that answered “other”
or “do not know” are not shown. No steps 4%
1 The McKinsey survey was in the field from November 5, 2008, to November 10, 2008. It includes responses from 1,424 executives from all
regions, industries, and functional specialties. Forty-one percent represent public companies, and 48 percent represent private ones (the rest are
government-owned or not-for-profit). Fifty-one percent have annual revenues below $1 billion, and 43 percent have $1 billion or more.


Area’s Slated for Cutbacks in 2009

Hiring 75%

Capital Spending 64%

Layoffs 44%

38%
Salary & Benefits Freeze

Survey of over300 CFO’s, according to the First Quarter 2009
responses conducted by Financial Executive International and
Baruch College’s Zicklin School of Business.

CEOs see dire need for action to deal with recession
The global economic turmoil has made the mood at this
year's World Economic Forum in Davos, Switzerland,
markedly more subdued than in previous years. A
survey by PricewaterhouseCoopers of 1,100 CEOs,
presented at the forum, concludes that corporate leaders
think the need for action to cope with the economic
downturn is urgent. Only 21% of them were confident
about increasing revenue during the next 12 months, a
severe decline from the 50% a year ago. Reuters
(1/28/09)


When Do You Expect An
Economic Upturn To Begin?
By region % of respondents, 1 n=1424

Other
Asia- North developing
Total Pacific Europe America China India markets
By March 2009 3 2 3 1 3 8 6
Apr-June 2009 10 7 8 12 12 19 12
Jul-Sep 2009 17 10 14 20 19 16 16
Oct-Dec 2009 22 29 21 24 19 24 19

Total by the
end of 2009 51% 48% 45% 57% 53% 67% 52%

Total by
2010 or later 46% 51% 52% 40% 47% 29% 44%
*Respondents that answered “other” or “do not know” are not shown.
1 The survey was in the field from November 5, 2008, to November 10, 2008. It includes responses from 1,424 executives from all regions,
industries, and functional specialties. Forty-one percent represent public companies, and 48 percent represent private ones (the rest are government-
owned or not-for-profit). Fifty-one percent have annual revenues below $1 billion, and 43 percent have $1 billion or more.

The Recession? It’s Over, Says
Economist
Jobless claims have peaked, says a member of the
bureau charged with declaring when US recession
begin and end. And in every recession since 1974,
the peak in jobless claims has come within weeks of
the bottom.
According to Robert J. Gordon, one of seven
members of the elite Business Cycle Dating
Committee of the National Bureau of Economic
Analysis, who decide officially, for the record
books, when recessions begin and end – usually
many months after the fact when the decision is
rally obvious.
MSN Money
05/21/09

Americans Feel Better About
Economy
Stocks were soaring after the Conference Board’s report on
consumer confidence showed a reading of 54.9 in May, a
surge from the upwardly revised reading of 40.8 in April.
Economists had been looking for a reading of 43.

“Expectations are that business conditions, the labor market
and incomes will improve in the coming months,” said
Lynn Franco, director of the Conference Board’s Consumer
Research Center. “While confidence is still weak by
historical standards, as far as consumers are concerned, the
worst is now behind us.”
MSN Money
05/26/09

Economy
“Expectations about the job market ahead improved much
more, with 20% now indicating they expect there to be
more jobs in six months than now,” David Resler, the chief
economist at Nomura Securities, wrote in a note to clients
this morning. “The improvement in the confidence index
also appears to have put more people in the mood to spend
on cars and appliances but caution about the housing market
persists. Overall however, the improved mood of consumers
is encouraging.
MSN Money
05/26/09


Economy
The end of the recession is in sight
Do not lose your sense of urgency
Do not allow complacency to set in
Keep you and your team focused on the
challenges that still are ahead of us.


