Taking Your Business to the Gym - Managing Creditors

When you are in a situation where you cannot pay all your current creditors you must start to prioritise who you pay, and when you pay them. If you are a retail business for example; then your suppliers are the most important since without them you have no products to sell. If you have credit terms try to extend them, if not, at least attempt to maintain your existing terms otherwise your cash position will get worse. Some may be prepared to offer you extended credit terms for a payment schedule but it must be your judgement call what to ask for and you must be confident that you can manage any agreements. Nothing annoys a creditor more than having agreements continually broken.

In order to make this strategy work you must have a clear and detailed breakdown of your exposure by creditor. You ought to be able to get this from your accounts system. If you don't have this information then you must get it as soon as possible as without detailed understanding of your financial position you will not be able to manage your creditor position. It will require you however, to manage your cash flow a very tightly. I would recommend that if you haven't already you should subscribe to the Internet banking. This why you can see your available funds on a daily basis and can apply them knowing that you have funds available to pay your creditors. Often making weekly payments to creditors' works well as it's often easier to find £250 a week than a single sum of £1000

Based on the fact that you can now identify all your costs you will be able to see easily, your regular payments. In common with most businesses suffering cash flow difficulties the creditors which tend to suffer first are Rent, Rates and Government. It is not surprising therefore that Landlords' tend to get very aggressive with delinquent payers. They will however accept, albeit reluctantly, some variations in how are you pay. So in dealing with your Landlord, I would suggest that you deal with them direct and not through their agent.

Most rent is paid quarterly in advance; you should ask your Landlord if you can pay on a monthly basis. This will be much easier on your cash flow in circumstances where you are likely to be at or near your overdraft limit, and therefore working out of the cash flow generated by your business. Creditors can only be paid against money that has been received. Under these circumstances it will be advisable to cancel as many of your standing orders and direct debits as you can. This will prevent you from going overdrawn and suffering the embarrassment of returned cheque payments, or excess overdraft fees.

The UK Government currently is quite lenient towards tax and VAT arrears as it doesn't want to be seen to be pushing companies into liquidation. However expect this to change in 2010 where the pressure to collect tax revenues outweighs the political pressure to keep companies working.

The most important piece of advice is to talk to your creditors; you won't be the only company they've got who's in trouble but if you explain your difficulties and most importantly have a plan to get out of it you'll most likely get a sympathetic hearing.

ExigentConsulting specialises in providing Business Turnaround, Sales, Marketing andMentoring to the Small and Medium Business.

We help Business Owners improve the profit performance of their business

What Is Quantitative Easing?

As it is the topic of the day, I thought you may like to see this explanation. It is kindly provided by Peter Kelly of Pegasus Funding a finance brokerage specialising in providing financing options for SME's in the UK.

 

What is quantitative easing?

 

Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates.

Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, their only option is to pump money into the economy directly. That is quantitative easing.

The way the central bank does this is by buying up assets - usually financial assets such as government and corporate bonds - using money it has simply created out of thin air.

The institutions selling those assets (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which theoretically should boost the money supply.

 

How would it work?

 

Even economists who agree with the quantitative easing policy often disagree on how exactly it will work. But there are two main ways it could boost the economy, which are really two sides of the same coin.

The first channel is through the direct effect on the banks' bank accounts. With more money sloshing about in their accounts, the banks may decide to lend more to businesses and individuals, and increase the amount of activity in the economy that way.

The second channel is through the effect on the cost of borrowing. When the Bank buys bonds, it reduces the supply of those bonds in the economy. That should increase the demand for new bonds and, at the same time, make it cheaper for businesses to borrow.

Having taken very short-term interest rates as low as possible, the idea would be for the Bank to push down longer-term rates as well (which are the rates that companies and individuals borrow at).

 

Are there any risks?

 

Quantitative easing is a high-risk strategy. If it is not done aggressively enough, banks will remain unwilling to lend and the crisis could drag on. To some extent that is what happened in Japan when this was tried 10 years ago.

Like old-fashioned money printing, QE also runs the risk of going too far: pumping too much money into the economy and causing high inflation - even hyperinflation - as seen in 1920s Weimar Germany and modern-day Zimbabwe.

But in those cases, the government was printing money simply to pay the government's bills. They were not responding to the risk of deflation as the Bank of England is today.

 

Is this printing money?

