Workouts, Turnarounds, Re-Organizations:Workouts, Turnarounds, Re-Organizations:Re-Invigorating Your BusinessRe-Invigorating Your Business

In A Recovering Economy In A Recovering Economy

Presented by:Presented by:

Darlene K. Gregory, PresidentDarlene K. Gregory, President

How Did My Business Get This Way?How Did My Business Get This Way?

1. Slowing Sales1. Slowing Sales2. Uncontrolled Growth2. Uncontrolled Growth3. The “Bad” Economy3. The “Bad” Economy4. Lack of capital4. Lack of capital5. Rising costs5. Rising costs6. Turnover in staff6. Turnover in staff7. Less favorable terms on credit7. Less favorable terms on credit8. Higher interest rates on personal debt8. Higher interest rates on personal debt9. No one to turn to for help9. No one to turn to for help10. I thought I could handle it10. I thought I could handle it

What’s A Workout? How Will It Help Me?What’s A Workout? How Will It Help Me?

Workout:Workout: a proposed repayment plan to a proposed repayment plan to business creditors as an alternative to business creditors as an alternative to bankruptcy.bankruptcy.

Turnaround:Turnaround: A detailed operating plan to A detailed operating plan to identify to the challenges to address, create a identify to the challenges to address, create a recovery, and ensure future profitability.recovery, and ensure future profitability.

Re-Organization:Re-Organization: a general review of the a general review of the company’s shortcomings and successes, resulting company’s shortcomings and successes, resulting in a written, concrete plan for future profitability, in a written, concrete plan for future profitability, often accompanied by changes in organizational often accompanied by changes in organizational structure, staff, pricing, competitive position and structure, staff, pricing, competitive position and standard operating procedure.standard operating procedure.

The Workout: Buying Time & New Cash The Workout: Buying Time & New Cash Flow From Your Existing CustomersFlow From Your Existing Customers

1.1. Who owes my company a debt?Who owes my company a debt?

2.2. How far overdue are these customers or How far overdue are these customers or notes, including employee debt?notes, including employee debt?

3.3. Should I settle for less than is owed?Should I settle for less than is owed?

4.4. When do I turn these customers over to When do I turn these customers over to collection? Is it worth it?collection? Is it worth it?

5.5. What does it cost me to “carry” them?What does it cost me to “carry” them?

6.6. What if I lose this customer?What if I lose this customer?

7.7. Pride, prejudice and profitPride, prejudice and profit

The Workout: Buying Time & Cash FlowThe Workout: Buying Time & Cash Flow

Negotiating the Workout with your vendors.Negotiating the Workout with your vendors.

Negotiating the Workout with your bank.Negotiating the Workout with your bank.

Negotiating the Workout with your partners Negotiating the Workout with your partners and/or investors.and/or investors.

Finding new sources of investment or credit.Finding new sources of investment or credit.

The IRS and The State Comptroller’s Office.The IRS and The State Comptroller’s Office.

Knowing The Real Challenges To Knowing The Real Challenges To

AddressAddress Do you know how to evaluate your financial Do you know how to evaluate your financial statements? What statements? What isis a financial statement? a financial statement?

Why is a Balance Sheet so important to running Why is a Balance Sheet so important to running my business?my business?

Why do banks only lend money to folks who don’t Why do banks only lend money to folks who don’t “need” it?“need” it?

How do I present my company in the very best How do I present my company in the very best light to a lender or investor?light to a lender or investor?

Who Wants To See The Balance Sheet?Who Wants To See The Balance Sheet?

Many people and organizations are interested in Many people and organizations are interested in the financial affairs of your company, whether the financial affairs of your company, whether you want them to be or not.you want them to be or not. You, of course, want to know about the progress You, of course, want to know about the progress of your business and what's happening to your of your business and what's happening to your livelihood. livelihood. Your creditors want assurance that you will be Your creditors want assurance that you will be able to pay them when they ask. able to pay them when they ask. Prospective investors are looking for a solid Prospective investors are looking for a solid company to bet their money on, and they want company to bet their money on, and they want financial information to help them make a sound financial information to help them make a sound decision. decision.

The Balance SheetThe Balance Sheet 1.1.What is a balance sheet? What is a balance sheet?

Why is it important?Why is it important? A balance sheet is a A balance sheet is a statement of a business or statement of a business or institution that lists the institution that lists the assets, debts, and owners' assets, debts, and owners' investment as of a investment as of a specified date. specified date.