The 4 Essential Ingredients

1. Stabilize The Business
2. Review Your Value Proposition
and Increase Sales
3. Modify/Change Operations
4. Cash is King


Stabilize The Business
Slow down or stop leaks in your business
• Cut employee costs to match current and future
sales activity
• Review vendors costs by renegotiating prices or
changing vendors
• Eliminate unnecessary costs
• Identify all sources of cash
o Sell business assets not fully utilized
o Sell of slow moving inventory
o Secure external borrowing sources
o Tap personal assets


Identify Customers At Risk

• Meet with them
• Resolve issues/concerns
• Flatter them with attention
• Continually monitor
performance by asking for
feedback



Gross Margins
• Address major gross margin
problems chewing up cash
• Review and eliminate
product lines/services with
losses or low margins


Value Proposition And Sales
• How do you make money?
• Who are your customers?
• Why do they buy from you?
o Location?
o Price?
o Convenience?
o Value?
o Guarantee or warranty?
o Customer service an support?
o Quality?
o Something unique?


Revise Your Value Proposition

Changing Value Proposition To Meet New
Spending Attitudes
• Emphasize price
• Emphasize value
• Emphasize personal touch
• Shrink sizes as lower cost alternative
• Offer financing
Brain Storm!



Why do Customers stop doing
business with someone?


Chart of Why People Leave
More convenient to
purchase elsewhere 3%
Relationship
(family/friend) 9%

Miscellaneous 5%
Product/Price/ Time 15%
Curtis A. Feldman, CPA
32% 43


So why do customers search
around for a new provider?



68% of customers who leave for a
competitor do so because of

Perceived Indifference



This means virtually 7 out of 10 inquiries
lost, walk away because they feel the
business is indifferent to them.



It’s SIMPLE right?
So Why Doesn’t Everyone do it or over time Forget?



So What Can You Do About It?

Remember that it is much easier and less
expensive to keep an existing customer than
trying to get new ones!



Awesome Service

Manage your business through the eyes of
your customer. Remove obstacles and
hindrances in doing business with you.



Customer-Centricity Checklist
(delivering quality service)
(handout)



Customer Commitment

10 Point Checklist for New Ideas

Customers for Life: How to Turn That One
Time Buyer Into A Lifetime Customer
(Carl Sewell and Paul Brown)


10 Point Checklist for New Ideas –
Customers for Life: How to Turn That One Time
Buyer Into A Lifetime Customer

1. What’s the benefit to the customer?

2. Will the customer easily understand that fact?

3. What impact will this idea, program or system have
on our employees?

4. How will it effect our existing systems?


5. Is anybody else doing it successfully? What can we
learn from their experience?
6. What could go wrong?
7. Will it give us an advantage over our competitors?
8. How much will it cost?
9. Will it make money
10. When should we evaluate it?


Participant Exercise
• Use one of your own customer service
strategies or pick out a new one from the
customer centricity checklist.

• Apply 10 Point Checklist for New Ideas –
Customers for Life: How to Turn That One
Time Buyer Into A Lifetime Customer
to see if your strategy passes the test.



Increasing Sales Ideas

10 Common Strategies


10 Common Strategies For
Increasing Sales & Profitability
1. Implement systems that measure and
track the results of ALL of your
marketing, advertising and publicity
efforts.
2. Look for new ways to re-position
products or services you provide to
attract a new market segment.
3. Find new distribution channels for
your products through the Internet or
through others who are selling
complimentary products or services.
4. Create joint venture arrangements with
other complimentary, not competing
businesses.

5. Create a "Rewards Referral Program"
for your existing customers.
6. Know the numbers in your business.
Find out what products and services
make the most profits and which ones
make the least. Can you increase that
amount by 10% by adding or bundling
in extra value?
7. Position yourself as the
"Knowledgeable Expert" in your field
and write articles for newspapers or
trade journals and/or do radio.


8. Differentiate yourself from the
competition and give customers “reasons
why" they should do business with you
versus your competitors;
9. Improve your skills as a marketer.
Consider having a business and
marketing coach to assist you with new
ideas.
10. Build stronger relationships with your
customer base through frequent contact,
special offers, and newsletters. Survey
your existing customers to see what they
want and then sell it to them.

