Surviving An Economic Downturn

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Our CPA firm presented simple steps that businesses can take to survive the current economic downturn and help their businesses soar over their competition. The seminar was presented by Chad & Donna Bordeaux of Bordeaux & Bordeaux, CPAs, PA to the Belmont Chamber of Commerce.

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  • Donna: Introduce our firm and each of us.
  • Chad: With energy prices surging, credit markets frozen, and the economy slowing, we are getting more questions and listening to more client concerns than ever before. We are interested to hear what problem areas you are seeing in your business. Does any one have any challenges?Each of us affected a bit differently, but fortunately, we have some answers.
  • Chad: The first step to improving is to understand that there is always room to improve your business.
  • Chad: Our first area is a big one. You can concentrate on profit or revenue all day, but if the cash flow is not there to support the business, it will not be able to survive.
  • Donna: Budgets review history and Forecasts look forward to give you a sneak peek into what all of this hard work can produce.Set up a monthly budget and stick to it. If you don’t have the money for it this month, don’t spend it. Keep track of your revenue, expenses, margins, and cash flow to make sure you are making informed decisions. This must be done monthly to be effective. In our experience, many small business owners are lucky if they do this in depth annually. Third party story: we worked with a restaurant owner recently. His cash flow was becoming a big problem and he could not understand why. He only saw the details of his financials once per year with his prior accountant and really just looked to see the damage he owed in taxes. When he became our client we discussed the problem and we looked at his information and analyzed it, we could see clearly that his food costs had dramatically increased due to the shipping costs but his menu prices had not changed. He felt that his customers would go somewhere else if he raised his prices so he kept them the same. We suggested that he look at the individual menu items to see which can change or determine if there are minimal changes to portions to recover from the differences. Many restaurants had a glass ceiling of less than $1 for drinks several years ago – now it is not uncommon to see drinks at 1.79 or even 2.50. There are many creative ways that can be used to resolve this problem, but you have to know it is a problem to take action. Reviewing your margins once a year is not sufficient to control the problem.Planning is a crucial step to all businesses. If there is no map, where are you going and how will you know when you get there.
  • Chad: In a strong economy, business owners may neglect to review - or re-price - the services and supplies they purchase. Don’t spend a lot of time on minute expenses, but you should analyze and review the major items that make up your largest costs first. For example, it may not be worth your time to look at switching your cell phone provider if it saves only $5 per month. However, if you could get a better quality laser printer and pay less to the print shop down the road, you might have some significant savings and added flexibility to market your product.Negotiating new terms with vendors may also be a cost savings. The worst they can do is say no. Look at loan payments and long term agreements as well and see if there is any ability to re-negotiate terms.
  • Chad: Let’s hear some ideas from you that you have taken or will be looking at to reduce your overall costs of operations.Cost of goods sold: Negotiating new terms with vendors may also be a cost savings. The worst they can do is say no. Look at loan payments and long term agreements as well and see if there is any ability to re-negotiate terms.Facilities: look at terms of your current lease. Is the rent still at the market value or below? Ask for a decrease. If the term of the lease is coming soon, look at renegotiating. If you renew, ask for a few months free. If you improve the space to fit your needs, will the landlord reimburse or give a reduction in rent? Will they finance the allowance for the improvements over the term of your lease? If you own your facilities, look at refinancing or restructuring your debt. This reduces your overall cash required. Reduce or renegotiate before there is trouble making the payment.Payroll: Look at the duties of your employees and ask them what they like best. Employees will be more loyal and more productive if they are doing tasks that they like to do. Utilize their talents. Look at moving employees to a commission or production based pay system. When you earn money, they earn money. Review your health benefits each year. Utilize an HSA plan if it makes sense since it encourages employees not to run to the doctor because there is a $10 copay. If you are a new business, there are many options to pay even a portion of the health costs for your employees in a tax free manner or set up the HSA from the start. Make sure employees participate and know the cost of all benefits provided to them.Utilities: Reduce your energy use through 1) efficiency and 2) conservation. Get new light bulbs. Make sure the toilets aren’t running. Are the windows efficient for energy. Put in an programmable thermostat and motion sensor lighting. Our office park has paid for the replacement of the toilets in all units just the reduce the cost of water to our condo association. The move pays for itself in 6 months and we will all have new toilets. If it costs money to make the improvement, make sure the move justifies itself and will return the investment within a year.Telephone: Look at Voice Over IP. Could save you a significant amount and add flexibility to service your customers. If you already have high speed internet, you really just need the phone.Marketing and Advertising: Monitor the return on this investment. Ask your customers and track where the customers come from. Track each type separately and decide what gives you the best customers (not just customers) and what profit is generated from each vendor’s advertising.Insurance: consider increasing your deductibles to pay less in insurance (business and personal). Insurance is just like gambling. Protect big losses that could destroy your business, not small losses that you can withstand.
