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Today’s Quotes
Success is 99 percent Failure
Soichiro Honda, Founder, Honda Motor Company
Success is a matter of luck - just ask any failure
Mark Peterson
In business as in life, your chances of being run over are doubled if you
stay in the middle of the road.
It’s not whether you get knocked down. It’s whether you get back up.
Vince Lombardi
Avoiding Trouble and Planning for Harvest
The principal causes and danger signals of a business in trouble
Possible turnaround strategies and action plans
The need to plan for harvest options
How to craft harvest strategies
Key issues in selling the business
What do these have in common?
Pain (physical)
Pain (emotional)
Alcohol
Noise
Business Problems
Signs of Trouble
Decreasing working capital
Shrinking cash balances, Overdrafts
Increased aging of Receivables and Payables
Financing long-term assets with short-term money
Increasing financing costs
Slowing inventory turns
More Signs of Trouble
Declining margins
Declining sales
Declining profits
Disruptions in operations
Customer dissatisfaction with products or service
Low morale, high turnover
Management becomes reactive instead of proactive
More Signs of Trouble
Lack of timely and accurate information
Short-term planning is difficult
Long-term planning is impossible
Inability to pay debts as they mature
Deteriorating relationship with lenders and vendors
Stages of Trouble
Early
Falling cash balances, but only sporadic shortages
Isolated operating bottlenecks
Margins erode
Sales stagnate or decline. Inventory rises.
Payables stretch.
Management not concerned, believes that problems will correct soon.
Stages of Trouble
Intermediate
Operating problems become more acute as shortages disrupt business flow.
Receivables collections slow as customers become concerned.
Margins decline noticeably.
Cash balances become dangerously low. Meeting payroll is a challenge.
Lenders become concerned and begin taking management’s time.
Morale falls, good employees start leaving.
Stages of Trouble
Late
Everything is in chaos
Chronic material shortages and customer emergencies disrupt operations
constantly
A/R collections drop dramatically
Most purchases are COD or CIA
Cash balances are negative, company is playing the float
Financial management is spending all its time with lenders. Reporting becomes
ineffective
Customers and employees both jumping ship
Management becomes totally ineffective
Why companies fail
Money isn’t everything - you have to know what you are doing.
Poor management
mismatch between strategy and capital
not generating enough sales
Internal Causes of Failure
Ineffective management
Undercapitalization
Excessive leverage
Failure to penetrate key markets
Lack of product innovation
Large concentration of customers
Limited sources for strategic or scarce materials
Poorly planned incentives for employee retention
Lack of planning by budgeting
Lack of M.I.S.
Lack of timely internal reporting
Over-dependence on key individuals
Owners concentrate exclusively on technical issues
External causes of Failure
Government
Industry conditions
Economic conditions
Labor problems
Competition
Technology obsolescence
Natural disaster
Shifting consumer preferences
Limited source of key materials
Decreasing market for product or services
How to avoid trouble
Establish good monitoring systems
Quickly respond to whatever divergences are found
Listen to your employees, customers, and vendors
Do not become a bureaucracy
Realize that more capital is almost never the answer
Stay calm
Deal with problems, not symptoms
Be ready to be tough and realistic
8 ways to destroy your business
Market only in slow times
Fail to focus
Overlook testing and research
Rely on just one or two marketing tactics
Underspend on marketing
Fail to present a professional image
Ignore current customers
Overlook what technology can do for you
You cannot solve a problem by throwing money at it
Action Steps to Take
Take control of cash
Engage competent professionals
Develop short term business plan
Prepare liquidation analysis to determine best steps to take
Address other problems once cash is stabilized
Financing alternatives for the troubled co.
Asset sales
Secured financing
Employee stock ownership plans
Reorganization (change terms of debt)
Equity infusions
Bankruptcy - debt discharge
Walk away
Successful turn-around management traits
Strong focus and attention to cash flow
Willingness to admit mistakes
Open to radically new ideas
Has a clearly defined action plan with timetables and performance
measurements
Clearly defines responsibility and authority
Communicates timely and effectively
Designs effective M.I.S. and uses it for decision making
Creative and "can do" attitude
Understands and relies on risk analysis
Tips
Do not wait for suppliers to call you when a payment is delinquent. When you
have a problem, call them and avoid undue anxiety on both sides.
Do not think that you can keep the company’s troubles a secret from your
employees.
More tips
Honesty really is the best policy. Really.
There are some times when you cannot tell the truth - it is too troublesome.
In that case, say nothing. Do not lie.
More tips
Never, ever, ever play games with trust fund taxes.
Be aware of insider dealing laws in the bankruptcy code.
Do not get people angry at you. It is much easier to abandon a business if
creditors are not vindictive.
Traps in liquidating or harvesting a co.
Pension, benefit plans, etc.
Environmental issues
Trust fund taxes
Exit taxes
Federal plant closing (WARN) act
State and local governments
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Michael Goldman & Associates, L.L.C. - Consulting
& CPA Services 