Increasing Sales Ideas
How To Increase The Average Sale?
Some strategies you can use to increase your average
transaction value:
• Cross Selling
• Upselling
• Bundling
• Merchandising
• Margins and Pricing
Develop a sales system that includes these strategies
to ensure consistency among team members

Increasing The Average Sale

Cross Selling
• Selling other items with an initial purchase
• Suggest items to complement the purchase
• Key questions can help identify opportunities
• Create ‘checklists’ of items to consistently
offer



Cross Selling
Example
• What else could we offer to accompany this
purchase?
• What else would add value and make the use of
this product or service better?
• What else, when coupled with this product or
service, would help customers get the most out
of it?

Up-Selling
• Encourage the customer to move from purchasing
a lower end item to a higher end one
• Offer products or services in 3 or more tiers:
o Best or ‘High End’
o Better or ‘Midrange’
o Good or ‘Basic’
• Statistics show that most customers will select the
second tier item when presented with these
options


Packaging
• Put complementary products or services
together into a single attractive package
o Products and products
o Services and services
o Products and services
• Creates a high perceived value
• Or…sell upgrades separate from original
purchase (movie ticket and popcorn)


“Fire your clients”
Categorize your clients
• By profitability
• By growth potential
• By size
• By payment history


Analyze Your Customer Mix

• Get rid of your “bad customers”
o High demands, a lot of complaints
o Low profit levels

• Use the extra time, energy and resources to
win the new good customers you want.


Modify/Change Operations

1. Inventory and Vendors
2. Marketing, Sales and Pricing
3. Systems and Processes
4. Team/Employees


Inventory
• Look at how you manage your inventory
o Have enough of the right products in stock but
o Don’t tie up valuable working capital by holding
excess inventory
Despite the improvement in gasoline prices, retailers still face many
challenges from over-extended, under-capitalized consumers," said
Stacy Janiak, vice chairman and U.S. Retail leader, Deloitte LLP.
"Consumers today want to see significant discounts before they are
willing to part ways with their wallets. Retailers should focus on their
inventory assortment, sourcing and pricing strategies, as well as supply
chain management opportunities, to drive value through the system
and to the end customer. Retailers without the right value proposition
will find an increasingly difficult operating environment."


Use your vendors to preserve your cash on
hand
• Extend payment terms
• Pricing concessions (everyone is asking it
seems)
• Risk of supply disruption (e.g. your major
supplier goes out of business)


Product pricing

Prices too high?
Lowering Prices Is Not Always The Answer.
• Are you being undercut on prices? Are similar but
cheaper items selling quicker? Are customers
complaining that you prices aren’t competitive?
• Often the first thought in a business is to reduce
prices to stimulate sales and it can work, but at
what cost?


Caution before reducing prices!
• If you are going to reduce your prices, first
reduce your production or purchasing costs.
If you don’t, you’re likely making your
problems worse.
• Before reducing prices, be sure you know the
reason why sales are slowing. It might not be
price.
• Look at alternatives to reducing prices.
Marketing, advertising and packaging can all
help increase sales

“The Office”
– Let’s see what Michael Scott’s Accountant says
about price discounting


Marketing and Sales
Price Cuts

• Have a firm grasp on your margins and how they
affect your bottom line.
• Avoid discounting and price wars. In the past,
only 15% shop on price alone but more often are
given the greatest attention. This percentage is
higher now.



Product/Service Offerings
• Know what effect it will have on your bottom
line and business strategy. A 10% cut for a
business with a 30% gross profit, requires 50%
more sales volume just to maintain your initial
profit.


Effects Of Price Discounting



Remember that business is PERSONAL…it is
about people.

Clients will value core services that meet basic
needs, but they will value more deeply because
you have satisfied a more personal and
emotional need:

the need to FEEL important.



