Practical Strategies          toRestructuringBusiness Debt
Practical Strategies to Restructuring Business Debt   In this presentation we’ll discuss:            Some Business Statis...
How Important are SmallHow Important are Small Businesses to the U.S.  Businesses to the U.S.      Economy?       Economy?
Small firms:                 Represent approximately 99% percent of all employer firms.                 Employ half of a...
Small firms also:                  Supply more than 20% of the total value of federal contracts.                  Produc...
How many businesses open  and close each year?
Annual estimates for     businesses with employees:     672,000 new startup firms          and 545,000 closures(* both are...
For those  closures, the   clock was     tickingResearch shows the majority of closures is the  result of cash   flow issu...
What Is Debt Restructuring?
Debt Restructuring is theprocess of negotiating new   payment terms with    existing creditors
The purpose is to satisfyyour creditors on a budget  you can realistically         afford.
In Restructuring Debt,  You Have to See…
The Warning Signs
The Warning Signs    • Cash flow isn’t enough to      handle all the expenses    • Debts are continually put off    • Some...
The Warning Signs    • Running past due on more      than a third of payables    • Shuffling to pay smaller      creditors...
When these signs are present, it’s time to develop a practical and realistic plan to      satisfy creditors and survive
You’re not  alone…
Basic Strategies to Get Out     of Excessive Debt        Reduce Costs      Increase Income    Restructure Liabilities     ...
1.       Reduce Costs          There are two principle ways to reduce costs: look for big           savings, or make smal...
3.       Restructure Liabilities          Restructure liabilities for more cash, and/or reduce the amount           of de...
5.       Raise more Capital          Find investors or sponsors.          Issue more shares to current investors.      ...
A Practical Action Plan
A Practical Action Plan Business debt can be a good thing and working through it can be a very stressful event. It can hel...
A Practical Action Plan           If the level of borrowing becomes          excessive it can lead issues such as:    • Ru...
In a turbulent time it’s important to      remember a few vital steps
Businesses in a Restructure           Process Need To:• Realize that the business is in  economic crisis• Reinvent the bus...
Businesses in a Restructure          Process Need To:• Redefine leadership and roles• Rethink marketing and  communication...
Some Other Things to Consider  Before Restructuring and     Questions to Answer
• First, what is the future  potential of the business?• Then, is restructuring worth  the time and energy that it  takes ...
• Which debts need to be  restructured and their  amounts?• What amount can be  realistically put towards  these debts?
How Should Creditors  be Restructured?
Classifying Creditors                             Non-Essential                               Creditors                   ...
A List – Essential Creditors      Without their product, services or equipment, you      would not be able to operate.    ...
B List – Important Creditors      Creditors that are still willing to sell to you.      Their products, services or equipm...
C List – Non-Essential Creditors      Are no longer willing to do business with you.      Have stopped giving you credit a...
A Framework for   Recovery
How Much Can You Afford Each Month?      What a realistic amount to pay on a consistent      monthly basis toward excessiv...
Calculating A Monthly Budget1. Calculate your average   projected monthly revenue.2. Then calculate the greatest   Average...
Calculating A Monthly Budget                                     75% of Avg. Monthly  5. Now calculate 75% of your       G...
Calculating A Monthly Budget – worksheet                                            75% of Avg. MonthlyAverage Projected  ...
Calculating A Monthly Budget – example                                             75% of Avg. Monthly Average Projected  ...
Calculating A Monthly Budget – example • If you can afford to pay 9.1% of    Monthly max Debt   the designated debt each m...
Writing A Proposal and What To Include           Hardship Letter           Business History and Profile           Payme...
Writing Your Hardship Letter   Can you demonstrate your hardship? If so, creditors may be persuaded to gobeyond their norm...
Business History Profile      Your profile should be in a checklist format and include a                detailed analysis ...
The Cover Letter     Should include:          Your contact information on company stationary.          A brief introduct...
Initial Re-Payment ProposalSeparate creditors into classes. Example: Class A, B, C, D, etc   Rate Class A creditors for m...
Initial Re-Payment Proposal   Rate Class D creditors who want to be paid in full only with    one lump sum to be negotiat...
A Few Tips to Remember    1. Put aside your monthly budget like clockwork, even       if no payments are scheduled to go t...
A Few Tips to Remember    6. Don’t avoid creditor calls… communicate consistently.    7. Some collectors can be rude. Neve...
Note: A Framework for Recovery should      include seeking the advice of a Financial Advisor and an Attorney  A List      ...
Obstacles in Restructuring Debt?Even if you’re on the right track, you’ll get        run over if you just sit there.      ...
so there you have it…
Practical Strategies           toRestructuringBusiness Debt
For the full version of this presentation   Please contact us                                                            B...
Spotlight on New Plays             John DeGaetano Productions                   Licensing available or other consideration...