  • Donna: Make sure you are not cutting costs with a result of a lower quality of service to your customer. Otherwise, you may have low costs and no customers.
  • Donna
  • Chad: Inventory can suck your cash dry! If you want to see your money, go to your warehouse or retail shelves and visit it.Salon had 8 product lines instead of one. They decreased to one line and sold the same amount. Inventory cost went from $25K to $4K.Party supply store carried 10,000 dusty items in inventory with no controls or accounting. Should only be carrying the 500 fast movers and can special order anything else.Control your inventory ordering and security. Only one person should be able to submit orders to your supplier. They should be approved by the business owner in advance. Don’t give up control of inventory or cash! Make sure there is a procedure that is followed every time on this one! This will keep inventory from disappearing! Count the inventory and let your employees know you keep track. Use software to track the inventory so you can quickly tell if things are getting out of line.Look at what sells and analyze your re-order points. If you can reorder every two weeks, figure out how many items you sell every three weeks and that is your re-order point. If sales decrease, you should be decreasing your inventory. Manage shipping discounts and fees and take advantage of breaks but don’t order unnecessary inventory.When trying new products, have your vendor provide the inventory on consignment or allow you to return. Ask for samples and promotional materials. Negotiate special terms. Example: vitamin storeDetermine what your industry turnover rate should be for your industry. Some turn once per week, and some once per year. Jet planes take longer to sell than a (use an example in audience if possible) 12 pack of beer.Get rid or return slow moving inventory even if it is at a discount. Sell it on Ebay or have a sidewalk sale. Do what you need to do to ditch it fast. Don’t keep specialty items in inventory. All special orders should be pre-paid.Work with vendors who will allow you to return products within at least 90 days with no restocking fee.
  • Donna: Look at your receivables aging – I hope you have one!! How many invoices are past 30 or 60 days? This number is probably increasing. There are several items you should review:Issue your invoices promptly – do whatever you need to do to issue the invoice within 1-3 days of when the sale is made!What payment methods do you offer? Have you considered accepting credit cards. You probably should. Don’t get caught up buying or leasing a machine though unless you are an active retail establishment (that can just cancel out any benefits of accepting the cards). Customers are always willing to spend more money when they are able to pay with a credit card. You can use a bank, paypal, or another service but shop around until you find the best plan for your volume and transaction size. Don’t make any long term commitments!What are the terms? Look at your competitors terms and your vendors terms? Net 15, Net 30, Due upon Receipt . Do your invoices show the terms – if not, you will probably be the last to be paid.Look at vendor terms vs. customer termsConsider paying vendors at 2%/net 10I worked with a courier company that had 30 day terms – the norm for their industry is 7 or 14 days.Charge a finance charge – many won’t pay but it does put the threat out there that says someone is looking and there is a penalty for not paying my invoiceLook at drafting accounts or pre-arranged payments or worst case, a post dated checkDo you make collections call to follow up? You need to or someone in your business should be designated – the squeeky wheel gets the money!
  • Chad: When businesses grow on the fast track, it is a fact of life that they will have growing pains and probably struggle with cash flow. If your product was purchased with 30 day terms and your customer pays you at 45 days, the pressure is on. Again, consider the terms. Consider increasing the prices for slow payers or less favorable terms. Take a deposit. In contracting situations, many require a 50% deposit. That helps them buy the materials to complete the job since they know you will probably be paying them after they are due to pay their vendors.Consider factoring as a temporary solution. Factoring is a third party financing arrangement where you present the invoice to your customer and factor at the same time and they factor advances a portion of the payment to you as if the customer paid upon receipt of your invoice. This may give you the cash flow to get other larger jobs while growing your business. One client I advised to do this turned $500,000 of sales into over $2.5 million in the first year. 2 years later, his sales are over $10 million because he has working capital.