 

Of course, these days the Bank of England doesn't have to literally print money to do QE. It's all done electronically.

However, economists would still argue however that QE is the same principle as printing money as it is a deliberate expansion of the central bank's balance sheet and the monetary base.

Why is it different from Weimar and Zimbabwe?

Printing money can be defined as the central bank financing of government debts. This is what happened in both Weimar and Zimbabwe and what the British government will insist it is not doing, although the short-term effect is similar.

According to the Maastricht Treaty, EU member states are not allowed to finance their public deficits by printing money. That is one reason why the Bank of England will buy government bonds from financial institutions, not directly from the government.

The Bank believes this form of QE is different because they are "printing money" as part of monetary policy - to prevent deflation. They are not printing money to help the government finance its deficit. Also, unlike Zimbabwe, this is a temporary policy: the Bank expects to sell the government bonds back into the market when the economy recovers.

How do we know if it has worked?

If QE works, credit growth will pick up and businesses will find it easier to get credit. That, in turn, should help stimulate the economy and help push inflation back up to the Bank of England's target figure of 2%, thus staving off the threat of deflation.

 

Pegasus Funding Resources,

01932 244810

www.pegasusfunding.co.uk

Thanks, look for further updates soon Laurence Ainsworth www.exigent-uk.com

Why You Must Increase Marketing in a Recession or How Recessions Destroy Sales Metrics

I have of often read, and had heard many a pundit declaring that in a recession you must reduce your marketing spend. Based on my experience with previous recessions I have strongly opposed these views. I do have to say, that it is often very difficult for businesses to maintain their sales and marketing spend when times get tough. However, as you will see, the impact of a downturn in the economy plays havoc with established sales and marketing metrics. The effect of this should be to demonstrate clearly that in fact a company needs to increase its sales and marketing activity if it wants to survive a recession.

Philosophically this has always made sense, as for at least as long as we are going on a downward curve, there are more sellers than buyers. Those buyers, because they are short of money, will spend less on purchases to help them balance their reduced income. What I have tried to do is to quantify the effects of a recession on sales activity. I have made some simple assumptions which are as follows:

1. To continue trading the company needs to achieve three sales in a month.
   
2. Its success rate from prospects to sales is 33%.
   
3. To get a meeting with a prospect requires ten cold calls.
   

So in a normal sales environment our simple model would deliver this:

Phone Calls	to	Prospects	to	Sales
100	0.1	10	0.3	3

Essentially what we are saying is that you need to make 100 calls to get 3 sales. Now let's assume we get some softening of the economy and things get more difficult so instead of getting 3 sales for ten prospects we only get 2. So to keep up our 3 sales per month we now need 15 meeting. Because the conditions are a bit tougher it gets a bit harder to get meetings and we now need to make around 16 calls to get an appointment. Suddenly our model looks like this:

Phone Calls	to	Prospects	to	Sales
250	0.06	15	0.2	3

 

The result is that we now need to make 250 calls for our 3 sales.  Lets now go one step further and accept we're in a full blown recession rather like we have now. Our success rate is half what it is in normal times (These new metrics based on the evidence from some of my clients and further anecdotal information) . You end up with figures that look like this:

Phone Calls	to	Prospects	to	Sales
400	0.05	20	0.15	3

You can see that the implication in this simple model is quite devastating. It clearly impossible to go from 100 call per month to 400 overnight if at all or in the longer term find a regular 20 prospects per month. Typically sales will go down; just how far down depends on how well the sales team is managed and the local market (sector) conditions. Many companies would soon exhaust they’re prospect list at that level of calling, which partly explains why it doesn’t happen.

So how do we protect ourselves in these difficult times? Well first of all, don't panic! Secondly, before you go rushing off to contact people, you need to understand where you are. What I mean by that is you have to have some of information about the current performance of your sales and marketing activities. Your baseline should be to understand what your current sales of metrics are. If you don't have that information one simple way of creating some is to take the total number of bids, quotes, proposals you have made divided by the number you have won.

Also, make your marketing accountable, that is critically analyse the return on investment you get from your various marketing activities. In some cases this will be easy, for example if you use yellow pages or Yell.com you have their invoice which tells you the cost and you should be able to work out how much business you got from that investment. In simple terms than if your return is less than your investment, stop it. Stop it now if you can. If you can't, stop it as soon as you can. With those more fuzzy situations where you spend time and effort rather than cash you can still assess where you get the best or least reward for your effort.