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Restructuring Business Debt - Practical Strategies from Banker's U

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A practical action plan and other things to consider in restructuring business debt

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Restructuring Business Debt - Practical Strategies from Banker's U

  1. 1. Practical Strategies toRestructuringBusiness Debt
  2. 2. Practical Strategies to Restructuring Business Debt In this presentation we’ll discuss:  Some Business Statistics  What is Debt Restructuring  The Warning Signs  Business Questions to Answer  Classifying Creditors  Calculating a Monthly Budget  Writing a Hardship Letter  Business History Profile  Payment Plan Cover Letter  Initial Re-Payment Offers  Other Basic Strategies to Reduce Debt
  3. 3. How Important are SmallHow Important are Small Businesses to the U.S. Businesses to the U.S. Economy? Economy?
  4. 4. Small firms:  Represent approximately 99% percent of all employer firms.  Employ half of all private sector employees.  And pay more than 45% of total U.S. private payroll.  Have generated 60 to 80% of net new jobs annually over the last decade.  Create more than 50% of non-farm private gross domestic product (GDP).Sources: U.S. Bureau of the Census; Federal Procurement Data System; Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration.
  5. 5. Small firms also:  Supply more than 20% of the total value of federal contracts.  Produce 13 to 14 times more patents per employee than large patenting firms. These patents are twice as likely as large firm patents to be among the one percent most cited.  Are employers of over 40% of high tech workers (such as scientists, engineers, and computer workers).  Are over 50% home-based and 3 percent franchises.  Make up an average of 97% of all identified exporters and produced approx 29% of the known export value. Sources: U.S. Bureau of the Census; Federal Procurement Data System; Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration.
  6. 6. How many businesses open and close each year?
  7. 7. Annual estimates for businesses with employees: 672,000 new startup firms and 545,000 closures(* both are estimates and averages about 10 percent of the total)
  8. 8. For those closures, the clock was tickingResearch shows the majority of closures is the result of cash flow issues and the burden of debt
  9. 9. What Is Debt Restructuring?
  10. 10. Debt Restructuring is theprocess of negotiating new payment terms with existing creditors
  11. 11. The purpose is to satisfyyour creditors on a budget you can realistically afford.
  12. 12. In Restructuring Debt, You Have to See…
  13. 13. The Warning Signs
  14. 14. The Warning Signs • Cash flow isn’t enough to handle all the expenses • Debts are continually put off • Some new or negotiated payment terms with creditors have now become a burden.
  15. 15. The Warning Signs • Running past due on more than a third of payables • Shuffling to pay smaller creditors verses larger • Bouncing checks or have been contacted by collectors
  16. 16. When these signs are present, it’s time to develop a practical and realistic plan to satisfy creditors and survive
  17. 17. You’re not alone…
  18. 18. Basic Strategies to Get Out of Excessive Debt Reduce Costs Increase Income Restructure Liabilities Restructure Assets Raise more Capital Exit the Business
  19. 19. 1. Reduce Costs  There are two principle ways to reduce costs: look for big savings, or make small cost reductions across the board.  To make savings across the board, set a savings target (say, 10%) and reduce each budget by that amount. Then take small steps to reduce traveling costs or opting for equipment alternatives or leasing, etc.2. Increase Income  Increasing the amount of money flowing into your business, as in increased marketing, cross-selling to existing customers, offering special deals for additional or advance orders, getting referrals with other organizations and/or affiliates.  Raise your prices based from a comprehensive study.  Find alternative sources of income. Rent unused office space, consider selling advertising space on your website (Google Adsense, YPN, MSN Adcenter, affiliates) or in physical spaces you have available, obtaining commissions from other organizations.
  20. 20. 3. Restructure Liabilities  Restructure liabilities for more cash, and/or reduce the amount of debt.  Agree to longer or reschedule payment terms with suppliers.  Replace or consolidate existing loans with lower interest rates.  Defer tax liabilities (requires specialist tax advice).  There are two other principle ways to reduce costs: look for big savings, or make small cost reductions across the board.  For savings across the board; set a savings target (of approx. 10%) and reduce each budget by that amount. Reduce misc. costs or opt for equipment alternatives, leasing, etc.4. Restructure Assets  Sell unnecessary assets (example: surplus/old equipment, cars)  Convert necessary assets into liabilities: sell to a finance company and lease them back.  Factor invoices (this can reduce the asset value of the invoice, but can raise immediate cash).  Use investments or cash to pay off loans.
  21. 21. 5. Raise more Capital  Find investors or sponsors.  Issue more shares to current investors.  Obtain grants if applicable.6. Exit the Business  Sell the business.  Sell off all or limited business assets (including the business goodwill, or partial client base) and use the proceeds to pay off liabilities of issue.