The Importance Of IMPORTANCE

…much of life is too fast…as the world grows
bigger every day, our desire to FEEL important
grows into a NEED.

THE CLIENT WHO FEELS IMPORANT FEELS
LOYAL.


Rethinking Your Business Model
• Find out what your customers really value.
• Change your business model to match this new
reality.
e.g. mobile phones (old model, lock in
customers with long-term contracts); (new
model, buy cellular minutes as they are
needed over their handsets, via the internet,
through ATM’s or kiosks )


Customers Value

• Make things interesting, easy and comfortable
• Appreciate and reward loyal relationships
• Provide real value, not just cheaper products
• Go green; get inspired with innovative solutions
to health, wellness, sustainability and less
consumption



Marketing and Sales
• Marketing expenses are often the first cost to be
cut
o Carefully review before slashing
o Spend money to make money (still is true)
o Sales follow the marketing
o Don’t damage important customer
relationships



• Learn from past history
o McKinsey research of 1,000 companies during
the 2001/2002 recession indicated Companies
that increased spending on sales, marketing and
innovation emerged in the top 25% after the
recession ended.
o They traded short-term profits for long-term
gains.


Marketing and Sales ideas
• Consider some less expensive marketing ideas
o Reduce size of ads to run more often without
increasing total cost
o Introduce a referral program
o Email and online marketing channels
o Postcards vs. letters
o Personal phone calls to let customers know of
special offerings


Call customers who have left you

• Call and apologize
• Ask why they left you (grass may not be greener)
• Listen and repeat back what you heard
• Ask for another chance-welcome them back
• Offer a new/creative ways to service them
o Creative financing
o Pricing options


Systems and Processes
Underlying support structure of your business that
keeps all parts of your business running smoothly
• Remove unneeded layers
• Remove roadblocks
• Consider centralization of different back-end
functions
• Use proven internet based systems and
processes to eliminate internal development
and associated costs

Underlying support structure of your business that
keeps all parts of your business running smoothly
• Meet with your team:
o to brainstorm how you can bring greater
value to your customers
o to see how you can streamline your
businesses internal processes by
updating or changing systems




• Don’t scrimp on keeping your equipment,
computer systems and programs up to date


Fraud Alert For Small Businesses

(WSJ 2/19/09)

Fraud Alert For Small Businesses
(one more thing to worry about)
• Employee fraud rises in a recession
• You may be vulnerable due to lax internal control
procedures
• Be aware of common signs:
o Change in lifestyle (living beyond their means)
o Controller/bookkeepers who “guard” access to
the books.
o Do not take vacations

What should you do to help prevent fraud?
• Have bank statement mailed to your house
• Review every cancelled check, signature and endorsement
on the back of the check and check payee
• Look for unusual transfers
• Make daily deposits
• Do not allow financial employees to sign checks
• review payroll reports yourself
• review business credit card statements for legitimate
charges
• Approve all bad debt write offs
• Safeguard your valuable assets (cash, inventory,
equipment, etc)


If you suspect something is wrong
• Keep quiet
• Hire an expert (S&G, lawyer) to help you
investigate it
• Contact police
o Most employees are ashamed of what they’ve done
and will agree to make a deal to avoid going to jail


Team/Employees
Your business cannot operate with out good people
• Remind your self why you hired them in the
first place. What has changed?
• Communicate regularly with your team to
avoid them jumping ship
• They need to concentrate on your customer
and your critical success factors for your
new strategic plans, not worried about their
jobs.

Team/Employees
But…People can often be your best asset!
• Ensure that your best employees
understand how their work contributes
to your success
• Discuss career advancement
possibilities. Recessions can bring lots
of change; roles may shift, and new
career opportunities may open up.
• Owners don’t realize that everybody internally is
watching their every move. People are looking at
you to provide leadership and instill confidence.

