February 21, 2005
Do You Make These 7 Deadly Cash Flow Mistakes
Managing cash flow is every small business owner's most important function. Avoid these seven deadly mistakes to make sure you aren't creating cash flow problems in your business.
1. Using the "Fly By The Seat of Your Pants" Accounting Method.
When tax time rolls around do you find yourself pawing through piles of paper on your desk looking for credit card receipts from your business trip Or are you upside down digging under the seat of your car trying to figure out where all your gas receipts are Are you wondering if that coffee stained piece of paper is an invoice from a supplier Do you have a vague feeling that someone, somewhere owes you money but, you just can't remember who it is If so, you're probably guilty of operating with the "Fly By the Seat of Your Pants" accounting method.
Using this accounting method has a tremendous impact on your business's cash flow.Unless you have a system to track your business finances, you'll always be operating in the dark and in danger of imitating George of the Jungle as he slams into a tree.
2. Not Knowing What the Numbers Are All About.
Once you have a real honest to goodness useful accounting system that's where the real fun starts. You've got a bunch of numbers but what in the world do you do with them
Continue reading "Do You Make These 7 Deadly Cash Flow Mistakes"February 17, 2005
Six Critical Steps in the Turnaround Process: An Owner's Viewpoint
Step 1 - Recognize the Problem for What it Really Is - A MAJOR CRISIS
The undeniable temptation of the business owner seems to be conveniently blaming one major event for the company's problems: Perhaps it's just another low point in the regular cycle. Perhaps it's just one bad management decision on extending credit or investing heavily in a new product that failed. Perhaps it's just a couple of new orders that cost you more money than anticipated.
But your business advisors (lawyers, accountants, etc.) have got to help you accept the fact that your business is, in fact, in a Life Threatening Major Crisis, and the sooner you accept and acknowledge that you are in a crisis, the sooner you can take appropriate steps to deal with it.
Step 2 - Recognize the Need for Outside Help The problems you have dictate the type of outside help you should seek. If you are in a true crisis or near one, you are likely faced with dwindling cash, little time to act, and decreasing options still available to you. It's critical to seek help from outsiders, turn-around consultants, who have "been there and done that." Most owners have never even heard of turnaround consulting, let alone witnessed a turnaround specialist in action; therefore, the concept of "real economic value" they can provide seems vague and abstract.
The cost of the turnaround consultant or team is usually a huge shock to the entrepreneur. Having one or more full-time consultants on the expense ledger, charging several hundred dollars an hour for several months, can be very expensive. Although, frankly speaking, what does it matter Your alternative is almost certainly losing your company, your investment, your career and your status.
Continue reading "Six Critical Steps in the Turnaround Process: An Owner's Viewpoint"Mediating out of Financial Crisis: Negotiation with an "open book" policy can mean the difference between financial stability and bankruptcy
We've all experienced conflict in our lives, from schoolyard spats to the power play with the ambitious coworker. But when a company experiences a financial crisis, the conflicts that erupt can mean corporate extinction.
According to Dan Dooley, partner with corporate turnaround consultancy Morris Anderson and Associates, negotiation between all business parties is especially important when a company is in financial crisis. "Fundamentally, he says, "a workout is a multi-layered negotiation, because you've got multiple stakeholders, including senior debt, meaning the bank; the people who own the company, often many layers of equity owners; the people who manage the company, and on top of that usually unsecured or trade creditors.
"What often happens during crisis is the CFO or other C-level manager is trying to contain the news that the company's in distress," he says. "But the funny thing is that the vendors, creditors, employees and bankers already sense the distress.Hiding the trouble is the wrong thing to do-it only damages management's credibility."
So what's the first step Dr. Beverly Potter, author of From Conflict to Cooperation: How to Mediate a Dispute, recommends that the mediation process begin with information gathering. All parties involved need to openly discuss the issues one at a time. For management at a financially distressed company, this means looking beyond the numbers to the consequences.
Continue reading "Mediating out of Financial Crisis: Negotiation with an "open book" policy can mean the difference between financial stability and bankruptcy"Turnarounds and Workouts: What's the 2005 Forecast
Clearly, the trend of large company insolvencies that started in 1999 has come and gone. Most of us in the turnaround industry expect the next few years to have much slimmer pickin's.