  22. 22. A Practical Action Plan
  23. 23. A Practical Action Plan Business debt can be a good thing and working through it can be a very stressful event. It can help you to establish your business, fund growth or invest for the future. On the other hand, if the level of borrowing becomes excessive it can lead to many problems without a practical action plan.
  24. 24. A Practical Action Plan If the level of borrowing becomes excessive it can lead issues such as: • Running out of cash • No contingency to deal with unexpected costs • Reducing the value of the business • Losing the confidence of stakeholders • Inability to invest • Reduced service/product quality • Employee conflict and many more...
  25. 25. In a turbulent time it’s important to remember a few vital steps
  26. 26. Businesses in a Restructure Process Need To:• Realize that the business is in economic crisis• Reinvent the business mission and vision• Redefine the business’ value proposition• Refinance the business
  27. 27. Businesses in a Restructure Process Need To:• Redefine leadership and roles• Rethink marketing and communication• Redistingush from competitors• Resign the organization and network
  28. 28. Some Other Things to Consider Before Restructuring and Questions to Answer
  29. 29. • First, what is the future potential of the business?• Then, is restructuring worth the time and energy that it takes to work on a recovery process?• Is the business willing to revise and renegotiate?
  30. 30. • Which debts need to be restructured and their amounts?• What amount can be realistically put towards these debts?
  31. 31. How Should Creditors be Restructured?
  32. 32. Classifying Creditors Non-Essential Creditors C Essential Important Creditors Creditors A B Decision Maker
  33. 33. A List – Essential Creditors Without their product, services or equipment, you would not be able to operate. There is really nowhere else to purchase the product, service or equipment as priced. These creditors should not be restructured and are critical to survival of the business.
  34. 34. B List – Important Creditors Creditors that are still willing to sell to you. Their products, services or equipment may be important, but could be purchased elsewhere. Currently carrying a past due balance, but not pushing for payment. Vitals
  35. 35. C List – Non-Essential Creditors Are no longer willing to do business with you. Have stopped giving you credit and you do not need to do business with. Are not critical to your survival. Have placed the account in for collection.
  36. 36. A Framework for Recovery
  37. 37. How Much Can You Afford Each Month? What a realistic amount to pay on a consistent monthly basis toward excessive debts? What is your cash flow and how much is left on average each month without designated restructured debts amounts?
  38. 38. Calculating A Monthly Budget1. Calculate your average projected monthly revenue.2. Then calculate the greatest Average Projected monthly variable (example: Monthly Revenue = your high revenue month minus – minus your lowest) This is your number for next slide. Average Projected3. Now calculate your average Monthly Expenses = projected monthly expenses.4. And then subtract average Equals = Average projected monthly expenses Monthly Gross Profit: from your average projected monthly revenue. * Please refer to workbook guide
  39. 39. Calculating A Monthly Budget 75% of Avg. Monthly 5. Now calculate 75% of your Gross Profit = average monthly gross profit. 6. Then multiply by your multiply by item #2 greatest monthly variable then, divide by total (from item #2 of previous). 7. Divide by total designated designated debts = debts. equals = 8. This equals your profit Profit Variable: variable. 9. Now subtract your average subtract Profit Variable profit variable from average from Average Gross gross profit Profit = 10. This is your debt payment monthly budget. Monthly max Debt* Please refer to workbook guide Payment budget =
  40. 40. Calculating A Monthly Budget – worksheet 75% of Avg. MonthlyAverage Projected Gross Profit =Monthly Revenue = multiply by item #2minus – then, divide by totalAverage Projected designated debts =Monthly Expenses = equals =Equals = Average Profit Variable:Monthly Gross Profit: subtract Profit Variable from Average GrossNote: taking a conservative approach Profit = when calculating your revenue and expense projections will help in times when cash flow is exceptionally tight. Monthly max Debt Payment budget =
  41. 41. Calculating A Monthly Budget – example 75% of Avg. Monthly Average Projected Gross Profit = $1,875 Monthly Revenue = $10,000 multiply by item #2 $3,000 minus – then, divide by total Average Projected designated debts = $25,000 Monthly Expenses = $7,500 equals = Equals = Average Profit Variable: $225 Monthly Gross Profit: $2,500 subtract Profit Variable from Average Gross Profit = $2,275 Monthly max Debt* Please refer to workbook guide Payment budget = $2,275
  42. 42. Calculating A Monthly Budget – example • If you can afford to pay 9.1% of Monthly max Debt the designated debt each month it Payment budget = $2,275 would take approximately 10-12 months to pay off and is Divide by total considered a moderate cash flow $25,000 Designated Debts issue. Equals % = 9.1% • Above this percentage would be This is the max monthly % you can considered a minor cash flow afford to pay toward debts issue and take less time to pay off. • And below this percentage would be considered a major long term cash flow issue of more than a Example shown above. Percentages may year. vary and it is advisable to seek professional help for major debt issues.* Please refer to workbook guide
  43. 43. Writing A Proposal and What To Include  Hardship Letter  Business History and Profile  Payment Plan Cover Letter  Initial Re-Payment Proposal
  44. 44. Writing Your Hardship Letter Can you demonstrate your hardship? If so, creditors may be persuaded to gobeyond their normal outstanding balance settlement parameters. A hardship letter is personally addressed to the creditor and should adequately describe the issues affecting you and your business that have contributed to your financial dilemma. A template hardship letter should include things like: Any personal tragedy such as aa Any personal tragedy such as  If you are personally liable and you  If you are personally liable and you serious illness, divorce or death in serious illness, divorce or death in have little or no assets or equity in your family. have little or no assets or equity in your family. your home. your home. Any disaster, such as aafire, flood or Any disaster, such as fire, flood or property damage adverse weather  The loss of key equipment due to  The loss of key equipment due to property damage adverse weather issue. issue. repossession or breakdown. repossession or breakdown. If you are behind on any taxes and If you are behind on any taxes and  Any secured loan that is in default or  Any secured loan that is in default or whether there are any tax liens whether there are any tax liens is in the process of consolidation. against you or other debts. is in the process of consolidation. against you or other debts.  Any existing lawsuits or changing  Any existing lawsuits or changing If your home is in, or close to being If your home is in, or close to being in default or foreclosure. regulatory issues. regulatory issues. in default or foreclosure.
