While certain sectors of our economy have shown signs of a gradual uptick, many, if not most, remain in a state of stagnation or recession.
Scott Rittenberg a partner with Habif, Arogeti & Wynne, LLP, points to three areas where owners can take control to better their chances for success in this, or any, environment: cash management, operational procedures and employment issues.
Many of these strategies are commonsense approaches to best practices, but they are often overlooked or put on a back burner as business owners and managers focus on day-to-day operations.
Smart Business spoke with Rittenberg about actions that family-owned and closely held businesses can take to improve their prospects during tough times.
If a business is currently experiencing a loss, what can the owners do to minimize that loss and have the cash necessary for continuing operations?
If a business had a down year, most likely it is sitting on a tax asset — a net operating loss. Owners should file as early as possible to carry back losses and free up cash.
Owners should overcommunicate with their bank. Bankers do not like surprises. They expect revenue to be down in this environment. Set up a proactive meeting with the lender; do not wait for them to come to you. Now more than ever, businesses are partners as well as customers. Prepare forecasts using different realistic scenarios. Communicate early if there is danger of violating a covenant. Also, research how the bank is doing; their problems can become the business’s problems.
On the flip side, if the business is healthy, now is a good time to acquire a credit facility. While there may not have been a need for debt in the past, now is the time to view a line of credit as insurance.
Do whatever it takes to maximize cash flow. Stick to a strict payable schedule, no early payments. Work with vendors to try to negotiate more favorable terms with vendors. I’m sure they’d like to place more inventory. Offer to take more inventory with a guaranteed sale provision. Be prepared for vendors to require a personal guarantee on purchases. Negotiate vendor guarantees and consider doing the same with customers if the business is B2B.
Diligently manage receivables. Send out invoices as soon as possible, instead of waiting until the end of the month, and revise collection policy to become more proactive. Be sure that troubled customers keep current on payments. They can work on paying old invoices while not getting further behind. Consider converting old accounts receivable to a note receivable.