We won't spend much time explaining why the cycle of distress has ended. It's clear to industry insiders that: 1) big company bankruptcies, which drive the turnaround industry, are way down; 2) non-performing assets (NPAs) of most lenders are again within fully reserved levels; 3) bank workout staffing is down 25-75%; 4) capital funding returned to the market in late 2003 in all segments-equity sponsors, high-yield bonds, M and A activity, even cash-flow lending; 5) the U.S. economy is expanding in almost all sectors, and; 6) the boom-to-bust cycles of "hot" industries (internet, telecom, energy) driven by technology or regulatory changes have mostly run their course.
So what's a turnaround consulting firm to do when near-term business is likely to drop by 50% or so The obvious solutions are being worked by many of us: skill redeployment to front-end M and A work; diversification into services such as M and A and litigation support; and geographic expansion, mostly to Western Europe, where local laws are evolving toward debtor-friendly rehabilitation.
That said, there are numerous structural changes in the U.S. economy making turnarounds a growth industry for decades to come. Consider the following phenomena.
1.Interest Rates
Many people believe interest rates are about 200 basis points (or more) too low based on history. Greenspan's dilemma is to move rates up gradually without stalling the economic recovery or unduly harming President Bush's re-election bid. When interest rates rise, any struggling company now paying more than 5% of net revenue in cash interest will suffer a body blow to its meager profitability and liquidity.
Continue reading "Turnarounds and Workouts: What's the 2005 Forecast"February 16, 2005
Moving from Defense to Offense
It's time to do M and A deals. Equity funds are under strong pressure to deploy committed capital or return the dough to the investors. Deal multiples are increasing, and serious bidders for distressed and profitable businesses are driving up prices. "Distressed Asset" investment bankers are shifting resources back to more traditional M and A because deal flow is back.
Although the lending environment has only loosened up moderately in the last two quarters, one can almost feel the pressure starting to increase "to grow that portfolio." The signs include a major decrease in Fortune 500 bankruptcy run-rate, improved loan quality ratings across the board, bank workout group sizes being reduced, loan portfolios down 10% to 20%, major workout consulting firms rediscovering the middle-market, and BofA buying Fleet, an action that will likely reignite what Ted Koenig of Hilco Capital calls "The Great Bank Consolidation."
The big questions: Will we repeat the sins of past And what should be the lessons learned
Sins of the Past
1.Industry roll-ups are not necessarily accretive to value Simply putting together a group of similar businesses-in terms of market and industry-to form a bigger business doesn't create accretive value unless more cash is generated by the new business. We have witnessed too many roll-ups with somewhat similar businesses where no cost takeouts were planned, cross-selling between the businesses was unrealistic, and roll-up management was only capable of adding overhead-and not up to the task of managing the much larger and diverse business resulting. Typically, these roll-ups have failed, with many of them "un-rolled" and the original sellers buying them back at a fraction of the sell price.
2.Weak or non-existent operating due diligence It is amazing how little due diligence investors and lenders were performing on deals in the late ‘90s. Just because the numbers add up on an Excel spreadsheet doesn't mean that a management team can execute a business plan.
Continue reading "Moving from Defense to Offense"February 10, 2005
Top 5 Reasons To Check Your Credit Report Regularly
#1 Make sure mistakes aren't hurting your credit.
Reviewing your credit report can help you avoid costly errors. In one recent study, more than 50% of the credit reports checked contained errors. Other studies have shown similar results with as high as a 70% error rate. The most common error occurs when the information of another person, with a similar name or account number, is recorded in your credit profile.
#2 Track your history of payments.
Potential lenders want to see a history of timely payments before they'll consider offering you a loan or credit. Check your report to see that your payments are being reported accurately to the credit reporting agency (CRA). A history of late payments will result in higher interest rates being charged or having your credit application or a loan denied. Late payments will also lower your FICO score.
#3 Protect against potential identity theft.
Identity theft has become the fastest growing crime in our nation. Identity theft complaints jumped 75% from last year according to a recent Federal Trade Commission report. The monetary loss from identity theft crimes skyrocketed to a combined $53 billion in 2002! Accounts that appear on your credit report that weren't opened by you could be a sign of identity theft. Report any such occurrences to all three major credit bureaus immediately and have them place a fraud alert on your account. The three bureaus can be reached at:
Continue reading "Top 5 Reasons To Check Your Credit Report Regularly"February9, 2005
A Simple Plan For A Start-Up Loan
When seeking money for their start-up business many entrepreneurs are using a simple plan to get a loan from their own IRA or 401(k) assets.
