Friday, April 29, 2011

Ten Steps to a Successful Turnaround


If your business is in dire financial straits, you need to immediately turnaround your business. A turnaround is different from a restructuring in that it is much more comprehensive and very swift. To implement a successful turnaround, you must perform the following ten steps. It is optimal to do it in the order presented. Many small- and medium-size business owners have used these steps to effect a successful turnaround. 

Step 1: Write a business plan.
The strategic business plan should include a significant sales/marketing component, especially if poor sales is your issue. You should also begin writing an extensive operation plan. Since many of the issues stem from poorly run financial and other operations, START the operations plan but do not finish until you complete some of the other steps. You do not want to document operational procedures that do not work for you!  

Companies that write business plans and refer to them at least on a quarterly basis get into financial trouble? Why? Business plans establish a clear vision of the future. Regular follow-up enables companies to track whether their assumptions are correct and why or why not. 

The draft business plan, or the abbreviated version aka the executive summary, needs to be shared with the management team, bankers and other lenders, shareholders and investors, and employees. All of these stakeholders should know what the company's plans are and what the strategy is to accomplish those objectives. They also need to understand the role they play. Knowing this, company owners' (and management) can solicit valuable input on how to quickly turnaround the company and make it, then keep it, successful.

Step 2: Meet with strategic advisors, management and any other key personnel.
Arrange a meeting with everyone who is significantly involved in the major decision-making at the company. Craft an agenda which includes a discussion of the business and operating plan. Stick to the agenda since time is of the essence and getting off-topic when discussing "scary" items such as averting business failure can cause tensions to rise. Be honest but positive. (If you think the company must be shut down, this article is not for you. I'll write on that subject at a later date.)

Step 3: Revise plans
Once you meet as above, solicit direct input from everyone to revise the plans. Email everyone a copy and have everyone insert their changes or additions. (This is easy to track in Microsoft Word or in Google documents.) 

Step 4: Meet with employees
Have a company meeting, admit that there are things wrong with the business, and discuss how management plans to fix it. Provide employees with a copy of the company business plan and ask for their input. For an established business, this step demonstrates that careful consideration has been given to the development of the business. 

Step 5: If you CANNOT pay your payroll or sales taxes, contact tax authorities.
Failure to pay payroll taxes can land you in prison. If you CANNOT pay them, contact the government immediately and notify them of your problems. In this case, the best defense is definitely a strong offense. They can put you on a repayment schedule. Otherwise, if you wait, the federal government could swoop in and shut the business down for failure to pay. And your worries will have just begun.

If you can't pay your sales taxes, notify the state and local authorities. They have a tendency to place liens and file suits in court, which would only add to your financial woes. Notify them in advance and work out a repayment plan. If you are in dire financial straits and in need of a turnaround, unless an excessive non-budgeted income tax burden was the cause of your woes, you won't need to worry about income taxes. With turnarounds, the losses are typically so great as to minimize or negate income tax concerns. If you have high income but egregiously poor cash flow, the latter of which is causing your woes, then do notify the IRS and state before your quarterly taxes become due. They will also work with you during this difficult period. Ignorance is NEVER bliss when it comes to taxes. Educate and inform the tax authorities and they will know you are not practicing tax avoidance.
 
(To be continued next week...)
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Wednesday, April 27, 2011

Women-focused Angel Investor Group

I recently read an article in the Akron Beacon Journal about Golden Seeds, a group primarily comprised of female women investors with a few offices on the East Coast in New York city (i.e., in Silicon Alley), Philadelphia, and Boston, and one office on the west coast, in San Francisco (i.e., in Silicon Valley).  From their website, "Golden Seeds is dedicated to empowering women financially, based on a commitment that diversity in business ownership and management improves corporate performance and creates a stronger economy."

Golden Seeds mainly invests in women-owned businesses, or rather, women-owned and women-controlled businesses. The companies they invest in have a woman at the helm as either the CEO or as a founder and CXO (COO, CFO, CTO, or CMO).  In other words, Golden Seeds invests in companies where a woman is the primary decision maker or plays a significant role in the decision-making process. This angel investor group has over 150 investors.


