This document provides tips for entrepreneurial companies during an economic slowdown. It recommends preparing detailed short-term forecasts, strengthening the balance sheet by improving financial ratios and having more cash, cutting costs and reducing burn rates, focusing on revenue generation and variable costs, shifting to equity-based compensation, slowing down payables and accelerating receivables, turning inventories, and exploring funding alternatives. Maintaining strong financial management is key to weathering an economic downturn.

1. Tips for
Entrepreneurial
Companies During
the Economic
Slowdown
Slow the Burn
Speed the Turn
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2. Overview
Prepare detailed short-term forecasts
Strengthen the balance sheet
Cut costs and reduce burn rates
Focus on revenue generation
Focus on variable costs
Shift to equity-based compensation
Slow down payables
Accelerate receivables
Turn inventories
Explore funding and financing alternatives
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3. Prepare Detailed Short-Term Forecasts
Forecasts are the GPS system to tell where you are
headed.
Forecast realistic scenarios. Balance sheet and income
statement forecasts are necessary to forecast cash flow.
Update the short-term forecast frequently as conditions
change!
Obtain an independent perspective from a trusted
advisor. Dickson Consulting 3

4. Strengthen the Balance Sheet
Balance sheet reflects a company’s financial position at a
point in time (i.e. month end). See slide following.
Improve financial ratios, particularly those focused on
solvency and efficiency. See slides following.
More cash; fewer short-term liabilities!
Exhaust every opportunity to generate additional
working capital without taking on additional liabilities.
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5. Balance Sheet
The purpose of the balance sheet is to report the financial position of an accounting entity at a
particular point in time. It reflects an entities assets, liabilities and net equity at a point in time, usually
as of the end of a month and year. It reports what is owned, owed and the residual interest.
Assets are probable future economic benefits obtained or controlled by a particular entity as a result of
past transactions or events. Examples include cash, accounts receivable, inventory, buildings and
equipment. For example, if an entity has a factory that made computers, then it would be considered
an asset because the factory would produce cars that would be sold in the market for cash.
Liabilities are probable future sacrifices of economic benefits arising from present obligations of a
particular entity to transfer assets or provide services to other entities in the future as a result of
past transactions or events. Examples are debt, accounts payable, unearned revenues and bonds
payable.
Equity is the residual balance. Assets – liabilities = equity. Equity is commonly called stockholders’
equity if the business is a corporation as it represents the financing provided by the stockholders
along with the earnings from the business not paid out as dividends (retained earnings).
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6. Types of Assets and Liabilities
Assets
There are two different types of assets
shown on a balance sheet-current
assets and non-current assets
Current assets are assets that will be
used or turned into cash within one
year. Examples include cash, accounts
receivable, inventory, short-term
investments, supplies and prepaids.
Non-current assets comprise the
remainder of the assets. These include
accounts such as long-term
investments, land, building,
equipment, patents and intangible
assets.
Liabilities
There are two different types of liabilities
shown on a balance sheet–current liabilities
and long-term liabilities.
Current liabilities are obligations that will be
paid in cash (or other services) or satisfied
by providing services within the coming
year. Examples include accounts payable,
short-term notes payable, and taxes payable
Long-term liabilities are obligations that will
satisfied after one year. Examples include
long-term debt and deferred taxes.
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7. Financial Statement Analysis-Solvency
Quick Ratio=current assets-inventory/divided by liabilities. Also called the acid
test ratio. Indicative of short-term ability to use assets to satisfy current
liabilities.
Current Ratio=current assets divided by current
liabilities. Includes inventory that will be turned into cash.
Debt to Equity Ratio=short-term debt plus long-term debt
divided by shareholders equity.
Debt Service Coverage Ratio=EBITDA divided by annual principal plus interest
payments. Measure for lenders to determine whether an entity can make debt
payments. A higher ratio is favorable. A lower ratio indicates an entity could
have problems meeting its debt obligations.
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8. Financial Statement Analysis-Efficiency
Accounts receivable turnover=average accounts receivable for a period divided by the net credit sales or
revenues for the same period. Measures how efficiently an entity collects accounts on credit extended.
Days sales (revenue) in accounts receivable=accounts receivable divided by total credit sales in the accounting
period times days in accounting period or average accounts receivable divided by average daily credit sales. A
high days sales outstanding may indicate a customer base with credit problems or an entity that is easier with
its credit policy or collection activity.
Inventory turnover=net sales divided by average inventory at selling price or cost of goods sold divided by
average inventory at cost.. This is a measure of the number of times inventory is used or sold in a time period.
A low turnover may indicate overstocking or high inventory levels. But higher inventory levels are sometimes
maintained in anticipation of rising prices or expected shortages. If inventory levels are high there is an
additional cost for warehousing. A high inventory turnover rate may indicate inadequate inventory levels
which could result in a loss of business opportunities.
Return on Sales=operating profit or margin divided by net sales which is expressed as a percentage. It is a
measure of how efficiently an entity turns sales or revenue into profits or the amount of profit earned per
dollar of sales
Return on Equity=net income divided by shareholders equity. An overall measure of performance─profit
earned per dollar of investment. It is also considered an entities return on net assets. Return on equity is a
factor in valuation of an entities market value.
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9. Cut Costs and Reduce
Burn Rates
“A penny saved is a penny earned”. Quote
supposedly from Ben Franklin.
Is the spend really necessary on a short-
term basis? Marketing costs; business
development expenses; long-term R&D?
Early decisions to cut costs are rarely
regretted!
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10. Focus on Revenue Generation
Become a more efficient customer-focused
organization rather than a market-focused one.
Focus on revenue generation. Eliminate other
distractions.
Rethink the go-to-market plan and focus on
customers who have the resources to purchase your
product or service.
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11. Focus on Variable Costs
Identify those expenses that are variable and can
be avoided.
Little expenses add up and controlling sends a
message to employees.
Watch for hidden expenses that are taken for
granted.
Turn electric device (lights) off when not in use;
stop purchasing office supplies when everybody
has 10 pens already; etc.
Less cash out means less cash burned.
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12. Shift to Equity-Based
Compensation
Executives are frequently highly paid but can
survive on a reduced salary.
Consider increasing stock option pools and
creating more equity-based incentive
compensation to reduce cash burn from
compensation.
Save cash in the short-run and create
incentives for long-term success!Dickson Consulting 12

13. Slow Down Payables
Stay in frequent contact with your vendors, at
as high as level as possible. Communicate
honestly!
Attempt to negotiated longer payment terms
or consider purchasing upfront at a discount
or in bulk.
Sometimes if you ask, you shall receive!.
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14. Accelerate Receivables
Stay in touch with your customers and monitor their
payments. Don’t let them slide!
Understand your customers business and their
position in the industry…in case they may have
financial problems.
Use ratios to evaluate individual customer and overall
collection efficiency.
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15. Turn Inventories
Inventory is expensive and there are overhead
costs, such as storage costs, associated with it.
Know what you got and develop a plan to get rid of
it at optimum value.
Stock fast moving, high margin items.
Measure overall and individual product inventory
turns.
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16. Explore Funding and Financing Alternatives
Pursue government PP funding if it is still available.
Apply for grants administered by the Small Business
Innovation Research and Small Business Technology
transfer programs.
Approach existing investors for short-term loans or
additional investment.
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17. Contact Information
Bob Dickson
724-272-1527
bo@dicksonconsulting.biz
www.dicksonconsulting.biz
Connect with me on LinkedIn
https://www.linkedin.com/in/dic
kson1/
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18. THE END
I hope that this presentation was
informative and useful to you!
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