Team/Employees
5 ways to keep employee morale HIGH
1. Spell it out for your employees
2. Ask your employees to be part of the
solutions
3. Show them lots of empathy; face-to-
face and with compassion.
4. Encourage employees to stay positive;
discuss the employee’s options for the future
and explain how you can help.
5. Create a culture that allows them to
innovate and feel empowered; give them
job value beyond a paycheck

Team/Employees
Strategies to reduce labor costs
• Most obvious . . .layoffs
• Salary freezes
• Restructure compensation to offer performance
bonuses or commissions
• Reduce hours/job sharing
• Time off without pay (i.e. Ford and Chrysler closed
their plants for an extended period often around the 2008
holidays)
• Hire interns (affordable source of energetic, smart labor)
• Outsourcing

Massachusetts Workshare
Program
Program run by the MA Dept of Unemployment
Assistance (formerly the DET) which offers:
• Way to partially layoff employees during a slowdown
• Allows a business to reduce staff ours as much as 60%
• Pay team based on hours actually worked but also
receive pro-rated unemployment checks (usually about
½ of what their wags for the same amount of time
would have been)
• Employees Do NOT have to file a client or report to an
unemployment office to show they been looking for
work
• Unemployment checks delivered to your business and
distribute with regular payroll

Outsourcing, Outsourcing, Outsourcing
• Consider recruiting motivating & retaining the “best in
class” human capital through outsourcing.
• Be very strategic about adding staff.
Outsourcing offers many benefits:
o Shorter time frame to implementation.
o More cost-effective implementation.
o Access to existing tools & solutions
that have proven track records
o Access to a more diverse base of skill sets & core
competencies.
o Reduction of investment in infrastructure expenditures.
Through outsourcing, your business can gain ground
on your competition who are “down-sizing”.

Team/Employees - Pay Cuts
Strapped U.S. Companies, while continuing to slash their
work forces, are deploying a once-rare tool to trim labor
costs. . . pay cuts.
According to a recent Watson Wyatt Survey:
• 5% of 117 companies surveyed said they reduced
salaries to cope with the recession
• Another 6% plan to do reduced salaries this year
• 7% of 805 small businesses surveyed said they have
recently reduced salaries
The last time the U.S. had widespread wage cuts was during
The Great Depression.

Team/Employees - Who is cutting pay?
• Advanced Micro Devises announced a temporary cut in pay
between 5% - 20%
• Caterpillar is cutting executive pay by 50% and many
salaried employees by up to 15%
• Hutchinson Technologies cut employee salaries by 5% for
remaining employees
• Trucking firm, YRC Worldwide, negotiated a 10% pay cut
with union drivers as well as non union employees
• Kulike & Soffa Industries instituted a 10% wage cut for
salaried employees and 15%-20% cuts for executive salaries.
The list goes on . . .

Team/Employees - Pay Cuts

The realty of this is most employees are not in a position to
argue:
• Fewer people are quitting their jobs (1.4% quit rate
November 2008 vs. 1.8% a year earlier)
• Companies are less worried about replacing their best
workers because the labor supply is simply much higher
• Prices are falling for U.S. Consumers (CPI up only 0.1%
in 2008 vs. 4% in 2007)
• Many employees would prefer pay cuts over a
deeper round of layoffs


Cash Is King
REVENUE IS VANITY; PROFIT IS
SANITY; CASH IS KING

Now more than ever, cash is king!

• Monitor your cash position and
requirements on a regular basis
• Create cash
• Preserve and maximize your cash


Cash Is King

Know Where Your Cash Is
• Install and use a cash flow monitoring
system that tells you where your cash is,
what you owe the banks and vendors,
what is owed to you.
• Cash flow forecasts should be updated
weekly and your bank should be alerted
to potential problems well ahead of time
– they never liked surprises, now they
like them even less.