For more information, visit their website at http://www.goldenseeds.com/home/ . You can also check out the Sunday, April 24, 2011 "Business" section of the Akron Beacon Journal for a great article on some of the investments the group has made.
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Monday, April 25, 2011

PRIVATE EQUITY 2011: NATIONAL ANGEL-VC SUMMIT & BUSINESS INNOVATION FORUM

I just saw this on a LinkedIn group I belong to. I thought I'd share it with you. You may be in the NYC area or could be there on May 5 and seeking funding for your company. If so, this could be a great opportunity for you. This is a complete, exact repost (except that I stripped out the phone number and email address.) Read on...

"Growth Capital / Opportunity for Late-Entrants to Present at National Angel-VC Summit / May 5th / Yale Club NYC / I50+ Investors "One Place, One Day"

For those group members who may not be familiar with our well-established "investor-only" funding venues, you can find over 50 entrepreneur testimonials at http://www.privateequityforums.com/entre-test.html. (All past & current investor registration information is fully documented.)

If you are seeking capital, I would be pleased to speak with you about presenting at our next exclusive event, Private Equity 2011: National Angel-VC Summit & Business Innovation Forum being held at the Yale Club New York on Thursday, May 5th.

The conference will provide you with a very target-rich environment and most favorable setting to reach a “paid roster” of qualified investors (who are “there to see deals”, not to be speakers, panelists or judges), in a venue that is NOT compromised by a large population of vendors and service providers.

Your visibility at this event could greatly enhance your ability to accelerate the funding process with a view of raising capital, during the second quarter of this year. Now in their 11th year, our forums provide a national audience of more than 150 qualified investors.

These prestigious events for early and later-stage companies are among the best investor-attended venues of their kind in the U.S. This will be our 33rd consecutive forum, all of which have been fully-booked since June of 2001. During this period, I believe that we have provided entrepreneurs with direct access to more investors than any other organization in the country. As we only have a limited number of Presenter slots available, please contact me as soon as possible if you have an interest in the event.

Since we are not part of any non-profit group and our events are not primarily funded by vendors or service providers, entrepreneurs are required to pay a fee based upon a number of visibilty options. Our forum could be best described as a co-op for the participating companies, such as a trade show would be. We underwrite the events and the featured companies share in the overhead cost. They do so because our model ensures them an audience of nearly 100% qualified investors who have paid to attend and whom we disclose in advance, as you can see at http://www.privateequityforums.com/guests.html.

Please keep in mind that most of our presenting companies have already received some Angel or VC funding and are at the point where they are ready to begin commercialization or have begun marketing their products; and are not "unfunded start-ups" with no sales. In this case, we offer several "non-presenting" lower cost visibilty options, which are quite effective and provide a very high profile with investors.

We will consider pre-revenue companies that have already had outside funding and have a clear proprietary advantage in their science, technology or business method and can reach a large addressable market. General Presenter qualifications are listed at http://www.privateequityforums.com/qualifications.html.

I would be happy to discuss the visibility options, qualifications, costs to attend or present and answer any questions about the format, audience composition, references, etc. To learn more about this proven venue to meet investors, please go to http://www.privateequityforums.com/message.html.

If you believe that your company's potential is truly compelling and that management's vision can be effectively communicated, this private event will provide a unique national platform to reach active serious investors who want to see fundable deals. YOU CAN THINK OF IT AS A “ROAD SHOW” THAT COMES TO THE COMPANY."
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Friday, April 22, 2011

City, County, State Opportunity Zones


The Georgia Department of Community Affairs (DCA) works with local and regional authorities to assess and determine opportunity zones. Why are these good for business?

New or existing businesses located in an opportunity zone that hire at least two employees may receive an annual income tax credit of $3,500 for each job they create. The credits are good annually for up to five years, or $17,500. There are no limits to particular industries or business types.The tax credits can be used against the business’s income tax liability and/or the business' state payroll withholding

Consequently, if you are a business owner or executive manager and your company is considering a move or expansion to other areas, you may wish to strongly consider locating your office/branch/etc. in an opportunity zone to take advantage of these great tax benefits.

For more information on Georgia opportunity zones and whether or not your city or county has one, go to http://www.dca.state.ga.us/economic/DevelopmentTools/programs/opportunityzones.asp. My city, Atlanta, GA, just had 3 new opportunity zones approved. I'll research what other states are doing and post information about similar small business support/ economic development programs around the U.S.

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Monday, April 18, 2011

Finding a Niche

On Friday I mentioned an internet marketing training program called The Challenge. Now I want to call attention to their very first module about niche marketing. When I talk to companies about strategy, part of that strategy involves knowing who your market or target market is and how to get to them. The broader the market, the more difficult the messaging. If you have a broad market, you can still make the messaging more specific and therefore more compelling, by segmenting that market into niches.

