|
| October 27, 2008 |
Navigating the Credit Crisis
|
 |
We realize that you have received a number of communications from us in
recent weeks and apologize for any inconvenience to you. But as we
experience these changing and turbulent times, we want to make sure that
you know we are continually looking out for your best interests. We take
our clients' and friends' concerns very seriously and want to arm you with
the information you need to help weather the storm.
That said, the recent credit crisis is just one reminder of the importance
and benefits of having a sound strategy that you can use to navigate through
hard times. Below are several tips to help you assess your current financial
condition and start rethinking your business plan to face current economic
challenges:
- Don't panic. It's difficult to make sound decisions if you do. To
get a better sense of where you stand, begin by reviewing your cash position
and anticipated cash needs. Are they in line with your business's short-term
needs, goals and risk tolerance?
- Take a fresh look at your monthly income and expenses. Have you
been meeting your budgeted projections? How much of a drop in revenues can
your business withstand and for how long? What are your cash-flow needs for
the next 90 to 120 days? Or 120 to 180 days? Do you have sufficient cash
reserves for the next 30 to 60 days?
- Check with your lenders on the status of your credit lines. Are you
in compliance with their terms? Will your bank renew their commitments at
similar amounts, rates and terms?
- Eliminate your reliance on credit by disciplining your spending.
- Refocus on your balance sheet and how much credit you are extending to
your customers.
- If your credit lines are frozen or at their maximum limits, consider
meeting with vendors and working out a schedule of partial payments. This
would allow continued delivery of critical materials and supplies.
- Look into alternative types of financing. Consider loans on life
insurance policies or loans from key customers that rely on your business for
their materials and supplies. You can also look at loans from labor unions,
local development agencies or the U.S. Small Business Administration.
- 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.
- 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.
- 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?
- Consider ways to pass your increased costs (i.e., fuel expense) on to
your customers.
- 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.
- Don't engage in panic selling of your investments. Make sure your
portfolio is diversified and in accordance with your risk tolerance.
- 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.
- Contact your good customers. Even casual discussions can lead to
new business opportunities.
- 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.
- 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.
For help in understanding some of these issues, you can turn to the CPA
profession's free Financial Literacy Web site for consumers:
http://www.360financialliteracy.org. The site offers tools and tips to help
you make important decisions for your business and your own personal financial
planning needs.
Finally, for our small business clients and friends, remain focused on
your own advantages. Remember that:
- Small businesses have greater flexibility and can more easily adjust to
changes in the economy than their larger counterparts.
- Small business owners can use the recent crisis as an opportunity to
buckle down, refocus, assess and make their company more financially sound,
disciplined and less reliant on credit.
During tough times, it's important to maintain communication with us.
Remember that you are not alone. We know and understand your business and the
challenges you face, and we can work with you to navigate these turbulent times.
We can help you gauge your current situation in the wake of recent market events
and create a sound business plan in response.
The team at Bober, Markey, Fedorovich is here to help. Don't hesitate to
contact us for objective guidance in helping you make intelligent financial
decisions for the future of your business. Please feel free to contact your BMF
advisor or James E. Merklin, CPA, CFF, CFE, Partner, at 330-762-9785 or
jimm@bobermarkey.com.
|