  • Donna: If you decide you need a loan, you can’t just walk into a bank and ask any more. All the ground work needs to be laid a long time in advance. Pick the right bank! If you are a large business with complex needs, pick a bank that can service your needs. If you are a small business, pick a bank with personalized service. Meet the banker, and make sure that everyone in that branch knows who you are. When you need them, they need to know you! Don’t go to the drive thru every time. Go in at least 90% of the time. Build this relationship from the beginning.Any time additional cash is put into the business, there should be a plan in place so this is not an ongoing subsidy. Otherwise, this could become welfare for a business and it will never support itself. If there is no plan to keep this from being an ongoing “solution”, then you might consider closing the doors!Make sure you have analyzed the return on the investment. Could your investment work harder in another form? Can you beat the market or a CD? There must be something in return.In a small business, risk is high. Therefore, the rate of return must be high to justify the risk this investment will assume. 10% won’t cut it! Especially, if you “own a job”.
  • Donna: Credit card can create havoc for a business owner who is not using them for the right reason. If the reason for using the credit card is because you have run out of cash, there must be a plan in place to fix the problem, not just keep the business on life support. This will just multiply your problems.Credit cards may be used for expansion or temporary needs in an efficient manner though. For example, one of our clients who is a fairly new business is still establishing credit limits with vendors. His main vendor gave him a credit limit of $5,000 which he quickly approaches before the 30 day terms on his invoices. We have worked with the vendor to increase the credit limit and they will not do it until after he is with them for 1 year. In the interim, we suggested that he get an AMEX Plum card. The terms of the card allow him to pay 10 days after the statement and take 2% discount. Or he can pay 10% in 30 days and the other 90% in 60 days with no interest. So, if he charges the card within 15 days of the sale and then stretches the payment to the full 60 days, he has in effect obtained 75 day terms with the vendor on unlimited purchases. He just has to pay the card based on the terms.On a related note, if you ever use a personal credit card for business purposes, it could have a larger effect than you may realize. This is a separate seminar on its own, but try all means possible to get credit into the business name and not your personal. If on your personal credit, it may effect your credit rating and you may pay a higher interest rate because of it. We have a client now who purchased a $50K machine on his personal credit card. His credit score went under 700 so he is paying a higher interest rate on the refinance of his house because of it.
  • Chad: Read from Big Bucks! P. 85 and p. 90 (ka-ching)At the end of the day, with the all the things we have talked about with cutting costs, the best and healthiest thing you can do for your business is to sell more. If your revenues increase over time, so will the bottom line. Go back to the grass roots marketing effort that you used when you started your business. Talk to existing and potential customers. Take a look at your website. It is your hardest working sales person you have? Don’t underestimate the value of a great website. Depending on your industry, sometimes it does not take too much effort to have a spectacular website that can outsell your competition. A website that sells can also expand your geographic market to the world instead of your own city. Also, It used to be that you walking through the door of an office made your first impression. Now, most people look at your website first. An impression is already made before even meet.
  • Donna: The economy is a problem for some but also a big opportunity if you look at it in the right light. The media provides a lot of pessimistic views of our economy and we are surrounded by it. But, what about the business that takes advantage of the situation. For example, we had a client who consulted with large companies to show them ways to improve their effectiveness at trade shows. He traveled all over the country doing this. After all of the airport issues, increases in air fare, and the many costs of travel, he decided to try out web conferencing services for a few of his clients. They loved it and he and his family did too. They accomplished the same thing and with decreased overhead. He has quadrupled his income and can now be more flexible to support his customers better and quicker. Win-Win.If you have planned well enough to have established lines of credit in advance and stocked your nest egg, it may also be a good time to pick up a new or complimentary line of business at a “fire sale” price. Many of the non-planners who have not operated their businesses well, may need to go out of business or sell their interest. You may be able to purchase a business and increase your ability to service customers with more or better products.Expanding services may sounds counter-intuitive, but if a business is healthy, it may be able expand services to take advantage of cutbacks being made by competitors which are struggling. Be prepared to re-invent yourself and your business. Recession create different needs. Some items that customers bought without thinking about it, may change to the “luxury” category with the tightening caused by the cost of food and fuel. New opportunities may present themselves, so be prepared to take advantage.