This video discusses market segmentation or niches. Although its purpose is for internet marketing, it doesn't matter HOW you market. Determining segments and niches is important in all marketing.

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Friday, April 15, 2011

The Challenge

There are a lot of programs out there on how to rev up your internet marketing, how to capitalize on social media, how to exploit Facebook,... If you already have strong familiarity with internet marketing or aspects of it, then this post is not for you. But if you don't, then it is. I believe in outsourcing and hiring others to do that which you are not good at. But I also think there are certain things that I like to have a good basis of understanding of.

I went to a meeting last Saturday, a business group meeting focused on Internet marketing. It was highly informative. The organizer recommended something called "The Challenge". It is an internet marketing training module designed to walk you through all the how tos over a 14-week period. One week on, one week off, so you can fully digest and begin to use everything they step you through. Since I have a level of familiarity I've walked through 3 7-part modules in 4 days. Each module component (and there are 7 parts/components in each module - 1 for each day of the week) is designed to take you ~30 minutes.



I think The Challenge is an absolutely superb program for beginners and intermediates. You can go through the program as fast or as slow as you need to. If you or your company has been thinking about harnessing the power of the internet to help drive marketing or sales, check out this program. If you have employees who are in charge of marketing, then have them do The Challenge. It's a fantastic training tool. And you implement immediately. And, best of all, it is FREE!! (There are some sites that The Challenge refers you to that are free for a 30 or 45 day trial basis but The Challenge itself is completely free. Click on any of The Challenge links to go to their sites.


http://challenge.co (Click on Training in the upper right corner to get started.)

These links are to The Challenge main website, module 4 (as an example), and one of their many youtube videos. (Youtube is where they post their training videos. Hint, hint.)

Enjoy!
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Wednesday, April 13, 2011

Writing a Successful Financing-Focused Executive Summary - Part II

Video provides a top-down description of why and how to write an abbreviated business plan or executive summary specifically to obtain bank financing or garner equity investors. This is Part II.

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Friday, April 8, 2011

American Business Makeover: Makeover on Main (MSNBC)

I'm a fan and believer of working on your business, not just in it. This is the difference between being strategic and visionary and just running a small business that pays for your lifestyle. I also believe in learning from others' mistakes whenever and where ever possible. Here is something I saw online where a team of experts went in and helped a business owner re-structure her business. It was on MSNBC. The video now resides on the Amex open forum website.

http://www.openforum.com/idea-hub/topics/innovation/video/american-business-makeover-on-main

If you want to view original broadcasts of this series, American Business Makeover: Makeover on Main, go to MSNBC on Sundays at 7:30am. (Personally, I sleep in on Sundays so I'm glad I can see it on the net or set the DVR to record.)

Whether or not you or someone you know has an ailing business, I think it's a great show, at least the most recent episode I saw regarding the flower shop. There's great information on marketing, PR, and knowing when to seek outside help.

Enjoy!
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Wednesday, April 6, 2011

Why Build Business Credit?

Cash flow is the lifeblood of any business, no matter the size. If your company does not have adequate operational cash flow (cash generated on a daily or weekly basis from daily operation of your business), then you have to access cash from selling assets (cash flow from investing) or from financing. To access financing either you as the business owner or your business needs credit. If you want to keep your personal finances COMPLETELY separate from your business finances, you will need to establish credit for your business that is completely separate from you. In other words, you will want to obtain supplier terms, bank loans, and equipment financing with only the company's performance or assets as a guarantee of performance, not YOUR assets or signature as a guarantee. No personal guarantees.

Imagine this scenario: Your business has been doing extremely well but two of your largest customers file for bankruptcy and you did not see it coming. That could wipe out your business cash flow overnight, especially if you had not been managing your receivables tightly and those customers owe you a large sum of money. But regardless, you will need time to build relationships and replace those customers. Your business may encounter financial distress in the interim as a result. If the company subsequently cannot make its payments on loans or to suppliers, if you have personal guarantees in place, those guarantees could be called upon.

So in the case of a failing company, whether temporarily or permanently, you would lose the income the business paid you as a salary PLUS you would have to make loan repayments out of your personal assets. It just went from bad to worse! What if all you had was tied up in the business? Well, if the company has to file for bankruptcy, you may have to also. If you had stand-alone business credit, your personal finances would not be an issue. You may CHOOSE to inject money into the company, but you would not HAVE to.

