Transcript Key Tactics: Reinvigorating and Recharging Your Business

Key Tactics: Reinvigorating and
Recharging Your Business
Alan Wink – Amper, Politziner & Mattia
John Yoler- Sun National Bank
Rothman Institute Family Business Forum
September 23, 2009
What Does it Mean to Reinvigorate and Recharge Your Business
• Is the recession really over?
• Unease with small business right now. Business owners are
nervous, retrenched and “cautiously hopeful.”
• Reports have shown small business optimism to be at its lowest
level since the 1979 oil embargo.
• Small business is very often at the mercy of larger businesses and
larger economic forces.
• Today small businesses need to keep hustling for business and
wring out a little more savings by tightening the belt.
• These are indeed tough times for small business, but there are
options that we would like to discuss.
• Reinvigorating and recharging your business means searching for
strategies for success in lean times.
Setting the Stage – Is the Worst Behind Us?
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The current 2007 – 2009 recession while quite severe is no where near the severity of the
1929-1932 or 1937-1938 depressions.
We are experiencing a 3.8% decline in GDP, compared to over an 18.2% decline in 1937-1938.
We are also experiencing today unemployment in the 9.7% range , compared to 25%
unemployment in 1932 and 20% in 1937-1938.
The 2007-2009 economy is characterized by long-term unemployment, mounting real estate
foreclosures, healthcare costs rising out of control, and an aging worldwide population
driving government spending through the roof.
No one really knows if the recession is over , but there are reasons to be optimistic Recessions historically set the stage for future growth; Equipping more people with higher
education and better technology has increased humanity’s ability to solve difficult problems.
Tough economic times tend to stretch the boundaries of entrepreneurialism. Half of today’s
Fortune 500 companies were founded during a recession or bear market
Bloomberg example.
Optimistic approach can help you and your company seize the opportunities that lie ahead.
Cost of Capital
• Senior Debt
4% - 7%
• Mezzanine Debt
15% - 22%
• Equity
25% - ?
Balance Sheet Strength Becomes Critical in Lean Times
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Definition
Lenders’ Rules of Thumb
Collateral
History of Profitability
Management/Succession Planning
Examples (Weak/Strong)
Easy Money Can Hurt Your Business
“Once I was out of cash, I had to get back to doing
business the right way: Servicing clients well and
working hard.”
Fortune Small Business –
October 2009
Lenders’ Rules of Thumb
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Background of business
Business lines /products sold
Management/ownership
Customer base/concentrations
Competition
Suppliers
Plants/facilities
Significant events
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Banking Relationships
Credit requested
Balance sheet/leverage
Collateral
Trends
Cash flow/debt service
Strengths and weaknesses
Owners’ personal financial
strength/personal leverage
Some Interesting Current Statistics
• 55% of CEO’s surveyed in Q2 expect business conditions to
improve in the next six months. This is up from 17% in Q1.
• Optimism Index developed by YouGov and RT Strategies based
on US public opinion and daily economic and market forecast
statistics on jobs, the stock market and economic growth
predict the worst is behind us.
• Rail freight traffic is down, but the decline is easing.
• Median number of weeks unemployed decreased by almost
2.5 weeks since June.
Strategies for Success in Lean Times
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It is still about “Blocking and Tackling”
Grow the top line – PROFITABLY
Improve operational performance
Reduce operating costs
Involve and engage your people
Reduce leverage on your balance sheet
Opportunities for acquisitions of weaker firms
Simple Financial Statement
Sales
Less: Cost of Sales
Gross Profit
Less: Operating Expenses
Operating Income (EBITDA)
Less: Depreciation/Amortization
EBIT
Less: Interest
Income before Taxes
Taxes
Net Income
Government Stimulus $ Can Create
Opportunities for Companies
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$787 billion stimulus program trickling its way down to the middle market.
Stimulus dollars finding its way to NJ companies?
Small businesses still need to balance S/T project needs with L/T business
goals.
“Growth can be the great destructor of business.”
Firms sometimes rush to grow too quickly and build infrastructure and
business models on sales projections that never materialize.
Stimulus dollars are only temporary, so hiring decisions should be done
cautiously.
Stimulus is a short-term answer and businesses need to develop a long-term
strategy.
Consider investing profits from stimulus projects back into the business, to
develop new products and services that might create more stable demand.
Business Growth Matrix
Existing
customers
Existing
Products/
Services
New Products/
Services
New
customers
Revenue Growth Strategies
• Look for new clients
• Spend more on advertising, PR, business
development, buying leads, sales training
• Treat existing clients really well/Customer service
• Add line extensions
• Explore government contracts
Reducing Operating Costs
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Zero based budgeting/elimination of non-value added activities
Streamline , simplify and standardize
Accountability /tracking of performance
“What gets tracked gets done”
Performance incentive programs
Renegotiating costs with all vendors and landlords
Review all vendor agreements for cost reduction opportunities
Empower your managers with an across-the-board reduction in operating expenses
(ie. 20%)
If you must cut employee benefits, cut those benefits least valued by your
employees
Reduce officers compensation
Eliminate unprofitable business/product lines
Retaining Good Employees in Tough Times
Employee Retention Strategies
• Engaged employees positively impact customer satisfaction
and profitability.
• Empower employees to influence positive change
• Make staff feel involved and part of the decision-making
process
• Continue professional development activities
• Increase the focus on team performance
• Key: Understanding your employees motivation
Reducing Leverage on the Balance Sheet
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Grow assets/shrink liabilities
Infusion of equity capital/improvement in debt ratios
Reduce debt through superior operating performance
Reduce debt by lowering owner’s compensation
Inventory turns/A/R turns
Sell off parts of business – repay debt
Operating leases
M&A Opportunities
• Acquire competitors
• Acquire Gross Profit/Eliminate SG&A
• EBITDA multiples are down/Sellers struggle with
valuation
• Opportunity for acquisitions to be accreative
immediately
• Everything is for sale at a price
How Are Companies Represented Here Today Performing?
UP
DOWN
FORECAST
2010
REVENUE
HEADCOUNT
DEBT LEVELS
ADVERTISING / MARKETING
EXPENDITURES
CAPITAL EXPENDITURES
LOOKING FOR ACQUISITIONS
OUTSOURCING ACTIVITIES
Bullish or Bearish on the Economy?
What Steps Has This Group Taken to Reinvigorate and
Recharge Their Business?
REVENUE GROWTH
REDUCTION IN OPERATING COSTS
EMPLOYEE RETENTION
REDUCING LEVERAGE
ACQUISITIONS / DIVESTITURES
TAKING ADVANTAGE OF STIMULUS $
“The material contained in this presentation
is for general information and should not
be acted upon without prior professional
consultation.”