Cash Is King
The absolute priority is now cash over profits until
things settle down and turn around
Get paid for your products or services:
• Review and tighten up credit policies (not everyone gets
credit)
• Require larger up front payments
• C.O.D.
• Use “friendly” phone calls to encourage timely
payment
• Stop work on slow payers (don’t get further behind)
• Invoice accurately and timely
• Collect payments personally from local customers
• Charge interest on past due receivables

Cash Is King

Other Ways to Create Cash
• Consider drawing down unused lines
of credit – banks may withdraw it if
unused
• Inventory that doesn’t turn should be
converted into cash – even at a loss.
• Identify redundant assets and sell
them.
• Markets may not be great for asset sales, but the name of
the game today is CASH
• Reduce 2009 tax estimates based on 2009 expected
earnings

Cash Is King

Most small business owners do not know what they
are spending on.
• Implement spending policies and controls (authority
levels, who can order)
• Review operating costs (i.e. power, telephone, travel,
health care, etc.)
• Review other discretionary spending (“perks”)
• Spread out annual costs on a monthly basis (e.g.
insurance premiums or maintenance contracts)
• Change spending culture – you lead by example


Cash Is King
Finance assets in stead of paying cash
• Bank financing (not as easy)
• Leasing
• SBA enhanced financing available
• WASHINGTON, March 10 /PRNewswire-USNewswire/ -- United States Senate
Committee on Small Business and Entrepreneurship Chair Mary Landrieu, D-La.,
today praised the Senate for passing an Omnibus Appropriations Act that includes
$546,626,000 for the Small Business Administration (SBA), providing a boost to
the nation's 27 million small businesses. This is a $63 million increase from what
President Bush originally requested and a $47 million increase from what was
appropriated last year when disaster loan funding is excluded.
• "Small businesses are our nation's number one job creators. With unemployment
the highest it's been in a quarter century and 80 percent of jobs cut in the last four
months being from small businesses, entrepreneurs are turning to the government
for help," Sen. Landrieu said. "The Omnibus Appropriations Act will help create
and save jobs by investing in small businesses and funding the programs they
need to survive." 104

Cash Is King
Help For Small Businesses
WASHINGTON (Reuters) – will announce steps on Monday
(March 16, 2009) to make it easier for to borrow money, using
$730 million in stimulus funds to cut lending fees, boost loan
guarantees and expand other programs, officials said.
• Obama and will announce a plan to increase federal guarantees
under the SBA's most widely used loan program, an official said.
• The current maximum guarantees are 85 percent of loans under
$150,000 and up to 75 percent of larger loans. The guarantee will be
raised to 90 percent with the aim of reducing risk and encouraging
banks to make loans, the official said.
• The administration also plans eliminate a number of borrower and
lender fees on loans originated through its main loan program and a
program to encourage long-term borrowing for major fixed assets
like land and buildings.

New SBA program
SBA's America's Recovery Capital (ARC)
Loan Program can provide up to $35,000 in
short-term relief for viable small businesses
facing immediate financial hardship to help
ride out the current uncertain economic times
and return to profitability.


When All Else Fails-Insolvency
• Close your doors without court assistance
• Chapter 11
o Shields you from your creditors and discharges
overwhelming debts
o Retain control and hope to emerge to continue
o Very expensive ($15,000-$25,000 legal fees)
• Chapter 7
o Court trustee formally liquidates the business
o Out of your hands


Navigating the Recession
Business Financing
Presented by Ed Nunes, Business Banker

108

Evaluating lending requests

The 5 C’s of Credit

Capacity: Is the borrower capable of paying the new
loan and current obligations?

Collateral: What will be pledged to secure financing?

Character: Measures the integrity of the borrower and
past credit repayment history

Conditions: Assesses the borrower’s industry and overall
economic conditions

Capital: Measures the relationship between debt and
equity in the business.

109

Business Scenarios Seeking Financing

Existing Business: In business for 2 or more years with
same ownership, Income verifiable with Federal Tax returns
or Reviewed Financials.

Nominal Start-up: Purchase of existing business operating
at least 3 to 5 years and purchaser has 5 years of
professional and management experience.

True start-up: No clients, business in a new market, new
marketing and business plan.