In a less serious scenario, your company has encountered some difficulties due to the current economic environment and now "recovering" recession. You would like to negotiate better terms on your loan or with your suppliers. If the company is the sole guarantor and the company is struggling, assuming you have a decent plan to weather the storm, your lender is highly likely to negotiate with you. However, if you are a guarantor and have sizable assets, why should the lender negotiate when they can pursue your assets and be done with it? (Of course, having a strong relationship with your lender ALWAYS helps.)

On the opposite side, many business owners complain about how all the credit they have for the business in their name drags their personal credit scores down. By separating and building your business’ credit profile, you, as the business owner, can get business credit cards, equipment loans, etc. in the business' name and tax identification number. Consequently, the business loans will not be associated with the owner's social security number and thus, do not impact his or her personal credit. Again,no personal guarantees.

Okay, enough of the what if scenarios. You get the gist behind the reason for having a strong business credit profile. For emphasis one more time, here's what Wells Fargo Bank has said regarding separating business and personal credit and financing: "The longer you delay establishing business credit, the longer you delay taking advantage of business loans."
To learn more about how you can build your company’s business credit and remove personal guarantees and other hits to your personal credit, view this course!
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Monday, April 4, 2011

Debt Options for Mid-Sized Companies

I attended a seminar on financing sources. (Yes, I do continuing education!) I thought some of the comments on various debt types were worthy of sharing. Here are the comments I  noted:


Convertible debt is
  • more dilutive than mezzanine financing
  • usually has 4-8% coupon
  • more subordinated than mezzanine financing
  • can slam you in a downturn
Convertible debt converts to equity when payments cannot be made as scheduled.  Consequently, when a business encounters cash flow problems, as often happens in a recession or industry downturn, and must forgo paying debt so it can pay employees and key suppliers, that convertible debt becomes equity. How quickly it converts to equity depends on the loan agreements and covenants.

Convertible debt can be just what a struggling or rapidly growing company needs to access debt at low interest rates they can readily pay. (Both struggling or rapidly growing companies have similar cash flow shortages but obviously for different reasons.)


Mezzanine Payment in Kind (PIK)
  • used when a company can't make debt payments, so it will "pay in kind"
  • For example, if a company can't make a 12% interest payment in a particular month, then it will have an additional 5% PIK tacked on, which will bring the total interest to 17%.
  • Or the additional PIK will be equity, as is the case when the PIK is warrants. 
I've written about mezzanine debt before and will again. This is not meant to be an exhaustive description of mezzanine but to acquaint you with the concept of PIK.

Asset-based Lender (ABL)
Asset-based lenders lay off risk by knowing deeply the type of asset involved and mitigating those risks. For example, an ABL will set aside enough accounts receivables (A/Rs) to cover payroll for a staffing company.
Why? Because payroll is a MUST to pay. A company and its owners will be pursued by the federal government and could even have criminal charges filed against the owners neglect to pay payroll and the associated payroll taxes.

In summary, the key to remember here, as is my mantra, is that there are numerous types of financing options for all situations, industries, and companies. If you own an asset-rich company, consider asset-based lenders or ABLs. If you have a strong, profitable history or high growth prospects and are having cash flow issues, consider convertible debt. If you are financing an acquisition, buying out a co-owner, or have high growth prospects, consider mezzanine payment-in-kind or PIK.
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Friday, April 1, 2011

Q: How do you know what your "competitive advantage" is if you are a start-up?

A: Competitive advantage is defined as that function, service, or other strategic offering that sets you apart from and above your competitors. 

If you are just beginning, you will not know what actually sets you apart from your competitors since you have no "actual". However, entrepreneurs start companies because they think they can do something better. They have a more refreshing methodology, offer quicker service, or have a more enticing product. The founders are better at marketing and PR, know how to build partnerships, have excellent relationships with the soon-to-be customers. Initially, one or more of these will be your competitive advantage. If you cannot think of a way that you'll stand out from your competitors, cannot think of a way to differentiate yourself, then you probably should not start a business. Or at least don't do so until you can. If you can, then build your business around that which differentiates you and make sure you communicate your advantages in all your marketing efforts.

Beware: If your only competitive advantage is low prices, unless you have the low operational overhead and infrastructure to continually drive your own costs lower, your company is at risk. Many of the businesses that failed during the recession competed solely on pricing. When things get bad, customers look for value. And value means much more than just low prices.
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