AssetsAssets Current AssetsCurrent Assets Current assets include cash and other assets that in the normal Current assets include cash and other assets that in the normal course of events are converted into cash within the operating cycle. course of events are converted into cash within the operating cycle. Almost all of the assets that are used to conduct your business, Almost all of the assets that are used to conduct your business, such as buildings, machinery, and equipment, can be converted into such as buildings, machinery, and equipment, can be converted into cash within the time required to complete an operating cycle. cash within the time required to complete an operating cycle. However, your current assets are only those that will be converted However, your current assets are only those that will be converted into cash within the normal course of your business. Current assets into cash within the normal course of your business. Current assets are usually listed in the order of their liquidity and frequently are usually listed in the order of their liquidity and frequently consist of cash, temporary investments, accounts receivable, consist of cash, temporary investments, accounts receivable, inventories and prepaid expenses. inventories and prepaid expenses.

CashCash Cash is the money on hand and/or on deposit that is available for Cash is the money on hand and/or on deposit that is available for general business purposes. It’s always listed first on a balance general business purposes. It’s always listed first on a balance sheet. sheet.

Marketable SecuritiesMarketable Securities These investments are temporary and are made from excess funds These investments are temporary and are made from excess funds that you do not immediately need to conduct operations. Until you that you do not immediately need to conduct operations. Until you need these funds, they are invested to earn a return. You should need these funds, they are invested to earn a return. You should make these investments in securities that can be converted into make these investments in securities that can be converted into cash easily; usually short-term government obligations. cash easily; usually short-term government obligations.

AssetsAssetsAccounts ReceivableAccounts Receivable

Accounts receivables are the amounts owed to you …billed to Accounts receivables are the amounts owed to you …billed to your customers and owed on the balance sheet's date. your customers and owed on the balance sheet's date.

Inventories Inventories Inventories are goods that are available for sale, products that Inventories are goods that are available for sale, products that you have in a partial stage of completion, and materials you will you have in a partial stage of completion, and materials you will use to create your products. use to create your products.

Prepaid expensesPrepaid expenses Payments made for services that will be received in the near Payments made for services that will be received in the near future. Often your insurance premiums or rentals are paid in future. Often your insurance premiums or rentals are paid in advance. advance.

InvestmentsInvestments Investments are cash funds or securities that you hold for a Investments are cash funds or securities that you hold for a designated purpose for an indefinite period of time, including designated purpose for an indefinite period of time, including real estate or mortgages that you are holding for income-real estate or mortgages that you are holding for income-producing purposes or money that you may be holding for a producing purposes or money that you may be holding for a pension fund. pension fund.

AssetsAssetsFixed AssetsFixed Assets Fixed assets include land, buildings, machinery, and equipment Fixed assets include land, buildings, machinery, and equipment that are to be used in business operations over a long period of that are to be used in business operations over a long period of time. It is not expected that you will sell these assets and convert time. It is not expected that you will sell these assets and convert them into cash. Fixed assets simply produce income indirectly them into cash. Fixed assets simply produce income indirectly through their use in operations. through their use in operations.

Intangible AssetsIntangible Assets Your other fixed assets that lack physical substance are referred Your other fixed assets that lack physical substance are referred to as intangible assets and consist of valuable rights, privileges or to as intangible assets and consist of valuable rights, privileges or advantages. Although intangibles lack physical substance, they advantages. Although intangibles lack physical substance, they still hold value for your company. Sometimes the rights, still hold value for your company. Sometimes the rights, privileges & advantages of your business are worth more than all privileges & advantages of your business are worth more than all other assets combined. These valuable assets include items such other assets combined. These valuable assets include items such as patents, franchises, organization expenses and goodwill as patents, franchises, organization expenses and goodwill expenses like brand recognition and market share. expenses like brand recognition and market share.

Other AssetsOther Assets When preparing your balance sheet you will notice other assets When preparing your balance sheet you will notice other assets that cannot be classified as current assets, investments, fixed that cannot be classified as current assets, investments, fixed assets, or intangible assets. These assets are listed as other assets, or intangible assets. These assets are listed as other assets, usually consisting of advances made to company officers, assets, usually consisting of advances made to company officers, the cash surrender value of life insurance on officers, the cost of the cash surrender value of life insurance on officers, the cost of buildings in the process of construction, miscellaneous funds held buildings in the process of construction, miscellaneous funds held for special purposes. for special purposes.

