SURVIVING THE CREDIT CRUNCH

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1 SURVIVING THE CREDIT CRUNCH TOP TIPS: Don t bury your head in the sand plan now for survival that s the purpose of this paper from me this morning It never ceases to amaze me how people can do just that live in a complete state of denial - but take it from me 25 years of experience tells me one thing more than any other bury your head in the sand deny the true position of the economic climate and of your business and its you and your business that s dead and buried and it will be quicker than you could possibly imagine!! [Some people are still in denial about the impacts of the credit crunch/recession reality says that we must all face the facts that no one in business will be excluded from the economic downturn credit crunch recession]. OK we must stay positive but heed what you need to do Good financial planning is crucial any successful business knows this but at an economic time such as this this has never been more critical to business survival. Do not be afraid to make sound business decisions waiting to take these on board can be fatal more on this later In a CREDIT CRUNCH - Cash is King taking full control of your cash flow is the single most important thing business people can do. That does not mean you need k in the bank let s take you through what it does mean Get your financial information completely up to date get professional help for this if necessary if you need it - and get a validated accurate cash flow position for short and longer term. In conditions where we are dealing more and more in a climate of tougher lending rules the first thing to do is carefully plan your cash flow forecast for the coming year. The second is to make sure that your profits and cash flow forecasts reflect the new business conditions of 2008 and Cash flow will be a key element and therefore be prepared for your forecasts to come under very close scrutiny, you must also be prepared to do whatever is necessary to make them come true. If your cash flow reflects a downsizing in staffing levels next month you must act on this not delay the decision for three months ( because you don t like doing it no one does but if this is essential to your business survival then so is the fact that it

2 must be done now! and don t forget to factor in costs associated with this - redundancy payments etc. it has been noted that staff loosing their jobs currently are much more likely to go to tribunal just because times are bad does not mean that you do not have to abide by employment law and follow through with your responsibilities! Also it is important to remember that a cash flow forecast based on soaring sales or increased margins is most likely to be viewed with a jaundiced eye in the present climate. The last thing you need is for your bank manager to be irate because he feels he has been duped when the cash flow - in a few months time - is not following the path you originally painted!! One option for those selling goods and services is to look to invoice discounting or factoring on the plus side this can provide a dramatic improvement to your cash flow and reduce the reliance on an overdraft facility on the down side beware this can prove to be a very expensive option to take and does not exclude the need for excellent credit control on your invoicing in the case of invoice discounting particularly. The banks are currently listing their priorities in respect of small business clients I have talked to many recently - some have shut up shop on lending others are still looking for sound people to lend to that s their business after all whilst a few are looking to make sure their existing customers within reason have sufficient funds to see things through!! The good news is that no one is alone in this. The importance of your bank and your relationship with them - has never been more important! - Do you communicate well with your business manager you will need to now - Start questioning early your credit facilities with the UK banks - Maintain a meaningful dialogue with your bank and your accountant as necessary - Review your bank charges - Can you find a better deal with another bank set monthly fees for charges etc What percentage above base rate are you being charged for overdraft and loan facilities? - When it comes to rolling over banking facilities watch out for the hidden charges does this make the offer as competitive as you were led to believe? I.e. lower interest payments large arrangement facilities these can be 000s which over the life of the facility can equate to several percentage points..?