110

Considerations for an existing business 2+
years of operations

Historical and financial strengths of the business

Value of existing business assets

Management and professional experience

20% or > ownership interest would require
personal guarantee

111

Considerations for purchasing an
existing business (Nominal Start-up)

Prior financial performance

Collateral review; intangible (client base) vs. tangible
assets (physical fixed assets)

Sources of secondary income

Management and professional experience of purchaser

112

Considerations of a true start-up
(no existing patients)

Business plan with 24 months of projections with assumptions

The plan should be reviewed by a technical service provider such
as Small Business Development Center or CPA

Sources and uses of funds analysis

Equity injection typically required (20%)
• Note - 100% financing is usually not an option for
conventional financing. Some specialized lending programs
will offer 100% financing.

Collateral

Secondary sources of income

Personal FICO score

113

Financing Options

Owner Private Financing

Traditional bank programs
SBA Guarantee

Specialty Lender

Vendor Financing

Equipment Leasing

114

Loan Products

Term Loans

Lines of Credit

Business Home Equity
Lines of Credit (SBHELOC)

Commercial Real Estate
Mortgages (CREMs)

115

Term Loans

PURPOSE:
Purchase non-real estate
fixed assets for either an
existing business or a new
business.

FEATURES:
Defined end-date on loan
Fixed monthly payment:
Payments based on principal
and interest installments.
Loan term should not
exceed the “useful life” of
asset

116

Lines of Credit

Short term working capital

PRODUCT:
Line of Credit

PURPOSE:
Rectify timing issues: (funding payables while
waiting for receivables)
Purchases of inventory

117

Lines of Credit

Short term working capital

REQUIREMENTS:
Usually paid down to zero annually
Renewable

BENEFITS:
Flexible repayment schedule: interest-only options
with flexible principal pay down
Repayment coincides with peak in cash flow

118

Business Home Equity

Line of Credit

Similar in nature to the Short Term Working Capital with
the exception of collateral – being a primary residence.

119

Commercial Mortgages (CREM)

PURPOSE:
To finance purchases or refinance commercial
buildings or mixed use properties.

FEATURES:
Repayment terms include principal and interest
Loan is secured by a mortgage on the real estate
Rates are generally Fixed for 5 years, with the
payment amortized over 20 years to keep the
payments low

120

Credit Guarantees and Enhancement

S B A Enhancements – MOST FEES WAIVED (2009)

Purpose: Used to reduce the risk of the loan and provides a
reassurance to the lender by offering a guarantee

Express Guarantee – 50%
Patriot Express – 90% NEW
Import Express – 90% NEW
Community Express – 90% NEW
7(a) – 90% NEW

TD #1 7(a) SBA Lender in MA 2008

121


504 Program
Borrower puts down 10%, Bank finances
50% and SBA 40%

122


ARC Stabilization Loan Program

New loan program for SBA
Applicants can start applying for the loan program
6/15/09
Loans will be made by participating commercial
lenders

123


ARC Stabilization Loan Program – General Info

ARC loans can be made for up to $35,000
These loans can be used to pay up to six months
worth of business debt
Business debts include mortgages, non SBA
loans, lines of credit and credit cards.
These loans are interest free, no fees & have a
100% guaranty

124


ARC Stabilization Loan Program Eligibility

Designed for Viable Small Businesses – Start ups
are not eligible
The business must be in operation for at least the
previous two years
No debt can be more than 60 days past due
Must have been profitable one of the past three
years.