LiabilitiesLiabilitiesCurrent LiabilitiesCurrent Liabilities On the equity side of the balance sheet, make a distinction between On the equity side of the balance sheet, make a distinction between current and long-term items. Current liabilities are obligations that you current and long-term items. Current liabilities are obligations that you will discharge within the normal operating cycle of your business. In most will discharge within the normal operating cycle of your business. In most circumstances, your current liabilities will be paid within the next year by circumstances, your current liabilities will be paid within the next year by using the assets you classified as current. The amount you owe under using the assets you classified as current. The amount you owe under current liabilities is a result of acquiring current assets such as inventory current liabilities is a result of acquiring current assets such as inventory or services that will be used in current operations. Show the amounts or services that will be used in current operations. Show the amounts owed to creditors that arise from the purchase of materials or owed to creditors that arise from the purchase of materials or merchandise as accounts payable. Bank loans or other loans payable, are merchandise as accounts payable. Bank loans or other loans payable, are shown as notes payable. Other current liabilities may include the shown as notes payable. Other current liabilities may include the estimated amount payable for income taxes and the various amounts owed estimated amount payable for income taxes and the various amounts owed for payroll, utility bills, payroll taxes, local property taxes, etc. for payroll, utility bills, payroll taxes, local property taxes, etc.

Long-Term LiabilitiesLong-Term Liabilities Debts not due until more than a year from the balance sheet date are Debts not due until more than a year from the balance sheet date are classified as long-term liabilities. Notes & mortgages are listed under this classified as long-term liabilities. Notes & mortgages are listed under this heading. If a portion of your long-term debt is due within the next year, heading. If a portion of your long-term debt is due within the next year, remove it from the long-term debt classification and show it under remove it from the long-term debt classification and show it under current liabilities. current liabilities.

Deferred RevenuesDeferred Revenues Your customers may make advance payments for merchandise or services. Your customers may make advance payments for merchandise or services. The obligation to the customer will be settled by delivery of the products The obligation to the customer will be settled by delivery of the products or services and not by cash payment. Advance collections received from or services and not by cash payment. Advance collections received from customers are classified as deferred revenues, pending delivery of the customers are classified as deferred revenues, pending delivery of the products or services. products or services.

LiabilitiesLiabilitiesOwner's EquityOwner's Equity Owner's equity must be subdivided on the balance sheet: One Owner's equity must be subdivided on the balance sheet: One portion represents the amount invested directly by you, plus any portion represents the amount invested directly by you, plus any portion of retained earnings converted into paid-in capital. The portion of retained earnings converted into paid-in capital. The other portion represents your net earnings that are retained. other portion represents your net earnings that are retained. Ordinarily, owners, also known as stockholders, are not Ordinarily, owners, also known as stockholders, are not personally liable for the debts contracted by a company. A personally liable for the debts contracted by a company. A stockholder may lose his investment, but creditors usually cannot stockholder may lose his investment, but creditors usually cannot look to his personal assets for payment. Under normal look to his personal assets for payment. Under normal circumstances, the stockholders may withdraw as cash dividends circumstances, the stockholders may withdraw as cash dividends an amount measured by the corporate earnings. The distinction an amount measured by the corporate earnings. The distinction in this rule gives the creditors some assurance that a certain in this rule gives the creditors some assurance that a certain portion of the assets equivalent to the owner's investment cannot portion of the assets equivalent to the owner's investment cannot be arbitrarily withdrawn. Of course, this portion could be be arbitrarily withdrawn. Of course, this portion could be depleted from your balance sheet because of operating losses. depleted from your balance sheet because of operating losses.

The owner's equity in an unincorporated business is shown more The owner's equity in an unincorporated business is shown more simply. The interest of each owner is given in total, usually with simply. The interest of each owner is given in total, usually with no distinction being made between the portion invested and the no distinction being made between the portion invested and the accumulated net earnings. The creditors are not concerned about accumulated net earnings. The creditors are not concerned about the amount invested. If necessary, creditors can attach the the amount invested. If necessary, creditors can attach the personal assets of the owners. personal assets of the owners.

Beginning Steps To RecoveryBeginning Steps To Recovery

Recognize your business didn’t get to this Recognize your business didn’t get to this position overnight, and it will take time to fix.position overnight, and it will take time to fix.