  45. 45. Business History Profile Your profile should be in a checklist format and include a detailed analysis of the following items:  Your general company information.  Start date, business type and company description.  Financial hardship and how the company has been affected in the areas of – Sales, Cash Flow, Expenses and/or Operations.  Three year sales history verses expenses and net profit.  Lawsuits or judgments pending, taxes owed or any other extenuating circumstances.  Actions taken to resolve the debt issue.
  46. 46. The Cover Letter Should include:  Your contact information on company stationary.  A brief introduction along with an explanation of your current financial situation.  A request in working together to resolve your debt issue and reference review of the attached documents.  Respectfully ask the creditor to hold off on any legal action and ask for their help in attempting to save the business.
  47. 47. Initial Re-Payment ProposalSeparate creditors into classes. Example: Class A, B, C, D, etc Rate Class A creditors for minimum amount of total debt they will accept as settlement. For example 16% to 20% of the total amount to be paid in full within one month. Rate Class B creditors who will accepts 30% to 35% of the total debt to be paid in three or four monthly installments with first payment deferred for two to three months. Rate Class C creditors who will only accepts a minimum of 60% to 70% of the total debt to be paid in seven to eight monthly installments and deferred to begin in six months. Variance
  48. 48. Initial Re-Payment Proposal Rate Class D creditors who want to be paid in full only with one lump sum to be negotiated for payment after twelve months or more based on agreement. Rate Class E creditors who will accept a combination of class agreements and monthly installment payments. Agreements: By both (the business and the creditor) should include a cease to any and all collection efforts unless there is a default in the agreement. All workable payments plans should be reviewed by a financial advisor as results will vary based business debt and revenue factors. Variance
  49. 49. A Few Tips to Remember 1. Put aside your monthly budget like clockwork, even if no payments are scheduled to go to creditors. 2. Keep a good accounting of your reserve funds. 3. Just because a settlement sounds good, it doesn’t mean you can afford it. Be conservative and understand situations will vary. 4. Don’t promise more than you can deliver. Don’t be in a rush to settle what you can’t afford to pay. 5. Cut expenses. If feasible, scale back on an employee or an expense that doesn’t translate to revenue.
  50. 50. A Few Tips to Remember 6. Don’t avoid creditor calls… communicate consistently. 7. Some collectors can be rude. Never sink to their level. If they are unprofessional, ignore rudeness and maintain composure. 8. Contact the creditor if you fall behind on scheduled payments and work out a time to resume payments. Don’t send any further payments unless the creditor agrees to accept the future payments under the existing terms.
  51. 51. Note: A Framework for Recovery should include seeking the advice of a Financial Advisor and an Attorney A List B List C List
  52. 52. Obstacles in Restructuring Debt?Even if you’re on the right track, you’ll get run over if you just sit there. Will Rogers
  53. 53. so there you have it…
  54. 54. Practical Strategies toRestructuringBusiness Debt
  55. 55. For the full version of this presentation Please contact us Banker’s U is a training branch of John DeGaetano Productions Please note: Nothing in this presentation can be used or Training Marketing Consulting reproduced whole or in part without the express consent of Banker’s U. Please contact us for more information. 707-338-2886Copyright All Rights Reserved
  56. 56. Spotlight on New Plays John DeGaetano Productions Licensing available or other considerations Visit our Website: johndegaetanoproductions.com Amazon Author Page: amazon.com/author/johndegaetano

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