  • Chad:What is the difference between passive and aggressive marketing? Yellow pages are passive. Aggressive is hitting the streets, going to talk to people that might be your potential customers – tell them about your passion. Let it be contagious – get them exicited about what you do. Sometimes that is hard, like in the accounting world, but you must show them the value they will receive from your product or service in terms they understand. If we use accounting as an example, who does not want to save money on taxes? Who does not want their business to be more successful?Take good care of your existing customers. Now is the time that your customers may be approached by your competition offering lower prices. Make sure your customers know you are there to work with them and that the service level you offer cannot be matched by your competition. People do business with people they like.
  • Donna: Are their industry organizations that could help you learn more strategies for getting and keeping customers or lowering costs? We are members of PASBA, the professional association of small business accountants. Most accountants in our area are not members of this organization and it is not cheap to join. Through having many firms similar to us, we can network with these other firms to learn processes that will help us improve our business and provide better service without reinventing the wheel. Many business owners don’t understand that others have faced or are facing the same challenges. Rather than each person trying a different potential solution, why not ask if others have seen the situation and what they did. That is a faster way to a solution and more efficient.Your competition is not necessarily the enemy. You may be able to refer business you don’t want to them and they could refer to you as well. You may be able to buy in bulk or share costs. Talk to them and have lunch. Share ideas.
  • Chad: How many of you have read the E-Myth by Michael Gerber?
  • Chad:
  • Donna: ATM principle
  • Donna
  • Chad: In business 12 yearsSeen changes in our area over the past few yearsTougher on small businesses – paying more taxes, making less moneyDon’t utilize accountants like larger companiesSmall businesses normally can’t afford to utilize their accountantsHourly rate of $200-400 per hour that most could not affordThat is the reason most accountants only provide year end financials and a tax return to sm businessesLeaves a tremendous void for guidance, advice, and planning throughout the yearHow could we provide the necessary services and the guidance, advice and planning at an affordable price?Small businesses sometimes need this more than larger businessesWe developed the Special Business package to solve this problemIncludes one fee for all Tax planning helps pay for the package in tax savings
  • Donna: Bookkeeping vs. acctg
  • Chad
  • Donna
  • Chad: read Henry Ford part here
  • Donna
  • Surviving An Economic Downturn

    1. 1. Surviving an Economic Downturn Strategies to Improve the Financial Life of your Company Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    2. 2. Chad Bordeaux, CPA, CFE and Donna Bordeaux, CPA, PFS 548 Nautical Drive #202 Lake Wylie SC 29710 www.yourcpapartners.com Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    3. 3. What problems are you currently seeing in your businesses? Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    4. 4. Evaluating the Problem and Finding Solutions Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    5. 5. Cash flow is the first factor that can “sink a business” Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    6. 6. Planning with Budgets and Forecasting  Use budgets to review your expenditures  Use forecasts to look to see where you have the possibility of going  Planning draws the map from here to there  Benchmark your company against the industry averages Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    7. 7.  Evaluate all expenses by reviewing your Income Statement each month.  Review the services to see which ones are no longer needed, and research prices and offerings from different vendors to see if there are cost-effective alternatives.  Research prices through the web. Are there better alternatives? Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    8. 8.  Examples of operating costs ◦ Cost of goods or services sold ◦ Facilities (rent, cost of ownership) ◦ Payroll (including benefits, bonuses, etc) ◦ Contract labor ◦ Marketing and advertising ◦ Loan repayments ◦ Taxes (income, personal property, sales/use, payroll) ◦ Insurance Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    9. 9. Pick 2! Quality Remember when comparing anything your business buys, you can’t have all three. You pick 2 and the vendor decides the Price third. Make sure that cutting costs does not lower the quality of your product or services. Service Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    10. 10. The Silent, Deadly Killer in the Business Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    11. 11.  Inventory Management ◦ Control ordering function and take physical counts ◦ Look at what sells and analyze re-order points ◦ Negotiate when trying new products ◦ Look at inventory turnover rate for your industry ◦ Get rid of slow moving inventory ◦ Require pre-payment for all specialty items ◦ Watch for restocking fees Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    12. 