125


ARC Application Requirements

Must have financial statements for previous three
years
Must have projections that show profitability for
two years after disbursement of loan proceeds
Must show that your business is suffering an
immediate financial hardship

126


ARC – STAY TUNED

More ARC loan information released June 8, 2009
For the most up to date information, visit
http://www.sba.gov/recovery/arcloanprogram/inde
x.html
You can get more information at www.sba.gov

127

Questions

Ed Nunes
Business Banker, AVP
TD Bank, NA
74 Concord Street
Framingham MA 01702
B (508) 424-7128
F (508) 620-3729
Edward.Nunes@TDBanknorth.com

128

What About A “Do Nothing”
Strategy?
• If you’re cash rich, (and do nothing),
you could be drained gradually and be
bypassed by your competitors
• If you’re cash poor, (and do nothing),
you will eventually be forced to close
down
• A downturn can actually be good for a
well-managed company.
• A way for management to take
advantage of this market opportunity
is through taking the appropriate time
NOW for strategic planning

5 Things TO DO During A
Recession
1. Do Something!
2. Be sure to do Enough
3. Encourage Referrals from
other clients
4. Create a "WOW" Experience
5. Take Massive Action Now
When you're a small business owner, there's no
"Golden Parachutes", no Stock Options to cash in,
and there are definitely no Government Bailouts
coming your way.
Success or failure of your business
is on your shoulders!

How S&G Can Help


Build Strategic Contingency
Planning Into Your Culture
• What if your risk profile shifts
dramatically?
• What if demand suddenly falls off?
• What if global events disrupt your
supply chain?
• What if prices drop precipitously?
• What if this global recession lasts
for more than a year?
Scenario planning is a critical step toward a
comprehensive contingency strategy; now is a
good time as any to reconsider its use for today
and tomorrow. 132

Strengthen The Bonds Of Loyalty
• Pay special attention to your
employees. Your efforts to support them
will reap huge benefits for the company
in the future —friends in a trying time
often become friends for life.
• Be a good vendor. Get close to your
customers; unless you’re looking to exit
a particular area of the business, now is
not the time for trying short-term profit
improvement strategies.
The lesson: loyalty is not just the way out
of a recession; it’s the way back
to better-than-normal prosperity.

Watch Out & Act Quickly
Immediate Action Required if you begin to
experience any of these symptoms
• Sales are slowing, and your
profitability is declining.
• Stock levels are increasing.
• Pricing is too high for many
of your customers.
• You know that you have too
many people for the work
needed

Don’t Stop Growing

• Get very aggressive while your competition
pulls back, slashes it’s costs or is asleep at
the switch.
• Reduce extraneous expenses, but resist the
temptation to slash your costs across the
board,
• Resist the urge to cut budgets in the areas of
sales, marketing and business development.
• Sound financial governance and
implementing cost-containment measures is
fine. BUT remember that cost cutting is not
a business strategy.

Improve Communications
• The frequency and the quality of both your internal
and external communications needs to be at an all-
time high. Err on the side of over communication.
• The genesis of most business mistakes can be
traced to poor communication, or worse yet, no
communication at all.
• While strong markets and bullish
economies are forgiving of management
errors, down economies are not. Make
sure that all employees have a clear
understanding of the mission and vision,
and that all stakeholders are inside the
communication loop.

In Conclusion
• Change is necessary
• Stabilize the Business
• Value proposition and sales
• Modify/Change operation
o Inventory and vendors
o Marketing and sales
o Systems and processes
o Team/employees
• Cash is king or managing for cash
• Communicate with your Banker

Conclusion And Closing
Thoughts
• The lack of astute, decisive, and proactive thinking
and strategy can make it much more difficult to
survive the challenges ahead.
• If you wait and see how everything shakes out over
the next few months…. this type of thinking is like
driving a car toward a brick wall and watching it get
closer and closer, yet doing nothing to turn or brake.
• Our advice is simple. Don’t lose your focus or sense
of urgency now that recovery is in sight.

Let’s now discuss your ideas on how together we can
make that a reality for you and your business.

Conclusion And Closing
Thoughts
• Any questions?

• We would be pleased to assist you in your strategy
development and implementation.

• Please complete the seminar evaluation form before
leaving.

• Leave a business card for our free quarterly email
Grow Your Business newsletter.

Thank You !

~ Curtis A. Feldman, CPA

~ Ed Nunes

Sponsored By:

S&G Navigating The Recession 061609

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