Starting in 2002, new rules allowed a business owner to set-up a Solo 401(k) and take a loan from his Solo 401(k) account. The Solo 401(k) - also called a Self-Employed 401(k) or Individual 401(k) - is designed for the small business with no employees.
You can initially fund your Solo 401(k) that you set-up with a mutual fund company by rolling over an existing IRA, 401(k) you left with a previous employer, or other retirement funds into the plan. You can borrow up to a maximum of $50,000, but not more than 50 percent of the balance in your Solo 401(k) account. By taking a loan instead of a distribution you may also avoid the tax penalties generally associated with early withdrawals.
A loan from a Solo 401(k) is fast to obtain because you are in effect taking the money from your account. In many cases the 401(k) loan interest rate is fixed at prime rate for the duration of the loan, generally five years or more. The loan payments, interest and principal, go back in your 401(k) account.
Continue reading "A Simple Plan For A Start-Up Loan"February7, 2005
Building Wealth by Paying Yourself First
When I look around at all of my friends, and a lot of my family, I see a lot of people living from pay check to pay check, under monetary stress. These same people watch the Calendar for payday like a hawk. Pay their bills, and then open up the spending flood gates, before they know it, they are itching for their next pay check. These same people are the people who don't think they make enough money to build future wealth. They are wrong.
The way I save money, is by paying myself first. I have automatic deductions come out of my bank account on the 15th and 30th of every month, which I put directly into a mutual fund for safe keeping. I take a small portion of my pay check, roughly 10% and put it away. This may not seem like much, but over time it adds up.
In addition, with mutual funds you will have the benefit of compound interest on your side. You should EASILY be able to achieve 8% interest on average in a good a mutual fund, often times more. That's $800 a year on $10000!
Once you start, you will be addicted. Watching your funds grow is incredibly addictive and will inspire you to invest a larger percentage as your income rises. If you have debt, put a portion of this percentage towards the debt and a portion into your mutual fund, so you have something positive to reinforce your automatic deductions.
Continue reading "Building Wealth by Paying Yourself First"February3, 2005
Investing Online Has Its Rewards: Find Out How To Take Advantage Of Them
Computerized investing. Online investing. Have you taken the next step yet These days among savvy investors, online investment resources are synonymous with opportunity.
The capabilities that we currently have at our fingertips were unavailable just ten years ago. The speed at which you can invest with an online broker, along with ease of use (you can trade in your underwear), makes traditional local brokers seem obsolete.
More and more people are taking to "active investing" rather than just sticking money in mutual funds recommended by their advisors. This means atypical investors are now taking active roles in their portfolios and seeing greater returns, if they know what they are doing.
In order to become an active investor, you must know what you are doing. It is your money we are talking about here. The thing is, once you know that there are ways to net up to 18%+ returns on investments that are hardly more risky than what most people consider safe today (mutual funds, diversification), you can hardly live with yourself by leaving your money in a "safe" 4% fund.
I work with people to change their perceptions about what is possible with investing today. The tools available online for investors are simply incredible when you think about the fact that investing news and the latest trends would have to wait to reach you until they were printed and flown to whatever part of the country you live in.
Continue reading "Investing Online Has Its Rewards: Find Out How To Take Advantage Of Them"February1, 2005
Do You Need A Financial Planner
No matter how much money you make, it pays to keep on top of money coming in and going out. Even if you do a good job of that, there are important times in your life when talking with a professional adviser makes sense.
Almost every major life event - finding or losing a job, getting married or divorced, having a baby, buying a home -- is likely to have a major impact on your finances. A new job may mean you are making more money -- no problem there as long as you know the best way to invest it. Getting married may mean you have a second income to count on, but now you have someone counting on yours as well. Buying a house means you have to come up with a hefty sum of cash for a down payment, get used to monthly mortgage payments and meet the expense of house repairs.
Let's look at what happens if a baby comes into your financial picture. First, medical bills need to be paid, so having good medical insurance is important. Few insurance plans cover everything, so you'll need to have a cash reserve to cover deductibles and extras, not to mention the furniture, clothing and sundries you'll need when the newborn comes home.
With a new addition to the family, you'll want to make sure that the entire family (baby, too) is protected if something should happened to you -- that means reviewing life and disability insurance to be sure it's adequate for your new responsibilities.
Continue reading "Do You Need A Financial Planner"