Delegate, delegate, delegate all tasks that you Delegate, delegate, delegate all tasks that you don’t have to personally handle, which is 90% of don’t have to personally handle, which is 90% of the stuff you do every day that doesn’t make you the stuff you do every day that doesn’t make you money.money.

Get up close and personal with reality. Analyze Get up close and personal with reality. Analyze your balance sheet & seek to improve it.your balance sheet & seek to improve it.

Plan your work, work your plan.Plan your work, work your plan.

Write down the steps you have to take, why and Write down the steps you have to take, why and how.how.

Organize a team of advisors and key managers to Organize a team of advisors and key managers to help you with your workout. Yes, Virginia, there is help you with your workout. Yes, Virginia, there is a Santa Claus.a Santa Claus.

Why Am I Over-Extended?Why Am I Over-Extended?Many businesses get in trouble because they are over-Many businesses get in trouble because they are over-extended. They are offering more products/services than extended. They are offering more products/services than can be managed. In a well-run company, the revenues are can be managed. In a well-run company, the revenues are matched to the expenses. This makes it easier to determine matched to the expenses. This makes it easier to determine which products/services make money and which ones are which products/services make money and which ones are killing the company. With the mess you now have, you killing the company. With the mess you now have, you likely can't tell which product is subsidizing a money loser likely can't tell which product is subsidizing a money loser and which ones can stand on their own. and which ones can stand on their own.

Have your employees keep a detailed time log for one Have your employees keep a detailed time log for one week. While they are doing this, contact your largest week. While they are doing this, contact your largest customers and ask them which of your products and customers and ask them which of your products and services they consider essential. When you compare the services they consider essential. When you compare the two lists, you may find the staff is spending 80 percent of two lists, you may find the staff is spending 80 percent of its time on the least important projects, probably the ones its time on the least important projects, probably the ones that make the company the least amount of revenue.that make the company the least amount of revenue.

Steps to RecoverySteps to Recovery

Cash & Assets FirstCash & Assets First

LiquidityLiquidity

EquityEquity

Market ShareMarket Share

Investors/Other Sources of Private CashInvestors/Other Sources of Private Cash

Bank Loans and LendersBank Loans and Lenders

Avoiding Bankruptcy at all costsAvoiding Bankruptcy at all costs

Steps To RecoverySteps To RecoveryNegotiating with the IRS or ComptrollerNegotiating with the IRS or Comptroller

Negotiating with your bank to reduce your Negotiating with your bank to reduce your debtdebt

Negotiating with your vendors to reduce Negotiating with your vendors to reduce your accounts payableyour accounts payable

Re-negotiating your lease Re-negotiating your lease

Re-examining payroll and operating Re-examining payroll and operating expenseexpense

Finding Funding- Why The Banks Only Finding Funding- Why The Banks Only Lend to Companies Who Don’t “Need” ItLend to Companies Who Don’t “Need” It

Bank Financing & Lines of CreditBank Financing & Lines of Credit

Factoring Your ReceivablesFactoring Your Receivables

Refinancing Existing DebtRefinancing Existing Debt

Short Term Loans/Government Backed Short Term Loans/Government Backed LoansLoans

Equity InvestorsEquity Investors

Sale/Lease Back of EquipmentSale/Lease Back of Equipment

Negotiating Favorable Credit Negotiating Favorable Credit Terms/Extensions on Current TermsTerms/Extensions on Current Terms

Other Sources of CashOther Sources of Cash

Getting cash for non-physical items Getting cash for non-physical items you may ownyou may own

Information/data miningInformation/data mining

FranchisingFranchising

Buy/Sell AgreementsBuy/Sell Agreements

Barter and TradeBarter and Trade

Creating More Traffic & SalesCreating More Traffic & Sales

Free or low cost methods to building cashFree or low cost methods to building cashDefining and capturing market shareDefining and capturing market shareBest advertising buys in the Coastal BendBest advertising buys in the Coastal BendBuzz about your business, aka PR, to Buzz about your business, aka PR, to create salescreate salesInternet marketing/Blogging/Expert AdviceInternet marketing/Blogging/Expert AdviceYou TubeYou TubeSix Degrees of Separation/Social NetworksSix Degrees of Separation/Social NetworksCraig’s ListCraig’s ListThe tradesThe tradesGiving Your Business A VoiceGiving Your Business A Voice