3 If you want to borrow money do it now don t delay Whatever you do don t wait for a time when you loose that large customer and so are forced into a corner desperation does not equate to successful borrowing applications thought out ones in advance does - if you have sounds plans borrow now and secure the best deal you can. Overdrafts beware these can be withdrawn or reduced whenever the bank wishes not at your behest or when you need the money most The bad news is that the onset of the credit crunch means that banks are no longer going to be as accommodating with requests for increased overdrafts and loan facilities as they have been over the past 7 seven years in some cases they will look to reduce their exposure Remember banks first and foremost look to the debt to equity ratio that means shareholder funds to debts however the small to medium sized company will not have huge shareholder funds in majority of cases therefore this is where banks have demanded personal guarantees from Directors fine but these are mostly supported by the equity held in property and yes this is falling currently by some 10% in some cases, per annum hence the problems we see however good sound propositions still meet with approval with the best of the banking bunch be prepared!! Your customers are they paying you on time? Are your customers using you to meet their increasing cash flow needs and pushing your payment terms out longer? If they can get away with it they will simple good credit control procedures will alleviate this put a proper system in place Do not be too busy to address your debtor book and getting the money in you are owed taking professional help here can pay large dividends - let your customers be aware that you are professional in your approach to collecting your money and not a Pushover It s amazing but there are still businesses out there that take far too long to even raise and send out their customer invoices 30 days or more after delivering a service they are bogged down in raising the invoices thus adding 30 days to the payment cycle this can be disastrous! Make sure that invoicing your customers is a priority simplify systems if this is proving to be too completed to achieve quickly simply sharpen up your invoicing practices. Consider carefully current and future customers and their ability to pay do not simply rely on credit ratings these can change quickly - bad debts remember go straight to the bottom line and your cash.

4 On the other hand can you get your customers to sign longer term contracts? well worth a look before they start to try to drive your fees/prices down in the current climate ALWAYS safeguard your profitability we are all in business to make money no business survives Credit Crunch or business life in general - even in good times - if it sells its goods and services at a loss anyone can do that they will survive for a few months a year maybe at the most Nor should you sacrifice your values in times such as this!! Stay true to them. Beware be careful what information you divulge to others friendly people from your industry - sharing your woes - may just be sizing up your demise and not really be interested in any form of alliance with you! Review your overheads: An obvious one - Premises costs can you reduce your rents? Can you move to cheaper premises down size cut some outlets - get people working more from home? Lots of office space becomes available when recession hits think about renegotiating Other overheads Its time to take some time out to review all overheads. Many costs are rising but do you have the best contract available with the best supplier? Suppliers should be chased for the best possible deal and replaced if better margins / prices can be achieved. When was the last time you reviewed the Direct Debits you and maybe your colleagues - signed up to. They go through your business account it s so easy at the time to sign they are not vast amounts - this is money lost by stealth in my opinion my goodness do they mount up - so painlessly being deducted from your all important cash balance weekly monthly quarterly Have you noticed how such seemingly innocent sums amount to so much? The numerous insurance policies or even insurance policies on top of insurance policies how many people fall for the 50 a month additional insurance on the photocopier when this should be covered by a good business contents insurance anyway miss the

5 chance to stop this at the outset of the contract and blindly pay for the nest 36 or 5r0 months daylight robbery. And once you achieve liberation for the business take an hour and review your personal ones as well more money to save!! Do you really need the items that are automatically paid from your account? Take it from me hundreds of pounds can be saved this way it counts!! Don t pay unless you need the service and take control of when you pay your supplier by Bacs or cheque this can safeguard your credit balance on your overdraft facility.. For the year end be clear on the amount of stock and work in progress valuations get an accountants/auditors agreement on the approach to these in principal and indeed similarly for all fair value items in your balance sheet TAKE CONTROL When cash is king then the easiest way to control it is -???? NOT TO SPEND IT This is far easier said than done. Is there the possibility that you can share costs with partners/collaborators take time to review Finally and one of the most important things to always remember this actually costs nothing but can be priceless - KEEP SMILING this builds confidence in others faster than anything and could just make all the difference!!!!! And for a positive statement to finish on if you have put all these measures in place when the better times come as they will you will not only have survived the 2008/9 credit crunch but yours will be the strong business built on sound financial premise and strategy that will make the absolute best of the new opportunities that will be there to take then you will really smile all the way to the bank!!!!

6 In Summary let s review the key issues Don t wait act now Manage your cash flow and produce accurate cash flow forecasts Stay true to your values Be careful about information you divulge Get professional help Get your financials completely up to date Build a superb relationship with your bank If you need to borrow do it now Beware overdraft facilities they can be withdrawn Look at your customers ensure they are billed and pay on time Look to introduce long term contracts Safeguard your profitability Look to down size or share costs Review your overhead costs generally KEEP SMILING