12. Receivables must be monitored closely! Receivables can be an indicator of how hard your customers are being hit by an economic downturn, and could provide an early warning that clients are about to cut back on their purchasing. Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    13. 13.  Growing pains  When sales increase dramatically, watch out for cash flow problems ◦ Terms ◦ Factoring Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    14. 14.  Options when you need more cash ◦ Borrowing – from bank, family, shareholders  Use the right bank for your business! ◦ Additional Capital investment by owners ◦ ONLY A SHORT-TERM SOLUTION Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    15. 15.  Is using a credit card a good option for your business? ◦ Keep credit in your business name whenever possible. ◦ Get credit established when you DON’T need it.  Use discipline! Managing your cash flow Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    16. 16. “… this man did not spend a dime if nine cents would do, but the great lesson he was teaching me was that you make money by creating sales, not by pinching pennies.” - Ken Blanchard & Sheldon Bowles Big Bucks! Revenue Saves the Day Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    17. 17.  Look at what you sell and how you sell it ◦ Does the “new economy” provide different uses for your product or service?  Don’t fall into the media trap – you are not a victim and the economy provides new opportunities if you will look at them.  Consider purchasing your competition or complimentary business  Expand services or Re-Invent Revenue Saves the Day Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    18. 18.  Look at your sales and marketing ◦ Passive Marketing ◦ Aggressive Marketing  How much does it cost to get a customer?  Enlist the help of a professional to learn how to sell or have someone sell for you. Revenue Saves the Day Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    19. 19.  Learn more about your competition ◦ Industry organizations ◦ Networking ◦ Have lunch with your competition ◦ Check out their websites for pricing, service, and sales ideas Revenue Saves the Day Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    20. 20. “SmallBusiness Owners spend too much time working in their business and not enough time working on their business.” - Michael Gerber, The E-Myth Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    21. 21.  Why did you go into business?  Has your business changed directions since it started?  What has your experience been?  What did you expect? Have these expectations changed? Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    22. 22. A T M • Accounting • Thing they • Management • Bookkeeping do best • Marketing • Taxes • Payroll Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    23. 23. 85% out Which of business group will you be 15% a part survive of? Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    24. 24.  What can you do to improve your odds?  It is tougher now than ever for small businesses  Larger businesses operate differently and have better information for decision making  You need better information for decision making Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    25. 25.  If you work on your business, how do you know if it was a successful move unless you monitor your progress?  Bookkeeping and reports can create the X-ray but use your accountant to help read the x-ray. They can help you diagnose and put a treatment plan in place for your business. Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    26. 26.  What you need to measure your business Prompt and thoughtful answers to your business questions Monthly financial statements (balance sheet, income statement, sales analysis) with feedback and key performance indicators Reconciliation of your bank accounts Analysis of your business compared to your industry peers Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    27. 27.  What you need to measure your business (continued) Ideas for growing your business Proactive tax planning and preparation to save you taxes Accurate, easy and integrated payroll processing Required reports: payroll, sales tax, property taxes, income taxes, estimated payments Prompt resolution of any tax notices Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    28. 28.  If you do not have this information, you are working with one arm tied behind your back.  Consider your strengths and weaknesses  Do what you do best and outsource the rest.  Surround yourself with people who know the answers. Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    29. 29.  Don’t get stuck in the day- to-day activities so that you don’t have time to implement any new ideas  Step back and look at your business from the outside to objectively see what needs to be improved to help it grow  Free yourself up to implement those new strategies Measure what you treasure Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA
    30. 30. We are here to help! Chad Bordeaux, CPA, CFE and Donna Bordeaux, CPA, PFS 548 Nautical Drive #202 Lake Wylie SC 29710 www.yourcpapartners.com Copyright © 2008, by Bordeaux & Bordeaux, CPAs, PA

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