Only now that you have this information in your possession should you go out and up your marketing and sales. This simple exercise will have done two things; firstly it will have told you what your baseline is which will enable you to understand your effort to sales ratio. Secondly, it will have identified your most productive marketing channels. You now need to go out using those channels and communicate with your best customers, your good customers, and then the rest of your customers to identify sales opportunities. From here you need to move it into new business development. Choose your best channels first as they are most likely to deliver the quickest results. And set yourself targets for activity to see what your new sales metrics are, and if you can, pursue them relentlessly.

It will be tough in the early days, but if you stick at it while others fall by the wayside you will have created a stronger sales and marketing base to take you into the next upswing.

Find us also at www.exigent-uk.com

If You wont take advice from me, What about from "The Sage of Omaha"?

This article is by the legendary Warren Buffett, whose simple homespun philosophy has made him the worlds richest man. His company Berkshire Hathaway has a price per share of a staggering $100,000 per share, thats right, $100,000.

This article demonstrates, if ever we needed reminding, that there are opportunities for us, even in the darkest of times.

New York Times Article by: Brad Holland Times Topics: Warren E. Buffett


THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.


So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.


Why?


A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.


Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.


A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.


Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.


You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.


Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.


Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”


I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.


Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

A recession provides opportunities as well as challenges

Many small business owners are experiencing a downturn for the first time; and what a downturn to start! Nevertheless there are a few simple rules that they can follow which will help them survive and even thrive in this most difficult of business environments.

In describing what can be done I've employed the analogy of a football team which simultaneously has to employ both good defensive and offensive strategies to win.

Let's look at those activities that are defensive in nature. These will protect their client base against other competitors and will assess the fitness of their organisation. Secondly, there are those activities that can be considered offensive, in an attempt to win more business or win more customers.

Defensive actions can be split into external facing and internal activities. Externally they need to be looking to strengthening and at the very least maintaining their relationship with their best customers. Obviously this can be initiated by phone calls, but must include more face to face visits, and more overt proactive activity which can be in the form of newsletters, emails or calls. Also its worth considering particularly in the service industry whether you can get you clients on some sort of regular payment plan. Inevitably this will mean that they start paying for service in advance, making it much more difficult for them to be poached by competitors. Moving out to the next level of customers they need to be undertaking similar activity. Clearly less important customers warrant a lower level of investment but once you've categorised your customer base all those you want to retain should benefit from increased sales and marketing activity. The priority is clearly best customers first, the least important customers, last. Customer importance should be related to the opportunity of income growth as well as the amount of business you currently get.

Internally business owners should be reviewing all their business and management processes. My experience is that for most businesses their internal processes are at best passable, but very often for SME's they're hand crafted and reliant upon the knowledge of the current personnel to make them happen making them clunky and often counter intuitive and hence very inefficient. If we treat the recession as a get fit regime, then we need to be removing the inefficiency from all our internal processes to get to the cost of production down and increase gross profits. So review all internal processes from sales and marketing to credit control and it will be possible to quickly discover where the business is inefficient and free those improvements across the board to extract additional profit for the firm. This is not an easy process as people are resistant to change. It requires conviction and dedication to implement these new processes but the results can be staggering.

Let's turn now to offensive actions. Most of these activities relate to business development. The business needs to organise, systematise and implement regular sales and marketing campaigns in its chosen areas. Initially it will meet increased competition as all savvy business in their market will be doing the same. In addition struggling firms will be attempting to stay afloat by "buying" business. This classically leads to a situation when revenues come under pressure and marketing costs rise. Successful businesses resist the temptation to slash sales & marketing budgets as that creates a vicious circle of decline. However, as the recession bites, those firms who can't manage the fitness regime will fall by the wayside reducing competition and opening up more new business opportunities for those left.

For those businesses with a strong constitution, there is also the opportunity to grow by acquisition. There are bound to be a significant number of businesses that would be only too pleased to run into the arms of a competitor rather than face extinction. As an alternative build up a relationship with some local insolvency practitioners who may provide opportunities for cheap acquisitions post failure.

http://www.exigent-uk.com/
Exigent consulting has been providing specialist advice to small and medium businesses since 2002. Its founder Laurence Ainsworth has successfully managed businesses through the recessions of the early 90's and 2001-2.